Weygandt, Accounting Principles, 12e Chapter 3.7

3-7.  

Why may a trial balance not contain up-to-date and complete financial information?

 7.     A trial balance may not contain up-to-date information for financial statements because:

          (1)    Some events are not journalized daily because it is not efficient to do so.

          (2)    The expiration of some costs occurs with the passage of time rather than as a result of daily transactions.

          (3)    Some items may be unrecorded because the transaction data are not yet known.

Weygandt, Accounting Principles, 12e Chapter 3.6

3-6.  

“Adjusting entries are required by the historical cost principle of accounting.” Do you agree? Explain.

6.       No, adjusting entries are required by the revenue recognition and expense recognition principles.

Weygandt, Accounting Principles, 12e Chapter 3.5

3-5.  

In completing the engagement in Question 3-3, (see 3-3) Hardy pays no costs in March, $2,000 in April, and $2,500 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue? Why?

5.       Expenses of $4,500 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues).

3-3.  

Susan Hardy, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Hardy's law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?

Weygandt, Accounting Principles, 12e Chapter 3.4

3-4.  

Why do accrual-basis financial statements provide more useful information than cash-basis statements?

4.         Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results. To illustrate, under accrual accounting, revenues are recognized when the performance obligation is satisfied so they can be related to the economic environment in which they occur. Trends in revenues are thus more meaningful.

Weygandt, Accounting Principles, 12e Chapter 3.3

3-3.  

Susan Hardy, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Hardy's law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?

3.       The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which services are performed.

Weygandt, Accounting Principles, 12e Chapter 3.2

3-2.  

Define two generally accepted accounting principles that relate to adjusting the accounts.

2.       The two generally accepted accounting principles that relate to adjusting the accounts are:

          The revenue recognition principle, which states that revenue should be recognized in the accounting period in which services are performed.

          The expense recognition principle, which states that efforts (expenses) be matched with accomplishments (revenues).

Weygandt, Accounting Principles, 12e Chapter 3.1

3-1.  

(a)  

How does the time period assumption affect an accountant's analysis of business transactions?

(b)  

Explain the terms fiscal year, calendar year, and interim periods.

1.       (a)    Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods.

          (b)    An accounting time period of one year in length is referred to as a fiscal year. A fiscal year that extends from January 1 to December 31 is referred to as a calendar year. Accounting periods of less than one year are called interim periods.