CSIS 110 - Chapter 2 /3 LearnSmart

Financial statements are prepared from a(n)

trial balance

True or false: At the end of the period, the assets will still equal the liabilities plus equity.

true

True or false: The revenue recognition principle states that revenue should be recorded in the period in which it is earned which may or may not be the period in which payment was actually received.

true

Demonstrate your knowledge of preparing an adjusted trial balance by selecting the correct statement below.

An adjusted trial balance is prepared after adjustments are posted, so new accounts may need to be added.

When does the closing process take place?

At the end of an accounting period

Illustrate your understanding of how to use the adjusted trial balance to prepare the balance sheet by completing the following sentence. In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the _________ (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the _________ (liabilities/revenues) and their __________ (debit/credit) balances.

Blank 1: assets Blank 2: liabilities Blank 3: credit

When entering a transaction into a general journal, the entry would be dated; then the accounts________ (debited/credited) would be listed first; then the accounts ____________ (debited/credited) would be listed next; and finally, a(n) ___________ would be included to show the details of the transaction.

Blank 1: debited Blank 2: credited Blank 3: explanation, description, or brief explanation

Demonstrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to _________ (depreciation expense/accumulated depreciation/building) and _________ (debit/credit) to _________ (depreciation expense/accumulated depreciation/building).

Blank 1: depreciation expense Blank 2: credit Blank 3: accumulated depreciation

A posting reference in a _______ (journal/ledger) includes the page number of the account debited or credited in the _______ (journal/ledger) and serves as a link to cross-reference the transaction from one record to another.

Blank 1: ledger Blank 2: journal

A trial balance is a(n) (list/balance/chart) Blank 1 of 2 of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of Blank 2 of 2 account balances. Use one word for each blank.

Blank 1: list Blank 2: credit

A post-closing trial balance is a list of _______ (permanent/temporary) accounts and their balances from the ________ (journal/ledger)_______ (after/before) all _______ (adjusting/closing) entries have been journalized and posted.

Blank 1: permanent Blank 2: ledger Blank 3: after Blank 4: closing

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the ____ (Retained earnings / Cash) account balance as well as any debit balance in the _______ (Dividends / Supplies) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

Blank 1: retained earnings Blank 2: dividends

What is the book value of an asset?

Book value is the original cost of an asset minus its accumulated depreciation.

Which of the statements below is true regarding the statement of retained earnings?

Both the beginning and ending retained earnings balances are reported on the statement.

Which of the following lists of assets would be classified as plant assets?

Buildings, Machines

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

What are current liabilities? (Check all that apply.)

Current liabilities are obligations due to be paid within one year. Current liabilities are reported in the order of those to be settled first. Current liabilities are usually settled by paying out current assets such as cash.

J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below.

Debit Cash; credit Common stock

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. (Check all that apply.) Credit Service Fees $15,000 Consulting Revenue $12,000 Debit Supplies Expense $900 Rent Expense $600 Dividends $80

Debit to Consulting Revenue for $12,000. Debit Service Fees for $15,000. A credit to Income Summary for $27,000.

A company using a calendar year-end will record an adjusting entry for a bill received on January 15 for services received during the month of December on:

December 31 Reason: A company using a calendar year-end will record an adjusting entry for a bill received on January 15 for services received during the month of December on December 31, so that their income statement and balance sheet amounts will be correct.

Describe where dollar signs are appropriate in financial statements.

Dollar signs are used beside the first and last numbers in a column.

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

Equipment Land currently being used Machinery Building

Molly Mocha employs one college student every summer in her coffee shop. The student works the five weekdays and is paid on the following Monday. (For example, a student who works Monday through Friday, June 1 through June 5, is paid for that work on Monday, June 8.) The coffee shop adjusts its books monthly, if needed, to show salaries earned but unpaid at month-end. The student works the last week of July, which is Monday, July 28, through Friday, August 1. If the student earns $270 per day, what adjusting entry must the coffee shop make on July 31 to correctly record accrued salaries expense for July?

GENERAL JOURNAL July31 debit Salaries Expense.....$1,080 credit Salaries Payable.....$1,080 Explanation: 31 days in the month of July, but only Monday through Friday earn salaries. July 1 is on a Sunday, and July 31 is on a Thursday, so only 24 days earn salaries. However, only 4 days of the last week earn salaries for the month of July. So.... $270 per day times 4 days = $1,080

Which of the following statements correctly explains how to prepare a trial balance? (Check all that apply.)

If an account has a zero balance, it may be omitted entirely. Compute the total of debit balances and the total of credit balances. Verify that the total debit balances equals the total credit balances. List each account title and its amount from the ledger.

