tricky journal entries for interview
Another example of a deferred expense is the $12,000 insurance premium paid by a company on December 27 for insurance protection for the upcoming January 1 through June 30. What Are Accrued Revenues And When Are They Recorded? 36 Common SEO Interview Questions And Answers. In our example, there will need to be an adjusting entry dated December 31 that debits Interest Receivable (a balance sheet account) for $500, and credits Interest Income (an income statement account) for $500. To determine if your school is a partner, please enter your school email address below. If the bonds mature in 25 years, the corporation will charge $20,000 of the bond issue costs ($500,000 divided by 25 years) to expense each year. Journal entries help us sort all this into meaningful information. 3,000 cash for an insurance policy covering the next 24 months. On the balance sheet dated as of the last day of the 36th month, accumulated depreciation will be reported as $36,000. Hence, there is a risk that the full amount of their accounts receivable might not be collected. (This would also be the time when the other party has earned the commissions and the right to receive them.). Question 9. However, the utility doesn't bill the electric customers for the December electricity until the meters are read in January. Rather than charging the $500,000 to expense in the year that the bonds are issued, the corporation will "defer" the $500,000 to a balance sheet account such as Bond Issue Costs. Clue 14 places the blue house next to the Norwegian, and the green and white houses as 4 and 5 (not 3 and 4 because clue 5 has the green house owner drinking coffee): Clue 1 says that the Brit lives in a red house, which rules out all but 3. This will show your interviewer that you’re both honest and self-motivated. The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts, or Allowance for Uncollectible Accounts. Under the double declining balance method, double means twice or 200% of the straight line depreciation rate. When the allowance method is used, the journal entry to Bad Debts Expense will include a credit to Allowance for Doubtful Accounts, a contra account and valuation account to the asset Accounts Receivable. If there is uncertainty of a potential (or existing) customer's credit worthiness, it is wise for the company to require the customer to pay with a credit card before delivering goods or services. This is done at the end of the posting journal entry to ensure that there are no posting errors. Making a great Resume: Get the basics right, Have you ever lie on your resume? Is writing not your strong suit? After the amount has been earned, the liability account is reduced and a revenue account is increased. Today, bookkeeping and accounting software has eliminated those clerical errors. 250+ Adjusting Entries Interview Questions and Answers, Question1: What is the accrual basis of accounting? Stocks, or shares of stock, represent an ownership interest in a corporation. Another one among the list of commonly asked finance and accounting interview questions is Deferred Revenue Expenditure. What Is The Proper Accounting For Supplies? Its current period's earnings may also be overstated. 15 tricky job interview questions — and how to nail them Congratulations! This means you can estimate that there are 400 (100 x 4) United Airlines planes taking off each hour in the U.S. Is that the exact, right answer? Some people are just born with a plan. Accrued expenses and accrued revenues are also reflected in the income statement and in the statement of cash flows prepared under the indirect method. As the amount of prepaid insurance expires, the expired cost is moved from the asset account Prepaid Insurance to the income statement account Insurance Expense. Often the comparison of the balance sheet amounts to those of earlier months will provide insight as to unusual amounts shown on the income statement. (Accounts with zero balances will likely be omitted.) In accounting the monthly close is the processing of transactions, journal entries and financial statements at the end of each month. Does your answer show critical thinking? While at first the questions might seem random, they try to hook into important concepts of JavaScript. To illustrate the units of production method, let's assume that a production machine has a cost of $500,000 and its useful life is expected to end after producing 240,000 units of a component part. a customer paid a company in advance of receiving goods or services. Here is an example. I would use the liability account Accounts Payable for suppliers' invoices that have been received and must be paid. In our example, each year there will be an adjusting entry with a debit to Depreciation Expense for $20,000 and a credit to Accumulated Depreciation for $20,000. Follow 4 Replies. The asset is expected to have a useful life of 5 years and then be sold for $10,000. The term bad debts usually refers to accounts receivable (or trade accounts receivable) that will not be collected. (In any one year, the depreciation expense for taxes will likely be different from the amount reported on the financial statements. How do you feel about shift rotation? This article reflects the APA 7th edition guidelines.Click here for APA 6th edition guidelines.. If the dollar amount of supplies is significant, the amount of unused supplies as of the balance sheet date should be reported in the asset account Supplies or Supplies on Hand. Question 54. The unexpired portion of the cost will continue to be reported as the asset Prepaid Insurance. I would use the liability account Accrued Expenses Payable for the accrual type adjusting entries made at the end of the accounting period for items such as utilities, interest, wages, and so on. Wages Expense is an income statement account. A contingent asset is a potential asset associated with a contingent gain. Accrued expenses reported as current liabilities are the expenses that a company has incurred as of the balance sheet date, but have not yet been recorded or paid. The recording of wages that have been earned but not yet paid or processed through the routine payroll entries is referred to as accruing wages. That is, the corporation's cash balance is not changed by the annual depreciation entry. 