Accounting 225- Chapter 3

Examples of prepayments that will require an adjustment at the end of the accounting period on December 31:

-a company pays a 6 month insurance premium at the beginning of Oct. -a company pays for 4 months of advertising on November 1

The adjusting entry for supplies requires a ____ credit to Supplies and a _____ to supplies expense

-credit -debit

An adjusting entry for accrued expenses involves a:

-credit to a liability -debit to an expense

Supplies should be ____ and Supplies Expense should be ___ for supplies used up during the period.

-decreased -increased

What does the statement of stockholders' equity show?

-ending balance retained earnings -dividends for the period -net income

In the closing process, ______ are zeroed out by crediting each account and _____ are zeroed out by debiting each account.

-expenses and dividends -revenues

The steps of the adjustment process at the end of the accounting period in the correct order:

1. using the unadjusted trial balance, determine the accounts requiring adjustment 2. record the adjusting entries in the journal 3. post the adjusting journal entries to the t-accounts 4. prepare an adjusted trial balance to check the equality of the debits and credits

How do accrual adjustments affect liabilities and expenses?

Accrual adjustments can increase liabilities and increase expenses.

_______ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

Deferred

What kind of account is interest?

Expense because it represents all the cost incurred during the period

How long are long-term assets expected to provide benefits for?

More than a year

When are long-term liabilities due?

Not due within the next year

What does a classified balance sheet show?

The subtotals for current assets and current liabilities.

True or false: Each adjusting entry is posted to the general ledger.

True

Current liabilities

Will be due within the next year

Which is permitted under current US GAAP?

accrual-basis accounting

How does the timing of adjusting entries differ from the accounting for daily transactions?

adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient

Depreciation

an allocation of the cost of buildings, vehicles, and equipment to expense over times as they are used

Liquidity

an asset that can be quickly turned into cash

Deferred revenue

arises when a business receives cash in one period but does not provide all of the related goods or services until a later period

At the time of purchase supplies should be recorded as an:

asset

Current assets

assets that provide benefits within the next year

Prepaid rent appears in the:

balance sheet because its an asset

The closing entry for the expense accounts involves the following journal entry

debit=retained earnings credit=expenses

Prepaid expenses should be ______ by the benefits that were used up during the accounting period.

decreased

Closing entries

entries that transfer the balances of all temporary accounts to retained earnings

Adjustments help to ensure that all _____ are recorded in the period in which they are incurred.

expenses

Deferred revenue is a:

liability

Transactions that do not involve revenues or expenses and transactions that result in revenues and expenses being recorded at the same time as cash flows:

never require adjusting entries

Adjustments for accrued expenses ensure that liabilities are reported as all amounts ____ at the end of the accounting period.

owed

Interest

the cost of borrowing money

Total assets

the sum of current and long-term assets on a classified balance sheet

Total liabilities

the sum of current and long-term liabilities on a classified balance sheet

At the beginning of the accounting period, the balances of temporary accounts are:

zero