Financial Accounting Ch.3

Complete the following statement. The purpose of the closing process is to reset _____________ account balances to zero and to transfer the changes in all of these accounts to the Retained _______ account

Blank 1: temporary Blank 2: earnings

Explain what unearned revenues are by choosing the correct statement below

Unearned revenues refer to cash received in advance of providing a service or product.

The revenue recognition principle states that revenue

should be recorded when goods or services are provided to customers at an amount expected to be received

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

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. The retained earnings account on the post-closing trial balance will include the net income or net loss for the period.

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

1. Prepare unadjusted trial balance 2. Journalize and post adjusting entries 3. Prepare adjusted trial balance 4. Prepare financial statements

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 statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Temporary accounts are reported on the income statement. Retained Earnings is a permanent account, but Dividends is a temporary account. Permanent accounts will appear on a post-closing trial balance. Permanent accounts are reported on the balance sheet. Temporary accounts have a balance for one period only.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Businesses report financial information at regular intervals to ensure timeliness of data. Useful information must reach decision makers frequently. The value of information is often linked to its timeliness

Define "current" as it applies to assets and liabilities on a classified balance sheet

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

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.

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

The length of a company's operating cycle depends on its activities. Most operating cycles are less than one year. The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current.

Closing means to transfer account balances from _________ accounts so that they will start with a ____________ balance at the beginning of the next period.

Blank 1: temporary Blank 2: zero

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

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

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

-The income statement is the first financial statement prepared after preparing the adjusted trial balance. -The adjusted trial balance includes all accounts and balances appearing in financial statements. -Financial statements are prepared more easily using the adjusted trial balance than with the general ledger. -The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings

Accrual basis accounting is: (Check all that apply.)

-an accounting system which is consistent with generally accepted accounting principles. -an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. -an accounting system that best reflects business performance and increases the comparability of financial statements from period to period

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

-the closing process resets the balances in temporary accounts to zero. -the closing process helps to summarize a period's revenues and expenses.

Place the steps in the adjusting process in the correct order in which they would be performed.

1. determine current balance 2. determine what correct balance should be 3. record an adjusting entry

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance

The expense recognition (matching) principle aims to record__________ in the same accounting period as the _________ that are earned as a result of those costs. This principle is a major part of the _______ process

Blank 1: expenses Blank 2: revenues Blank 3: adjusting

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

Debit Prepaid insurance $800.

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

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

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.

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

Matching of expenses with revenues is a major part of the adjusting process. Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses

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 statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Permanent accounts will appear on a post-closing trial balance. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts have a balance for one period only. Temporary accounts are reported on the income statement. Permanent accounts are reported on the balance sheet.

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

Prepaid rent Cash Office supplies Accounts receivable

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

Taxes payable Unearned rent Accounts payable Notes payable (due in three months)

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.

Describe the final step in the adjusting process

The final step is to create an adjusting journal entry to get from step 1 to step 2

Operating Cycle

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

Explain what unearned revenues are by choosing the correct statement below

Unearned revenues refer to cash received in advance of providing a service or product

When does the closing process take place?

at the end of an accounting period

profit margin

net income/net sales

What defines a long-term investment? (Check all that apply.)

Long-term investments are sometimes referred to as noncurrent investments. Notes receivable and stock and bond investments are assets that are expected to be held for more than one year.

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. -The total of all debit balances will equal the total of all credit balances. -All permanent accounts with a balance in the general ledger will be included

Accrual basis accounting recognizes________ when earned and records___________ When_________ in order to adhere to the matching principle

Blank 1: revenues Blank 2: expenses Blank 3: incurred

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle is a series of steps repeated each reporting period. The accounting cycle contains 9 (10 with optional reverse) steps. The accounting cycle refers to steps followed by a company to prepare its financial statements. The cycle contains steps for adjusting and closing accounts.

Explain the difference between the unadjusted and the adjusted trial balance

The adjusted trial balance is prepared after adjusting entries have been recorded and posted

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are also called deferred revenues. They are reported on a balance sheet. They are a liability. They refer to cash received in advance of performing a service or product

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

six-month one-month one-year