Acct Ch 4

At the end of the accounting period, adjusting entries are required. In what order are the steps of the adjusting process?

1. Use the unadjusted trial balance to determine the accounts requiring adjusting / 2. Record and post adjusting entries / 3. Prepare an adjusted trial balance to check the equality of debits and credits / 4. Prepare Financial Statements / 5. Record closing journal entries and post to the accounts / 6. Prepare a post closing trial balance

The adjusting entry to record services earned but not yet billed requires:

A debit to Accounts Receivable and a credit to Service Revenue

__________ is defined as "cost of borrowing money" since the account represents a cost incurred from borrowing money. It is classified as a _________ account under stockholders Equity.

Interest; expense

Amortization is the expensing of:

Long term assets that lack physical substance

The carrying value of Supplies represents the cost of Supplies:

On hand at the end of the accounting period

Permanent accounts are found of the:

Only found on the balance sheet.

The adjusting entry for Income Tax records Income tax that is incurred and ____________ by the company.

Owed

Preparing a __________ trial balance is the last step in the accounting cycle

Post closing

Which of the following accounts are found on the balance sheet?

Prepaid Rent and Interest Payable

The deferral adjustment to record Unearned Revenue that is not earned includes a:

debit to Unearned Revenue and a credit to Service Revenue

The annual depreciation taken on a vehicle totals $3000. The vehicle has been in service for 3 whole years and the adjusting entries have been completed for the year. at the end of the 3rd year the financial statements will report depreciation expense of __________ and Accumulated Depreciation of ___________.

$3000 and $9000

Sterling Company paid $1200 for 3 months of rent on April 1 of the current year. On April 30 Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry included a debit to Rent Expense in the amount of __________ and a credit to Prepaid Rent in the amount of ____________. The remaining balance on Prepaid Rent account after the adjustments is____________.

$400; $400; $800

Write the order of the steps taken at the end of the accounting period to complete the financial statement preparation.

1. Prepare the adjusting entries 2. Prepare an adjusted trial balance 3. Prepare the financial statements

__________ adjustments are used when cash has not yet been received in a prior transaction. __________ adjustments are used when cash has been exchanged in a prior transaction.

Accrual; defferal

Why are Adjustments important in preparing financial statements?

Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all the obligations the company owes. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure that the revenues earned and expenses incurred during the period are reflected on the income statement.

Which two accounts are used to record the adjustment entry for amortization for long term assets that lack physical substance.

Amortization Expense and Accumulated Amortization

Contra account

An account that is an offset or reductions of another account

In recording an accrual adjustment to account for revenues earned but not yet collected:

An asset is increased since cash will be collected at a later date

Adjustments ensure that _____________ balances are recorded at amounts representing the economic benefits that remain at the end of the period and will be used up in future periods.

Asset

The accrual adjustment recorded for revenues earned but not yet collected will cause:

Assets to increase

The adjusted trial balance should be prepared ___________ the financial statements are prepared to prove the ___________ of the debits and credits.

Before; equality

Accrual adjustments are needed when a company has earned revenue or incurred expenses but ________ has not been exchanged.

Cash

Adjusting entries NEVER affect the asset account called:

Cash

Identify the entries needed for closing process

Credit dividends and debit retained earnings. Debit each Revenue debit each expense and record the difference in retained earnings

The adjusting entry to record depreciation on equipment includes a:

Debit to Depreciation Expense and a credit to Accumulated Depreciation

The adjusting entries to record the amount of interest earned on investments includes a:

Debit to Interest Receivable and a credit to interest revenue

During the closing process the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account to be _____________.

Debited

Why is the balance of the Depreciation Expense generally different from the balance of Accumulated Depreciation account?

Depreciation Expense only reflects the depreciation for the current period. Accumulated Depreciation contains depreciation since the asset was purchased.

What is the purpose of depreciation of long lived assets?

Depreciation allows the company to allocate the cost of an asset over years the asset benefits the company.

Which of the following statements are correct regarding Dividends?

Dividends are closed into retained earning by crediting Dividends. Dividends are closed into retained earnings by debuting Retained earnings. Dividends have a normal debit balance

Temporary accounts include: ____________, ____________, and ____________. These accounts only track current periods results.