5. Over the remaining six years there can be only $40,960 of additional depreciation. If it is probable that Company A will win the lawsuit and receive an estimated amount of money, it has a contingent asset and a contingent gain. The agreement is for the $100,000 to be repaid on February 28 along with $3,000 of interest for the three months of December through February. The net amount of all of the balances from the revenue and expense accounts at the end of the year will end up in retained earnings (for corporations) or owner's equity (for sole proprietorships). IF PAYMENT IS MADE TWICE TO SUNDRY CREDITORS MISTAKENLY. Some only require you to provide basic information, while others require long answers and can be very hard to navigate. How might you grow with this company? What Is The Difference Between Accounts Payable And Accrued Expenses Payable? Since these are not yet in the accountant's general ledger, they will not appear on the financial statements unless an adjusting entry is entered prior to preparing the financial statements. In other words, bad debts expense is related to a company's current asset accounts receivable. In other words, not only was it necessary to match the cost of purchases with sales, it was also necessary to match the additional $8,000 of cost that was removed from inventory. Q51. This results in an expense on the income statement (sooner than would occur under the direct write-off method) and a reduction of the current assets on the balance sheet. A company informs a customer that a $5,000 deposit is required before it will begin work on the customer's special order. Income statement accounts are described as temporary accounts because at the end of each accounting year the balances in the income statement accounts will be closed. 3. If a company uses the accrual method of accounting, it is logical to record the interest expense and the interest liability at the end of each accounting period (instead of recording the interest expense when the payment is made). It will be helpful to remember that every adjusting entry will require at least one income statement account and at lease one balance sheet account. Where Should I Enter Unpaid Wages? It was published in Turkish in Amargi Feminist Journal. In our example, if Prepaid Insurance is overstated (too much being reported) it is likely that Insurance Expense will be understated (too little is being reported). Question 31. It might be something like: “How many ATMs are there in the U.S.?” Or: “How many square feet of pizza are eaten across the U.S. each day?” No matter what exactly is asked, by design there are no right, exact answers to questions like these. Assume Sauk Stereo pays the balance due of 3'500 (gross invoice price of 3'800 less purchase returns and allowances of 300) on May 14, the last day of the discount period (2/10, n/30). This is the asset's cost of $100,000 minus its accumulated depreciation of $59,040. We hope the following three examples will illustrate the difference between a cost and an expense. These are programming questions but unless you have a deep understanding of Java, it will be hard to guess the output and explain it. In addition, there will likely be a need for journal entry to accrue interest on a bank loan. That estimate is reported as a credit balance in a related receivable account such as Allowance for Doubtful Accounts. What Is The Accounting Cycle? Question 12. This unexpired cost is reported in the current asset account Prepaid Insurance. In the tenth year, the depreciation will be 1/55 of the asset's depreciable cost. Income statement accounts are used to sort and store transactions involving revenues, expenses, gains, and losses. When Should Costs Be Expensed And When Should Costs Be Capitalized? Typically, employers are looking for people who want to build careers with their companies. Accrued income is an amount that has been 1) earned, 2) there is a right to receive the amount, and 3) it has not yet been recorded in the general ledger accounts. Java Tricky Interview Questions. Need more help? What Are Reversing Entries And Why Are They Used? Any adjustments to the Allowance balance will also be recorded in the income statement account Uncollectible Accounts Expense. Accounts receivables are also known as trade receivables. Perhaps you can specify the time you spent at previous positions in rounded years not in months and years. For example, the August salaries of a company's marketing team should be charged to expense in August since the future economic value of their August salaries cannot be determined. Ans: A compound journal entry is just like other accounting entry where there is more than one debit, more than one credit, or more than one of both debits and credits. Question 49. The interest expense for the month of December will be approximately $500 ($100,000 x 1% x 1/2 month). (The Allowance for Doubtful Accounts is a contra asset account that when combined with Accounts Receivable indicates a more realistic amount that will be turning to cash.). The company may have deferred the expense by recording the amount in the asset account Prepaid Insurance. The depreciation will be calculated similarly each year until the asset's Accumulated Depreciation reaches $480,000. When the merchandise is sold, the cost of the merchandise sold is removed from Inventory and is reported on the income statement as the expense entitled Cost of Goods Sold. The journal