Ch. 2 smartbook

Which accounts most likely use a subsidiary ledger?

accounts payable accounts receivable

_________ basis accounting measures income based on accomplishments and resource sacrifices during the period. (Enter only one word.)

accrual

Adjusting journal entries are necessary for three situations: deferrals, _____, and estimates. (Enter only one word.)

accruals

The contra account used to record depreciation is ________ depreciation.

accumulated

Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared? Multiple choice question. post-closing trial balance adjusted trial balance unadjusted trial balance

adjusted trial balance

Entries made at the end of the accounting period before the financial statements are prepared are called _______entries.

adjusting

Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition. Multiple choice question. the same as after before

after

Recognizing revenue before cash flow is an example of: Multiple choice question. -a prepayment adjusting entry -an estimate adjusting entry -an accrual adjusting entry

an accrual adjusting entry

______ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period. (Enter only one word.)

cash

The adjusting journal entry required when deferred revenue is recognized includes a _______ entry to revenue.

credited

Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes

debit to supplies expense 700 credit to supplies 700

Adjusting journal entries are necessary for three situations: deferrals, accruals, and ________

estimates

Deferred revenue should be classified as a(n) ________ on the balance sheet.

liability

A group of subsidiary accounts associated with a particular general ledger control account is called a: Multiple choice question. -subsidiary journal -subsidiary ledger -control ledger

subsidiary ledger

Accumulated depreciation is (Select all that apply.) Multiple select question. -a balance sheet account -a stockholder's equity account -an expense account -a contra asset account

-a balance sheet account -a contra asset account

Prepayments occur when: Multiple choice question. -cash flow precedes expense or revenue recognition -customers are unable to pay the full amount due when goods are delivered -manufactured goods await quality control inspections -sales are delayed pending credit approval

-cash flow precedes expense or revenue recognition

A reversing entry is used: (Select all that apply.)

to simplify journal entries recorded during the new period. at the beginning of a reporting period. most often with accruals.

Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is

13,000

The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n) Multiple choice question. Electronic Data Processing system. Enterprise Resource Planning (ERP) system. Accounting Data system.

Enterprise Resource Planning (ERP) system.

True or false: If a company makes end-of-year accruals, it must use reversing entries. True false question.

False

On July 1, Perry Company signed a note with principal of $80,000 and a stated interest rate of 4%. The principal and interest are due on April 1 of the following year. Perry will accrue interest on December 31st of 1,600

Reason: $80,000 x 4% x 6/12 - Interest is always stated as an annual rate regardless of loan term. The 4% interest is annual and must by multiplied by 6/12 to account for the six months July-December when recording the accrued interest on 12/31.

A(n) __________event is any event that directly affects the financial position of the company.

economic (an economic event is any event that directly affects the financial position of the company

Expenses and revenues that relate directly to the principal revenue-generating activities of the company are classified as ________ items on the income statement. (Enter only one word.)

operating

The components of the income statement are usually classified as: (Select all that apply.)

operating items non-operating items

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) __________ , whereas when rent is paid and used during one month, it is appropriately recorded as a(n) ________ .

prepayment expense

Prepaid expenses are costs of assets acquired in an accounting period: Multiple choice question. -after they will be expensed -before they will be expensed -at the same time they will be expensed

-before they will be expensed

Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was

50+75-40=85g

Which of the following is an example of an accrued receivable? Multiple choice question. -Recording interest revenue before it is received. -Selling goods to customers for cash. -Receiving cash from clients.

Recording interest revenue before it is received.

A company paying rent in advance for the month of April records: a liability an asset an expense revenue

an asset

Accrued liabilities are costs incurred in an accounting period: Multiple choice question. at the same time of a cash payment after a cash payment before a cash payment

before a cash payment

The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.

closing

Adjusting journal entries are needed to record (Select all that apply.) Multiple select question. -cash that has been collected from customers -expense incurred, but not yet paid -revenue earned, but not yet received -cash that has been paid for expenses

expense incurred, but not yet paid revenue earned, but not yet received

Prepaid expenses are: Multiple choice question. expenses incurred before cash is paid expenses paid at the time incurred expensed in a later period than cash was paid

expensed in a later period than cash was paid

Accrued liabilities are: Multiple choice question. -expensed in a later period than the cash was paid -expenses incurred before cash was paid -expenses paid at the time incurred

expenses incurred before cash was paid

Adjusting journal entries are needed to record (Select all that apply.) Multiple select question. -revenue earned, but not yet received -cash that has been collected from customers -cash that has been paid for expenses -expense incurred, but not yet paid

revenue earned, but not yet received expense incurred, but not yet paid

Adjusting entries help a company accurately measure (Select all that apply.) Multiple select question. -the cash received and paid during the year. -revenues and expenses for the period. -the company's financial performance.

revenues and expenses for the period. the company's financial performance.

Prepayments are: (Select all that apply.) Multiple select question. -transactions in which cash flow follows expense recognition. -transactions in which cash flow precedes revenue recognition. -transactions in which cash flow precedes expense recognition. -transactions in which cash flow follows revenue recognition

transactions in which cash flow precedes revenue recognition. transactions in which cash flow precedes expense recognition.

Adjusting entries are recorded: Multiple choice question. after closing entries have been prepared when the financial statements are prepared at the beginning of an accounting period after the financial statements have been prepared

when the financial statements are prepared

An informal tool used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements is a: Multiple choice question. trial balance worksheet balance sheet journal

work sheet

Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased. Multiple choice question. -credited, debited -debited, debited -debited, credited -credited, credited

-debited, credited

Deferred revenue is a(n): Multiple choice question. -liability on the balance sheet -expense on the income statement -revenue on the income statement -asset on the balance sheet

-liability on the balance sheet

How are items classified on the income statement? Multiple choice question. -assets and liabilities -operating and nonoperating -current and noncurrent -operating, investing, and financing

-operating and nonoperating

The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account? Multiple choice question. -cash -common stock -dividends -retained earnings

-retained earnings

The steps of the accounting cycle

1. Obtain information about transaction from source documents 2. Analyze the transaction 3.Record the transaction in a journal 4. Post from the journal to the general ledger accounts 5. Prepare an unadjusted trial balance 6. Record and post adjusting entries 7. prepare an adjusted trial balance 8.prepare the financial statements 9.close the temporary accounts to retained earnings 10. prepare a post-closing trial balance

On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is... 12%

Reason: $10,000 x 6/12 x I = $600; $5,000 x I = $600; I = 12% $10,000 x 12% x 6/12 = $600 - Interest is an annual rate regardless of the length of the loan so 12% for the year x 6/12.

An accrued receivable occurs when revenue is earned: Multiple choice question. at the same time as cash flow before cash flow after cash flow

before

The normal balance in a contra asset account is a _________

credit

the normal balance of the contra asset accumulated depreciation account is a(n) ___________

credit

To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.

credit, debit

One of the purposes of adjusting entries is to Multiple choice question. recognize all revenues earned during the period. record all external transactions at the end of the year. make assets equal liabilities plus owners' equity. ensure debits equal credits

recognize all revenues earned during the period.

True or false: The stated interest rate on debt instruments is always stated as an annual rate.

true