Dividends; Revenues; and Expenses

Why is an adjustment necessary for interest accrued on a note Payable at the end of the period if the interest will not be paid until the not is due?

Even though the interest will not be paid until a future period the expense was incurred during the current accounting period. The adjustment is needed to accurately portray the interest liability of a company, all amounts owed should be recorded on the balance sheet.

The _____________ recognition principle requires an adjustment for salaries and wages expense incurred during the accounting period that will be paid in the future accounting period.

Expense

Accrual Adjustments include either a debit to a ___________ account and a credit to a liability account or a debit to a asset account and a credit to a __________ account. Deferral Adjustments include a debit to a liability account and a credit to a __________ account or a debit to a __________ account and a credit to a asset account.

Expense; Revenue; Revenue; Expense

T or F - Dividends are reports on the income statement

False

T or f - Accumulated Depreciation is a contra account to a long lived asset account such as equipment. This means that it increases the balance of the long lived asset on the balance sheet.

False

Which type of adjusting entry is recorded last because the amount is calculated after taking into account the effect on net income of all the other adjustments recorded at the end of the period?

Income tax incurred

Which of the following types of transactions represents accrual adjustments?

Increase to Interest Payable and Increase to Interest Expense; Increase to Income Tax Payable and Increase to Income Taxes Expense

As of DEC. 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On Dec 31 salaries and wages Payable will ____________ by $700 and Salaries and Wages ____________ will increase by $700

Increase; Expense

Why is it necessary to make adjustments to revenue accounts at the end of the period?

Payments received in advance and originally recorded as a liability should be reduced for any portion earned during the current period. Revenues earned at the end of the period, but not yet billed to Accounts Receivable should be recorded as a revenue.

In accrual accounting defer means to ___________ recording the other side of the cash transaction as a revenue or expense instead the other side of the cash is recorded as a liability or Prepaid.

Postpone

Which of the following accounts will reduce as a result of adjusting entries?

Prepaid rent and supplies and Unearned Revenue

The closing entry for dividends involves a debit to retained earnings and a credit to dividends. The debit to retained earning causes a _________ in the balance of the account.

Reduction

Taggart Company paid $1800 for a 6-month insurance premium on September 1. Which of the following statements are correct regarding the accounting for this insurance over the 6 month period?

Taggart will debit Prepaid Insurance $1800 on Sept. 1; Taggart will debit Insurance Expense $300 on Sept. 30; Taggart will credit Prepaid Insurance $300 on Sept. 30

Carrying Value

The amount at which an asset or liability is reported "carried" in the financial statement. It is also known as "net book value" or "book value"

How do accrual adjustments affect liabilities and expenses?

The increase liabilities and increase expenses.

Depreciation

The process of allocating the cost of a long-term asset to expense over its useful life

After the adjustments have been completed, the adjusted balance of the Interest Expense account represents:

Total interest incurred or paid during the period

What are the effects on the accounting equation from the adjustment from income tax accused but not paid at the end of the accounting period?

Total liabilities will increase and total stockholders Equity will decrease

T or F - After closing entries have been posted, the new balance in retained earnings account will equal the retained earning reported on the balance sheet.

True

The two categories of adjusting entries include ___________ Adjustments and ___________ Adjustments.

Deferral; Accrual

The Accounts Receivable account should be ___________ when adjusting at the end of the period for any revenues that have been earned but not yet collected or recorded.

Debited

As the balance of Accumulated Depreciation increases, total assets ____________ because Accumulated Depreciation is a __________ account.

Decrease; contra

_________ expenses accumulated or accrued throughout the accounting period on Notes Payable

Interest

As of Dec. 31, $2500 of interest expense has accrued on a $50,000 note Payable. The note Payable and the incurred interest will become due and Payable next year. How will the interest affect the adjustments at the end of the year?

Interest Expense should be increased because the cost in Interest related to the current period.

Which of the following accounts found on the unadjusted balance typically requires adjusting entries?

Interest Payable, Prepaid Rent, and Supplies

Which of the following account balances will typically increase as a result of adjusting entries?

Interest Payable; Supplies Expense