entry will be a debit of $20,000 to Depreciation Expense and a credit to Accumulated Depreciation of $20,000. The total of each of these two columns should be identical. The goal of the aging method is to have the company's balance sheet report the true amount of the receivables that will be turning to cash. What Is The Accrual Basis Of Accounting? Without the balance sheet account, Allowance for Uncollectible Accounts, all of the accounts receivable are assumed to be collectible and there is no bad debt expense reported on the income statement until an account receivable is written off. The amount reported in Bad Debts Expense is the loss that occurred from extending credit during the period of time indicated in the heading of the income statement. Beginning in January it will be expensed at the rate of $2,000 per month. Description: Some of the important adjustments in accounts. In the case of a sole proprietorship it is the owner's capital account. On December 28 the company will debit Cash for $5,000 and will credit a liability account, such as Customer Deposits (or Unearned Revenues or Deferred Revenues) for $5,000. 2 Like. In APA Style, published interviews are cited in a different format from interviews you conducted yourself. (When an account is written off under the "allowance" method, the entry will be a debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.). Stocks pay dividends to the owners, but only if the corporation declares a dividend. Good accounting requires that an estimate be made for the amount that is unlikely to be collected. A company has only one depreciable asset that was acquired three years ago at a cost of $120,000. Enter the Date of transaction. From June 1 until the company receives the money, the company will have an account receivable (and the customer will have an account payable). For example, the insurance company has a cash receipt in December for a six-month insurance premium. For example, we record the receipt of cash from a debtor and allowance of discount to him through a single journal entry. On December 27 the $12,000 is deferred to the balance sheet account Prepaid Insurance. An accrual occurs before a payment or receipt. The combination of the amortization of the loan cost plus the interest expense will mean a total monthly interest expense of $32,000 for 60 months beginning on March 1. The second year will be 9/55 of the asset's depreciable cost. Typically, employers ask this question to get a better idea of your “bigger picture.” It helps them understand more about your professional passions and aspirations beyond just your experience. Rather, Bad Debts Expense will be debited when an account receivable is actually written off. This makes the journal less bulky and avoids duplication. Accrued revenues are reported in the current assets section of the balance sheet. The future expense (the portion that has not yet expired; the unexpired part) must be credited to the expense account and debited to the prepaid asset account. Until the goods or services are delivered, the amount is reported as a liability. Prepaid expenses are future expenses that have been paid in advance. For example, if the company's Accounts Receivable has a debit balance of $89,400 but the company estimates (based on its aging) that only $82,000 will be collected, the Allowance account must report a credit balance of $7,400. Questions about past mistakes are some of the toughest and trickiest interview questions to answer. What Is The Difference Between Stocks And Bonds? Under the accrual basis of accounting, unpaid wages that have been earned by employees should be entered as 1) Wages Expense and 2) Wages Payable or Accrued Wages Payable. CAN ANYONE HELP ME GIVING THE CORRECT ENTRIES OF FOLLOWING TRANSACTION. This means that the asset's depreciable amount will be $150,000 to be expensed over its useful life of 5 years. Explain Compound Journal Entry. During the accounting period some of those premiums expired (were used up) and need to appear as expense in the current accounting period and the asset balance reduced. Upload Your Resume. (When the retailer pays the amount billed by the utility for the previous month's usage, the retailer will still have a liability for the utilities used since last month.). The interest expense for the month of January will be $1,000 ($100,000 x 1%). : Bought furniture worth 4,000 of which, those worth 1,000 are for office use and the balance for stock. Enter the email address associated with your account, and we will email you instructions for re-setting your password. Finally Entry in the Book. The amount of the annual depreciation reported on the U.S. income tax return is based on the tax regulations. Dear Readers, Welcome to Accountancy Interview questions with answers and explanation. However, it will not report the asset and gain until the lawsuit is settled. Why should we hire you? The amount of the annual depreciation that is reported on the financial statements is an estimate based on the asset's 1) cost, 2) estimated salvage value, and 3) useful life. Accrued vacation pay is the amount of vacation pay which has been earned by the employee but has not yet been paid to the employee. (Prepaid Insurance is a current asset and is reported on the balance sheet after inventory.). A deferral occurs after a payment or receipt. What Are The Effects Of Depreciation? 1. 