Recall the order in which financial statements are prepared.

Income statement, statement of retained earnings, balance sheet, statement of cash flows

What defines a fiscal year for a business?

It is any period which consists of 12 consecutive months.

$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s). (Check all that apply.)

It would reduce assets, so total assets would be lower. It would increase expenses, so net income would be reduced.

Which of the following defines long-term liabilities?

Long-term liabilities are debts of a business that are not due to be settled within one year.

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Mortgage payable Bonds payable (due in five years)

Which of the following would be included on an income statement? (Check all that apply.)

Net income Total expenses Total revenues

Which of the lists below contains only permanent accounts?

Retained Earnings; Accounts Payable; Accumulated Depreciation

Which of the following would be included on a statement of retained earnings? (Check all that apply.)

Retained earnings at end of period Net income (loss) Retained earnings at beginning of period Dividends

Which of the following financial statements report(s) the financial position of a business over a period of time? (Check all that apply.)

Statement of cash flows Income statement Statement of retained earnings

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. Accumulated depreciation is a contra account. Accumulated depreciation is subtracted from its plant asset on the balance sheet.

What is the purpose of the Accumulated Depreciation account?

The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is used to prepare financial statements. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted.

Choose the statement(s) below which is (are) true regarding adjusting journal entries. (Check all that apply.)

A balance sheet account is always affected. An income statement account is always affected. Cash is never affected.

Explain what a contra account is by choosing the statement(s) below that correctly describe(s) a contra account. (Check all that apply.)

A contra account has an opposite normal balance than its linked account. A contra account is linked with another account. A contra account would be subtracted from another account. Accumulated Depreciation is an example of a contra account.

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include: (Check all that apply.) Debit Service Fees 20,000 Income Summary 22,900 Credit Income Summary 20,000 (Close revenue accounts.) Rent Expense 22,900 (Close expense accounts.)

A credit to Income Summary for $2,900. A debit to the Retained Earnings account for $2,900.

What is the effect of an accrued expense (such as salaries expense) adjustment on the income statement and the balance sheet? (Check all that apply.)

A liability (such as salaries payable) will be increased. Net income is reduced. Expenses are increased.

Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet by choosing the correct statements below. (Check all that apply.)

A liability (unearned revenue) will be reduced. A revenue account is increased. Net income is increased. Total liabilities are reduced.

In defining a reporting period, which of the following statements is (are) correct? (Check all that apply.)

A reporting period can be one month, one quarter or one year. A reporting period is determined by the business. A one-year reporting period is known as the fiscal year.

In defining a reporting period, which of the following statements is (are) correct? (Check all that apply.)

A reporting period is determined by the business. A one-year reporting period is known as the fiscal year. A reporting period can be one month, one quarter or one year.

Which of the following statements explains what a trial balance is?

A trial balance confirms that the sum of debit account balances equals the sum of credit account balances.

Which of the following statements is (are) true regarding the balance sheet? (Check all that apply.)

The report date includes a single calendar day. It reports the financial position at a point in time. It depicts the equality of the accounting equation.

In preparing a post-closing trial balance, which of the following statements are correct? (Check all that apply.)

The retained earnings account on the post-closing trial balance will include the net income or net loss for the period. All permanent accounts with a balance in the general ledger will be included. The total of all debit balances will equal the total of all credit balances.

Recall that the Balance Sheet reports the equality of the accounting equation and would include which of the following amounts?

Total Liabilities Total Assets Retained earnings balance at end of period

Select the statements below that are correct in regards to entering transactions in a journal. (Check all that apply.)

Total dollar amount of debits must equal the total dollar amount of credits. Credited accounts should be indented. Leave one blank line between each completed journal entry.

An adjusted trial balance is:

a list of accounts and balances after adjusting entries have been recorded and posted

Not recording an adjusting entry for accrued revenue will result in:

accounts receivable being understated revenue being understated

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

Paul's Programming Services paid $100 dividends. Show how to use T-accounts to record this transaction by selecting the correct answer below.

debt dividends, credit cash

Which of the following adjustments would be required at the end of the period? (Check all that apply.)

deferred revenues deferred expenses Accrued revenues Accrued expenses

Define what the book value of an asset is by choosing the correct statement(s) below. (Check all that apply.)

it is sometimes referred to as the net amount of an asset. The formula is Cost less Accumulated depreciation. It is the original cost of an asset minus its accumulated depreciation.

