FA Chapter 4

The accrual adjustment recorded to adjust for revenues not yet collected will cause

assets to increase

The balance in the Dividends account represents a reduction to R.E under Stockholders' Equity. Therefore, dividends account has a normal ______ balance

debit

As of December 31 (end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) _______ of $________ to Income tax expense

debit 3000; 12000*25%

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

debited

The Accounts Receivable account should be ________ when adjusting at the end of the period for any revenues from fulfilling obligations to buyers which has not yet been collected or recorded

debited

TO determine the adjusting entries required, a _______ is prepared

Unadjusted trial balance

A _________trial _________ is prepared immediately __________ the adjusting entries have been recorded and _________ the financial statement are prepared.

adjusted balance after before

Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided __________

but not yet collected

Place the steps in the adjustment process in order.

Analyze Record Summarize

Line items that are found on a statement of retained earnings

Net Income Dividends

Prepare a _________ - ________ trial balance is the last step in the accounting cycle

Post-Closing

After the adjustments have been completed, the adjusted balance in the Interest Expense account represents ________

Total interest that has been paid and/or accrued during the period

T or F: Dividends paid are not reported on the Income Statement because they are not classified expenses.

True

The adjusting entry to record wages incurred but not yet recorded includes a credit to _____________

Wages Payable

Interest Expense

accrued each period the notes payable is unpaid

The closing entry may include a

credit to Wages Expense

The closing entry to close Rent Expense required Rent Expense to be ________ and Retained Earnings to be ________

credited debited

A deferral adjusting entry that adjusts assets (such as prepaid insurance)

expenses the amount used during the period

Temporary accounts are found on ________

income statement

Closing entries move the balances from the _____ accounts into the retained earnings account

temporary

In the first year of business, Eel Electric purchased 1,000 of supplies on account. During the year, it paid 700 of the amount owed for supplies. At the end of the year, it had 200 of supplies remaining. What is the supplies expense on the income statement equal?

$800.

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

-Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a revenue -Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period

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 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 9000

The adjusting entry to record revenue for services the seller has performed but not yet collected requires _________.

A debit to Accounts Receivable and credit to Service Revenue

Deferral adjustments include

A debit to a liability account and a credit to a revenue account OR a debit to an expense account and a credit to an asset account

Accrual adjustments include

A debit to an expense account and credit to a liability account OR a debit to an asset account and a credit to a revenue account

______ adjustments are used when cash has not been exchanged in a prior transaction, and ________ adjustments are used when cash has been exchanged in a prior transaction

Accrual Deferral

Which of the following adjusting entries are recorded with a debit to an expense and a credit to liability?

Accruing for services received that have not yet been paid

Without ______ entries, financial statements would present an incomplete and misleading picture of the company's financial position

Adjusting

If an adjusting entry decreased an asset on the balance sheet, then one can conclude that

An expense was increased on the income statement

The entry to record the payment of wages incurred in the prior accounting period is recorded with _______

Credit cash debit salaries and wages payable

The adjusting entry to record depreciation on equipment includes a ______________

Credit to Accumulated Depreciation Debit to Depreciation Expense

The adjusting entry to record the amount of interest earned but not yet received on investments include a

Credit to Interest Revenue Debit to Interest Receivable

The entry to record income tax accrued, but unpaid, at the end of the accounting period includes both _____ and _______.

Debit to Income Tax Expense Credit to Income Tax Payable

Balance sheet accounts, such as Supplies or Prepaid rent _________ as a result of deferral adjustments.

Decrease

The adjusting entry to record the supplies used during the period will result in a(n)

Decrease to Supplies and an increase to supplies equipment

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

Dividends, Expenses, and Revenues

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest _______" and a credit to "Interest __________"

Expense Payable

T or F: The adjusting entry to record interest owed for the period will cause the balance in the note payable account to increase

False Accrued interest increases the Interest Payable account. The amount does not affect the Note Payable account. Only principal payments on the note will affect the balance in the Note Payable account.

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; A contra-account is a negative account. So it would reduce the long-lived asset on the balance sheet

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

Income tax incurred

Gift cards are an example of a transaction in which a company receives payment in advance for fulfilling a sale or performing a service. This type of transaction will result in: 1) an increase to the account called cash, an asset AND 2) a _________ to the account called ________ ___________, a ____________

Increase Deferred Revenue Liability

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

Interest Payable, Prepaid Rent, and Supplies

Adjustment 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

What account balances will typically be increased as a result of adjusting entries

Interest payable supplies expense

What accounts are found on a balance sheet

Prepared Rent/Interest Payable

Which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance

Retained Earnings

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period

Salaries and Wages expense will increase by the amount of the unpaid salaries and wages

In the 1st yr of business, Daily Grind Inc purchased $1000 of supplies of which it has only $300 left at the end of the period. What will be found in the year-end financial statements?

