BA 211 Ch 3 smartbook

In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in June.

A classified balance sheet ______.

A balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections.

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

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.

_____ are recorded in the period that goods and services are provided to customers and _____ are recorded in the period that costs are incurred while providing those goods and services.

Revenues; expenses

Which of the following financial statements typically is prepared last?

Statement of cash flows

Under accrual-basis accounting, which of the following result in an expense being recorded in May? (Select all that apply.)

The company pays cash in June for salaries earned in May. The company pays cash in April for supplies used in May.

Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as --basis accounting. (Enter only one word.)

accrual

Adjusting entries: (Select all that apply.)

are needed before financial statement preparation. update the accounts to their proper balances.

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.)

debit a liability account credit a revenue account

Revenues and expenses are reported in the:

income statement

Deferred revenue is a(n) ______.

liability

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

temporary

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

when costs are recognized as expenses in the income statement

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in May.

Which of the following are characteristics of all balance sheet accounts?

Accounts are referred to as permanent Balances are carried forward from period to period

--basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company. (Enter only one word.)

Accrual

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as - expense.

Interest

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by - entries.

adjusting

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

A classified balance sheet shows subtotals for current - and current - . (Enter one word per blank)

assets, liabilities

Reporting revenues only when cash is received and expenses only when cash is paid is called the - basis of accounting. (Enter one word per blank.)

cash

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

closing entries

Depreciation is an -allocation of the - of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

cost

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

decrease; increase

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Under cash-basis accounting, (Select all that apply.)

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

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

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

recording of adjusting entries

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

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

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

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

are zero

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

- 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. (Enter only one word.)

Deferred

- is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

Depreciation

When should supplies be recorded as an expense?

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

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in April. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January

Permanent accounts are found in:

Only the balance sheet

Which of the following statements regarding the statement of cash flows are correct?

Reports cash disbursements The final financial statement that is typically prepared Reports cash receipts

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

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

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

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

accrual-basis accounting.

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

asset

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

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

credit to Revenue debit to Deferred Revenue

An adjusting entry for accrued expenses involves: (Select all that apply.)

credit to a liability debit to an expense

The post-closing trial balance checks that total - equal total - at the end of the period. (Enter only one word per blank.)

debits credits

The two major categories reported in the income statement are:

expense revenue

The adjusting entry for a deferred revenue includes a debit to a(n) -account and a credit to a(n) - account. (Enter only one word per blank.)

liability, revenue

The statement of stockholders' equity includes these amounts: (Select all that apply.)

net income ending balance retained earnings dividends for the period

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

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

the amount of the sales or services still owed to the customer.

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

paid

All balance sheet accounts are - accounts, meaning the balances are carried forward from one period to the next.

permanent

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

in the same period as related revenue.