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the ______ cycle

operating

An efficient way to search for an error causing the trial balance to not be in balance is to check the journalizing, posting, and trial balance preparation in _____ order

reverse

An income statement reports:

the revenues minus the expenses incurred by a business

If an adjusting entry for unearned revenue is not recorded, what is the effect on the financial statements?

the revenues on the income statement will be understated.

1- The presumption that a company's business activities can be divided into periods, such as three-moth quarters, is called the ________. 2- ________ records revenues when services are provided and records expenses when incurred. 3- Financial reports covering a one-year period are known as 4- _________ is the type of accounting that records revenue when cash is received, records expenses when cash is paid. 5- An ________ consist of any 12 consecutive months.

1- Time period assumption 2- Accrual basis accounting 3- Annual financial statements 4- Cash Basis Accounting 5- Fiscal year

A company had the following selected balances: Credit Service Revenue $4,000 Rental Revenue $2,000 Debit Wages Expense $500 Utilities Expense $100 Dividends $80 The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000.

Which of the following refers to the preparation of an adjusted trial balance? (Check all that apply.)

An adjusted trial balance is prepared after adjustments have been posted. The debit and credit column totals must balance. New accounts may need to be added because of the adjusting process. Accounts are generally listed in the same order as listed in the chart of accounts. An adjusted trial balance has one debit column and one credit column.

Describe the effect of an accrued revenue adjustment on the income statement and the balance sheet by choosing from the statements below. (Check all that apply.)

An asset will be increased. Total assets will be increased. Net income is increased. A revenue account will be increased.

What is needed in order to figure interest expense? (Check all that apply.)

Annual interest rate Fraction of year since last payment Principal amount owed

A business paid $40 in dividends. Show how to record the transaction to the T-accounts by completing the following sentence. Dividends would be Blank 1Blank 1 debited , Correct Unavailable(debited/credited) on the Blank 2Blank 2 left , Correct Unavailable(left/right) side of the T-account. and Cash would be Blank 3Blank 3 credited , Correct Unavailable(debited/credited) on the Blank 4Blank 4 right , Correct Unavailable (left/right) side of the T-account.

Blank 1: debited Blank 2: left Blank 3: credited Blank 4: right

L. Lyons started a business and invested $4,000 in exchange for common stock. Illustrate how to record the transaction in the T-accounts by completing the following sentence. The Cash account would be ________ (debited/credited) on the ________ (left/right) side of the T-account and the Common stock account would be _______ (debited/credited) on the _________ (left/right) side of the T-account.

Blank 1: debited Blank 2: left Blank 3: credited Blank 4: right

The ledger of Mai Company includes the following accounts with normal balances as of December 31: Common Stock $9,100; Dividends $850; Services Revenue $14,000; Wages Expense $8,900; and Rent Expense $1,800.

Dr. Service Revenue 14,000 Cr. Income Summary 14,000 Dr. Income Summary 10,700 Cr. Wages Expense 8,900 Cr. Rent Expense 1,800 Dr. Income Summary 3,300 Cr. Retained Earnings 3,300 Dr. Retained Earnings 850 Cr. Dividends 850

Which of the following statements are correct regarding how the financial statements are linked? (Check all that apply.)

Net Income from the income statement is carried to the statement of retained earnings. The ending balance in the retained earnings account is carried to the balance sheet.

Explain what a contra account is by choosing the statement(s) below that correctly describe(s) a contra account. (Check all that apply.)

Net income is increased. A revenue account is increased. Total liabilities are reduced. A liability (unearned revenue) will be reduced.

Identify the accounts below that would be classified as a long-term investment. (Check all that apply.)

Notes receivable due in 2 years Investments in bonds Land held for future expansion

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. (Check all that apply.)

Permanent accounts Asset accounts Liability accounts

Which of the following statements accurately explains how to use a worksheet to enter adjustments? (Check all that apply.)

The adjustments column totals must balance before moving on to the Adjusted Trial Balance columns. Each adjustment is identified by a letter in parentheses that serves as a cross-reference to the debit and credit side of the adjustment. Adjustments are entered in a middle column titled Adjustments. As new accounts are added, they are added to the bottom of the worksheet below the other accounts.

True or false: The revenue recognition principle states that revenue should be recorded in the period in which it is earned which may or may not be the period in which payment was actually received.

True

Which of the accounts below would be classified as long-term or fixed assets? (Check all that apply.)

Vehicles Equipment Building Land

Which of the following statements correctly explains how to prepare a trial balance? (Check all that apply.)

Verify that the total debit balances equals the total credit balances. List each account title and its amount from the ledger. If an account has a zero balance, it may be omitted entirely. Compute the total of debit balances and the total of credit balances.