Supplies Expense on the Income Statement Supplies on the balance sheet of $300

How does the adjusting entry to record the supplies used during the period affect the financial statements??

Supplies Expense on the income statement will increase supplies on the balance sheet will decrease Net Income on the Income Statement will decrease

What transaction constitute an accrual adjustment involving an expense account?

Taxes incurred but not yet paid to the government as the end of the accounting period Wages Incurred but not yet paid to employees as the end of the accounting period

How does the adjustment for depreciation differ from the other deferral adjustments?

The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly

How do accrual adjustments affect liabilities and expenses?

The increase liabilities and increase expenses.

In deferral adjustment for revenues collected in advance for which the company has now satisfied the performance obligation, _______.

The liability recorded when cash is received is decreased by the adjustment for the amount of the obligation that has been fulfilled.

What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the account period that had previously been recorded as a liability

Total Liabilities will decrease and Stockholders' equity will increase

After the adjustments have been completed, the balance in the "Salaries and Wages Expense" account represents

Total Salaries and Wages, paid and unpaid, that have been incurred during the accounting period

Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects?

Total assets is decreased on the balance sheet The carrying value of the assets is decreased Total expenses on the income statement are increased

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ____________

Total depreciation taken on the long-lived assets since their purchase

T or F: Supplies is an asset account because it contains the value of supplies that have NOT been used, but still remain an economic resource for the company

True

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the ________ process.

closing

The adjusting entry for supplies used during the period required a _______ (debit or credit) to Supplies and a ______(debit or credit) to Supplies expense

credit; debit

The closing entry to close Rent Expense requires Rent Expense to be _______ and Retained Earnings to be _______.

credited debited

Salaries and wages payable is

debited when the wages that were previously recorded are paid

A prepayment is originally recorded as an asset. Later at the end of the accounting period, an adjustment is recorded causing in a _______ in the asset account and _________ in the expense account

decrease increase

Prepaid expenses, such as prepaid rent, should be _______ by the benefits that were used up during the accounting period

decreased

Adjusting entries are made at the _________ of the accounting period., while daily transactions are made throughout the accounting period

end

Adjustments made to expense accounts at the end of the accounting period adhere to the _____ recognition (matching) principle

expense

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a ________ in the period the benefit expires

expense

The _____ recognition principle required that a portion of long-lived assets be transferred to an expense account during the accounting period the asset is being used to generate revenue

expense

The _______ recognition principle requires an adjustment for income tax expense owed attributable to the net income earned during the current period

expense

Net income (or loss) is recorded n the retained earnings account when ______ and _______ accounts are closed and transferred into retained earnings.

expense revenue

Amortization is the concept that applies to the

expensing of long-term assets that lack physical substance over their useful lives

Adjustments ensure that liabilities are reported as all amounts _____at the end of the accounting period

owed

Salaries and Wages Payable is recorded for salaries and wages incurred, but not yet _________ to employees, at the end of the accounting period

paid

If a company records a debit to salaries and wages payable and a credit to cash, what has ocurred? The company is

paying for salaries and wages that had been accrued earlier

In accrual accounting, to defer means to ________ recording the other side of the transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid

postpone

The balance in retained earnings prior to the closing process equals

the balance at the end of the previous accounting period

Deferring a revnue or expense account in accounting means that the amount

will be reported as a revenue or an expense in a later period

The adjusted trial balance ________

will be used to determine the asset and liability balance on the balance sheet

a prepayment that is originally recorded as an asset will be

Allocated to future accounting periods based on the value of the benefit used during the period

What two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance?

Amortization Expense Accumulated Amortization

Supplies Expense Supplies Account Payable

Amount used and reported on the income statement Amount remaining and reported on the balance sheet Amount owed for supplies purchased on account

Which of the following types of transactions could be an accrual adjustment

An Increase to an asset account and an increase to a revenue account

When are adjusting entries recorded

At the end of the accounting period, prior to the preparation of financial statements

The deferral adjustment to record the amount of service revenue collected in advance for which the company has not satisfied the performance obligation includes a ______

Credit to Service Revenue Debit to Deferred Revenue

Identify the entries needed for the closing process

Debit each revenue, credit each expense, and record the difference in R.E

______ Is defined as the "cost of borrowing money." Since the account represents a cost incurred on borrowed money, it is classified as a(n) _______account under stockholders' equity

Expense

What are the reports made available to the public?

Notes to the financial statements Income Statement Statement of R.E Statement of Cash Flows Balance Sheet

After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents _________

Total income tax that has been paid and accrued during the period

T or F: Interest expense that has accrued on a note payable will be recorded in the Interest Payable Account. When the interest is paid in a future period, the interest payable account will reduce

True

T or F: The balance in the "Interest Expense" account and the balance in the "Interest Payable" account may be different after the adjustments are posted.

True