Accounting Test 2

Closing Entries

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

The statement of cash flows:

+ Reports cash receipts + reports cash disbursements + the LAST financial statement to be prepared

The post-closing trial balance helps to verify that: (Select all that apply.)

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

Under cash-basis accounting...

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

Trial Balance Order

Assets Liabilities Stockholder's Equity Dividends Revenue Expenses NOTE: on adjusted, the accumulative depreciation goes under the account it's depreciating and is listed as the last asset on the balance

When are adjusting entries made?

At the END of the accounting period

Prepaid rent appears in the

Balance sheet bc it is an asset

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

Debit to Deferred Revenue (bc the account goes DOWN) Credit to Revenue (because the account goes UP) DEA || LOR

Post closing trial balance checks that total --- equals total --- at the end of the period

Debits; credits

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) Blank______ in the asset account and a(n) Blank______ in the expense account.

Decrease; increase

Supplies should be Blank______ and Supplies Expense should be Blank______ for the cost of supplies used up during the period.

Decreased; increased

What Adjustments are made when an equipment looses value over time?

Deprecation Expense (debit) Accumulative Depreciation (credit)

The process of allocating the cost of an asset to expense over the useful life of the asset is called

Depreciation

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses:

In the SAME period as the related revenue

When should supplies be recorded as an expense?

In the period the supplies were used, regardless of when they were purchased

Consistent with accrual-basis accounting, expenses should be recognized

In the period when the related revenue is generated

The adjusting entry for a deferred revenue includes a debit to a(n) ---- account and a credit to a(n) ----

Liability; revenue

How do temporary accounts differ from permanent accounts?

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

The information reported in the statement of cash flows is organized by these activities:

Operating, financing, and investing

Revenue Recognition Principle

Record revenue in the period in which we provide goods and services to customers

What is on the statement of stockholder's equity?

Retained earnings, dividends, and net income

The Income Statement consists of...

Revenues - Expenses = Net Income

When are daily transactions recorded

THROUGHOUT the accounting period

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

The amount of sales/services still owed to the customer

What is the difference between cash based and accrual accounting?

The difference between accrual based accounting and cash based accounting is the TIMING of the recorded revenues and expenses

Why should you adjust entries?

To ensure that all journal entries are recorded in the period in which they're incurred. (to include entries that have occurred but not yet been recorded)

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

Used during the accounting period

Deferred Revenue

When money is received BEFORE the good/service is provided (LIABILITY.. bc what if you don't do it and they get mad :( risky )

Statement of Cash Flows

a financial statement that shows how changes in balance sheet accounts and income affect cash

Revenue in the income statement for the year ended December 31, 2021 equals the:

amount earned by selling goods or services to customers during 2021.

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

are zero

A classified balance sheet

groups assets and liabilities into current and long-term categories

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

paid

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

Income statement accounts are ---- while balance sheet accounts are ---

temporary; permanent

Revenue

the amount earned from selling goods or services to customers

Pre-Paid expenses (adjusting)

when a company pays to purchase an asset before it is used. Prepaid goes DOWN when adjusting over time. (ex: prepaid rent for 12 months means that every month you have less prepaid than you started with bc you're using it up as rent is due)

There is a cause-and-effect relationship between revenues and expenses that dictates:

when costs are recognized as expenses in the income statement