Accounting Exam Chap 3

What occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

Accruals

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

prepaid expense liability

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders' equity

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31.

The adjusting entry for an accrued revenue always includes:

a debit to an asset account a credit to a revenue account

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting.

Prepaid rent appears in the ______.

balance sheet because it is an asset

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) (BLANK) in the period the benefit expires.

expense

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

False Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:

Reason: On November 1, 2018, the entry is a debit to Prepaid Rent and a credit to Cash. At the end of the year, the adjusting entry is a debit to Rent Expense of $2,000 and credit to Prepaid Rent of $2,000 (=$24,000/24 months* 2 months). The ending balance in Prepaid Rent will equal $22,000 (=$24,000 paid in advance - $2,000 of rent used during November and December). The $22,000 Prepaid Rent balance represents the amount of rent paid in advance that has not yet been used.

A prepayment that is originally recorded as an asset will be ______.

allocated to future accounting periods based on the cost of the asset used during the period Reason: The account will be allocated to future accounting periods that receive the benefit, but it may not benefit the periods equally. For instance, supplies represents a type of prepayment where the use of the supplies will vary from month to month. So, only the amount used (the value of the benefit) will be allocated to the expense account.

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date Reason: The adjusting entry to record revenues earned but not yet collected includes a debit to Accounts Receivable (an increase to an asset) and a credit to Revenue (an increase to stockholders' equity).

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

are zero

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

Andy records an adjusting entry for deferred revenue. Andy should:

credit a revenue account debit a liability account

The statement of stockholders' equity includes these amounts:

ending balance retained earnings dividends for the period net income

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

Under cash-basis accounting

expenses are recorded when cash is paid. revenues are recorded when cash is received.

The post-closing trial balance helps to verify that:

the accounts are ready for next period's transactions we prepared and posted closing entries correctly

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

Reporting revenues only when cash is received and expenses only when cash is paid is called the (BLANK) basis of accounting

cash