ACC 221 Chapter 4 Review

The closing entry process consists of closing

all temporary accounts

If a resource has been consumed but a bill has not been received at the end of the accounting period, then:

an adjusting entry should be made recognizing the expense

Using accrual accounting, expense are recorded and reported only

when they are incurred whether or not cash is paid

An adjusting entry

affects a balance sheet account and an income statement account

Adjusting entries are made to ensure that

-expenses are recognized in the period in which they are incurred -revenues are recorded in the period in which the performance obligation is satisfied -balance sheet and income statement accounts have correct balances at the end of an accounting period

If a company fails to adjust an Unearned Rent Revenue account for rent that has been earned, what effect will this have on that month's financial statements?

Liabilities will be overstated and revenues will be understated

Unearned revenue is classified as a(n)

Liability

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause:

an understatement of expense and an understatement of liabilities

On July 1, the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:

debit Rent expense, $3000; credit Prepaid Rent, $3000

Green Realty Company received a check for $30,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements will be prepared on July 31. Green Realty should make the following adjusting entry on July 31:

debit unearned rent revenue, $5000; credit Rent Revenue, $5000

If a business received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:

debit unearned service revenue and credit service revenue

If a company fails to make an adjusting entry to record supplies expense, then:

expense will be understated

If a company fails to adjust for accrued expense, what effect will this have on that month's financial statements?

expenses will be understated and net income and stockholder's equity will be overstated

Accrued expenses are

incurred but not yet paid or recorded

A post-closing trial balance will show

only balance sheet accounts

Deferred expenses are

paid and recorded in an asset account before they are used or consumed

An adjusting trial balance

proves the equity of the total debit balances and total credit balances of ledger accounts after all adjustments have been made

Deferred revenues are

received and recorded as liabilities before they are recognized

Accrued revenues are

recognized but not yet received or recorded

A law firm received $2000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:

revenues to be understated