32,500 of photography equipment in the business. After this adjusting entry is recorded, the balance in Insurance Expense will be December's true expense of $1,000 (original debit of $6,000 minus the adjusting entry credit of $5,000) and the balance in Prepaid Insurance will be the debit of $5,000. The software will also prepare, record, and post the closing entries. And don’t stop there. (One closing entry removes the amount of beginning inventory and one closing entry records the cost of the ending inventory. ) The balance in the account Prepaid Insurance will be reduced by the amount that was debited to Insurance Expense. Since there is no cash payment in any of those years, each year's $20,000 of depreciation expense is referred to as a noncash expense. In this formula, n = the useful life in years. Question3: What are accrued expenses and when are they recorded? The depreciation of assets such as equipment, buildings, furnishing, trucks, etc. Example 2. (Accounting software will likely have a feature for generating an aging of accounts receivable.) Question 22. Let's use the formula to check our calculation above. Reversing entries are used in order to avoid the double counting of revenues or expenses and to allow for the efficient processing of documents. Under the cash basis, my December income statement will show no revenues. This is usually done at the end of each accounting period through an adjusting entry. Sometimes an adjusting entry is needed because: A common characteristic of an adjusting entry is that it will involve one income statement account and one balance sheet account. In the first year of the asset having a 10 year useful life, the depreciation will be 10/55 of the asset's depreciable cost. ), It should be noted that depreciation is viewed as a noncash expense. Dr Vendor a/c : 9500. The balance in the Accrued Expenses Payable should be the total of the expenses that were incurred as of the date of the balance sheet, but were not entered into the accounts because an invoice has not been received or the payroll for the hourly wages has not yet been processed, etc. Question 50. To put what we have just learned into practice, we will look at a simple example and post the journal entries for accruals. Question5: What is a journal entry? (The income statement should report the amount of insurance that has expired during the period indicated in the income statement's heading.) On November 30 the company will report this asset at $12,000 since the $12,000 has a future economic value. It will also report Insurance Expense for the month of December as $2,000—the cost that has expired during December. Because of double-entry accounting, the amount owed for the utilities that were used is also reported on the balance sheet as a liability. Since insurance premiums are usually paid prior to the period covered by the payment, it is common to debit Prepaid Insurance and to credit Cash for the amount paid. In the asset's 36th month of service, the monthly income statement will report depreciation expense of $1,000. It would be misleading to report the entire $120,000 of loan costs as an expense of one month. Since depreciation is a deductible expense for income tax purposes, the corporation's taxable income (and associated tax payments) will be reduced by its tax depreciation expense. However, the trial balance continues to be useful for auditors and accountants who wish to show 1) the general ledger account balances prior to their proposed adjustments, 2) their proposed adjustments, and 3) all of the account balances after the proposed adjustments. Are Utility Bills An Expense Or A Liability? In other words, the trial balance is an internal document. On January 31 the company will make an adjusting entry to debit Bad Debts Expense for $1,000 and to credit Allowance for Doubtful Accounts for $1,000. What Is The Effect On The Income Statement When The Allowance For Uncollectible Accounts Is Not Established? The closing of the income statement accounts at the end of an accounting year means that the income statement accounts will begin the subsequent year with zero balances. Balance sheet accounts are used to sort and store transactions involving assets, liabilities, and owner's or stockholders' equity. Commission expense would be reported as a selling expense along with other operating expenses when they are related to the company's main activities. The units of production method of depreciation is based on an asset's usage, activity, or parts produced instead of the passage of time. Here's an example. Since the insurance company requires payment in advance, the amount paid is often recorded in the current asset account Prepaid Insurance. Question 43. Under the accrual basis of accounting, the utilities that I used in December will be estimated and will be reported as an expense and a liability on the December financial statements. Explain what is compound journal entry? All interview questions are not created equally. As a result, the balance in Accounts Payable is likely to be a precise amount that agrees with supporting documents such as invoices, agreements, etc. Where Does Revenue Received In Advance Go On A Balance Sheet? Below are the list of frequently asked Adjusting Entries job interview questions and answers which can make you feel comfortable to face the interviews: Question 1. As of December 31 the company will not have an invoice or payment for the interest that the company is incurring. Are you looking for interview preparation ways? Accounts and Finance for Managers Tutorial, Accounts and Finance for Managers Interview Questions, Accounts and Finance for Managers Practice Tests, Business administration Interview questions, Cheque Truncation System Interview Questions, Principles Of Service Marketing Management, Business Management For Financial Advisers, Challenge of Resume Preparation for Freshers, Have a Short and Attention Grabbing Resume. INTERVIEW QUESTION ABOUT JOURNAL ENTRIES. Under accrual accounting, the cost of the utilities that were used are included in the products' cost—whether or not the utilities have been paid. This is also referred to as deferred revenues or customer deposits. This cost covers the six month period of December 1 through May 31. The $40 entry is referred to as an adjusting entry and the same entry will be recorded in May, June, July, and September. One