Chapter 3 Accounting
A primary purpose of adjusting entries is to record events that
have occurred but that have not yet been recorded.
Closing entries serve two purposes
1. Transfer the balances to temporary accounts (revenues, expenses and dividends) 2. To reduce the balances of these temporary accounts to zero and prepare them for measuring activity next period.
At the beginning of the accounting period, the balances of temporary accounts
Are zero
Reporting revenues only when cash is received and expenses only when cash is paid is called ?
Cash Basis
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
Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting
End
When should supplies be recorded as an expense?
In the period the supplies are used, regardless of when they were purchased
How do temporary accounts differ from permanent accounts?
Only temporary accounts are cleared out at the end of the accounting period.
Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:
Paid
Cash Basis Accounting
Reporting revenues only when cash is received and expenses only when cash is paid is called
Which of the following statements regarding the statement of cash flows are correct?
Reports cash receipts Reports cash disbursements The final financial statement that is typically prepared
Which of the following financial statements typically is prepared last?
Statement of cash flows
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
Adjusting Entries
To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by
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
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
closing entries
The post-closing trial balance checks that total____ equal total ________ at the end of the period.
debits credits
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
decreased, increased
The statement of stockholders' equity includes these amounts: (Select all that apply.)
ending balance retained earnings dividends for the period net income
Accrual Basis Accounting
helps measure and report revenues and expenses in a way that clearly represents the net income of the company.
Revenues and expenses are reported in the:
income statement
The information reported in the statement of cash flows is organized by these activities:
investing operating financing
Prepaid Insurance
is an asset on the balance sheet
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
At year-end, companies that utilize accrual-based accounting systems complete the measurement process through
recording of adjusting entries
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
A classified balance sheet shows subtotals for current and current . (Enter one word per blank)
assets, liabilities
The two major categories reported in the income statement are:
expense, revenue
A classified balance sheet ______.
groups asset and liabilities into current and long-term categories
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