Grade 12 Accounting Quiz

MD&A stands for Management Discussion & Analysis. This refers to a section in a company's annual report where management provides analysis and insights into the company's financial performance, future prospects, and risks. It allows shareholders and investors to gain a better understanding of the company's operations and decision-making processes. The other options provided, Management Debits & Assets and Mandated Discussion & Analysis, do not accurately represent the commonly accepted meaning of MD&A in the business context.

Unearned revenue is considered a liability because it represents money that has been received by a company in advance for goods or services that have not yet been provided. It is a liability because the company has an obligation to deliver the goods or services in the future. Once the goods or services are provided, the unearned revenue is then recognized as revenue on the company's income statement.

An accrued expense refers to an expense that is owed but hasn't been billed or paid yet. This means that the company has received goods or services but has not yet been invoiced for them or made the payment. The expense is recognized in the financial statements even though the payment has not been made, as it represents an obligation that the company has incurred. This is different from an expense that has been paid in advance or an expense that has been billed and paid.

The purpose of the general ledger is to categorize transactions by account. This allows for easy organization and tracking of financial activities within a company. By categorizing transactions, the general ledger provides a clear overview of how money is being spent, received, and allocated. This information is essential for financial reporting and decision-making processes within the company.

The transaction of debiting prepaid rent and crediting cash represents a payment made in advance for rent. This is a typical transaction where a company pays for rent in advance and records it as a prepaid expense on the balance sheet. As time passes, the prepaid expense is gradually recognized as an expense on the income statement through adjusting entries. This transaction does not involve any adjustments or accruals, making it a straightforward transaction rather than an adjustment.

A clean/unqualified auditor's report is the best type of report a company can earn. This report indicates that the company's financial statements are free from material misstatements and are presented fairly in accordance with the applicable accounting standards. It signifies that the auditor has conducted a thorough examination of the company's financial records and found no significant issues or discrepancies. This report instills confidence in investors and stakeholders as it assures them that the company's financial statements are reliable and accurate.

The correct order of the accounting cycle is as follows: journal, ledger, trial balance, adjustments, financial statements, closing entries. The journal is used to record all transactions, which are then posted to the ledger. The trial balance is prepared to ensure that debits and credits are equal. Adjustments are made to update accounts for accruals, deferrals, and estimates. Financial statements are then prepared to provide a summary of the company's financial performance. Finally, closing entries are made to transfer temporary account balances to the retained earnings account and reset the temporary accounts for the next accounting period.

The annual report typically starts with a letter to shareholders, which provides a general overview of the company's performance and highlights key achievements. The next section is usually the Management's Discussion and Analysis (MD&A), which provides a more detailed analysis of the financial results and the company's operations. The auditor's report comes next, which is a statement from an independent auditor verifying the accuracy of the financial statements. The financial statements section follows, which includes the balance sheet, income statement, and cash flow statement. Finally, the notes to financial statements provide additional details and explanations related to the financial statements. Therefore, the correct order is letter to shareholders, MD&A, auditor's report, financial statements, notes to financial statements.

An accrued revenue is a revenue that has been earned but not yet received. In this case, the adjustment for an accrued revenue would involve recognizing the revenue by debiting the accounts receivable account, which represents the amount owed by customers, and crediting the fees earned account, which represents the revenue earned. This adjustment reflects the increase in the accounts receivable balance and the recognition of the revenue in the fees earned account.

ACCRUAL accounting records revenues when they are earned, meaning when the goods or services have been provided to the customer and the payment is expected. Expenses are recorded when they help earn revenue, which means when they are incurred in the process of generating revenue, regardless of when the payment is made. This method ensures that the financial statements reflect the true financial position of the company by matching revenues and expenses in the period they occur, rather than when the cash is received or paid.