objective of the adjusting entry is to match the proper amount of insurance expense to the period indicated on the income statement. And even if they understand that people switch jobs often these days, they don’t want to hear about your aspirations to leave before you even join. It is common to see two methods for computing the amount of bad debts expense: The direct write-off method requires that a customer's uncollectible account be first identified and then removed from the account Accounts Receivable. When wages are paid for construction of business premises the following journal entry is passed-. For example, a retailer who is responsible for her store's heat and light will incur an expense for the amount of utilities used during the accounting period. The closing entries set the balances of all of the revenue accounts and the expense accounts to zero. If the Allowance for Doubtful Accounts presently has a credit balance of $2,000 and you believe there is a total of $2,900 of accounts receivable that will not be collected, you need to enter an additional credit of $900 into the Allowance for Doubtful Accounts, and you need to enter a debit of $900 into Bad Debts Expense. The allowance method anticipates the losses and therefore requires the use of estimates. “Where do you see yourself in five years?”. The agreement requires that the $200,000 be repaid on February 28 along with $6,000 of interest for the three months of December through February. Depreciation should be thought of as an allocation of the asset's cost to expense (and not as a valuation technique). The number of income statement accounts used at a large company could be in the thousands. Thanks to the reversing entry, the retailer did not have to stop and consider whether the invoice amount pertains to December or January. In the case of a corporation, the equity account is Retained Earnings. The amount unearned (and therefore deferred) as of the date of the financial statements should be reported as a liability. Question 40. A prepaid expense might be recorded initially as 1) an expense, or 2) as an asset. The invoice amounts that are 1-30 days past due are entered into the second column. As of November 30 none of the $2,400 has expired and the entire $2,400 will be reported as Prepaid Insurance. Another important step in the monthly close is to compare the amounts and percentages on the current financial statements to those of earlier months. Expressed another way, the monthly close must achieve a proper cutoff of each month's financial activities. This is the asset's cost of $100,000 minus its accumulated depreciation of $20,000. journal voucher is the voucher in which all the adjustment related entries and non cash non bank transactions are entered in journal eg-dep, some of them book the bills in journal and while they make a payment they record in payment eg-contractor bill contra appears two times in two sides of a account an account will be treated as contra when To illustrate reversing entries, let's assume that a retailer uses a temporary help service from December 15 - 31. The fourth year will be $20,000 (2/15 of $150,000) and the fifth year will be $10,000 (1/15 of $150,000). A general rule is that the older a receivable gets, the less likely it will be collected in full. If a prepaid expense is recorded initially as an expense, then at the end of an accounting period, only the true expense amount for the period should remain in the expense account. Why Is There A Difference In The Amounts For Bad Debts Expense And Allowance For Doubtful Accounts? Q52. Adjusting entries are made at the end of the accounting period (but prior to preparing the financial statements) in order for a company's accounting records and financial statements to be up-to-date on the accrual basis of accounting. Every corporation has common stock. The accounting entry is a debit to the asset Cash for the amount received and a credit to the liability account such as Customer Advances or Unearned Revenues. Which skills or roles offered by this position are you particularly interested in? They often don’t have a clear vision for where they’ll be in five years. Under the units of production method, the machine's depreciable cost of $480,000 ($500,000 minus $20,000) is divided by 240,000 units, resulting in depreciation of $2 per unit. The income statement for April will report that $40 was earned. How Can Freshers Keep Their Job Search Going? The account Insurance Expense will report the debit of $1,000. On December 31, the company will have earned one month's interest amounting to $500 ($100,000 x 6% per year x 1/12 of a year, or 1/6 of the semiannual $3,000). Accounts receivable are reported as a current asset on a company's balance sheet. Cash discount on Purchases : 500. For example, a manufacturer will have an account receivable when it delivers a truckload of goods to a customer on June 1 and the customer is allowed to pay in 30 days. The Allowance for Doubtful Accounts is a contra asset account or valuation account associated with the balance in Accounts Receivable. If the employee has worked 20 weeks since the employee's anniversary date with the company and the last vacation payment, then the company should report a current liability of $1,200 (20 weeks x $60 per week.). Journal entry: Dr: Expense: $100: Cr : Bank : $100: Let’s take a look at what this means. In a separate step the amounts in the journal were posted to accounts. Question 46. ), When the account Allowance for Uncollectible Accounts is reported on the balance sheet, the company anticipates that some of its accounts receivable will not be collected. Question 21. Because of double-entry accounting or bookkeeping, another general ledger account will also have a reporting error. An aging of accounts receivable is a tool that will help and it is readily available with most accounting software.