M02 Ch03 Financial Accounting

Which of the statements below describe(s) a temporary account? (Check all that apply.)

- A temporary account is closed at the end of an accounting period - A temporary account has a balance for only one period.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required entry would be to debit the __________ (Unearned revenue/Accounts receivable/Cash/Service revenue) account and __________ (debit/credit) the (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

- Accounts receivable - credit - Service revenue

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

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

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

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

At year-end, ABC Company is completing its closing process. Use the following account balances to demonstrate the closing of the Dividends account. (Check all that apply.) Consulting Fees Cr. $5000 Rental Revenue Cr. $2000 Wages Expense Dr. $700 Rent Expense Dr. $1900 Dividends Dr. $500

- Credit Dividends for $500 - Debit Retained Earnings $500

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

- Current assets - Plant assets - Noncurrent (long-term) liabilities - Long-term investments

Review the adjusted trial balance for Gumby Co. and determine the accounts that would be transferred directly to the statement of retained earnings, assuming the income statement was already prepared. Cash - Dr. $2,500 Accounts receivable - Dr. $3,000 Accounts payable - Cr. $600 Retained earnings 12/1- Cr. 2,900 Dividends - Dr. 100 Service revenue - Cr. 3000 Supplies expense - Dr. 300 Wages expense - 600 Totals - Dr. 6500 Cr. 6500

- Dividends - Retained earnings 12/1

Define an adjusting journal entry.

- Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account - An adjusting journal entry is made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

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

- Notes payable - Mortgages payable - Bonds payable - lease obligations

$1000 of cash was received in advance for performing services. By the end of the period, $300 had not yet been earned. (Unearned Rev. was increased at the time of the initial cash receipt). Demonstrate the required adjusting journal entry by selecting from the choices below.

- Service revenue would be credited for $700 - Unearned revenue would be debited for $700

$1000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

- Supplies expense would be debited for $300 - Supplies would be credited for $300

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

- Temporary accounts are reported on the income statement - 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 - Permanent accounts are reported on the balance sheet

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.

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

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

Review the adjusted trial balance below for XYZ Co. and determine the accounts that would be transferred to the income statement. (Check all that apply.) Cash Dr 500 Equipment Dr 4000 Accounts payable Cr 800 Retained earnings 1700 Rental revenue Cr 3000 Supplies expense Dr 300 Utilities expense Dr 700

- Utilities expense - Rental revenue - Supplies expense

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

- accounts payable - notes payable (due in 3 months) - wages payable - taxes payable - interest payable - unearned revenues

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.

- assets - liabilities - credit

The closing process takes place at the __________ (end/beginning) of an accounting period, after the __________ (adjusted/unadjusted) trial balance is prepared and __________ (after/before) the financial statements are prepared.

- end - adjusted - after

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the __________ (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and __________ (debit/credit) the __________ (Cash /Accounts receivable/Interest revenue/Interest receivable) account.

- interest receivable - credit - interest revenue

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

- lists current assets in the order of how quickly they can be converted to cash - is more useful to decision makers - organizes assets and liabilities into important subgroups

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.

- retained earnings - dividends

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

- revenues - expenses -debit

The purpose of the closing process is to reset __________ (temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Retained __________ (Earnings/Summary/Withdrawal) account.

- temporary - earnings

Closing means to transfer account balances from __________ (asset/liability/permanent/temporary) accounts so that they will start with a ___________ (contra/larger/zero) balance at the beginning of the next period.

- temporary - zero

Steps in the Accounting Cycle

1. Analyze transactions 2. Journalize 3. Post 4. Prepare unadjusted trial balance 5. Adjust and post 6. Prepare adjusted trial balance 7. Prepare financial statements 8. Close 9. Prepare post-closing trial balance 10. Reverse and post (optional step)

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

1. Journalize transactions into the journal 2. Journalize and post the adjusting entries 3. Prepare the adjusted trial balance 4. Prepare the financial statements 5. Journalize and post closing entries 6. Prepare post-closing trial balance

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.

When does the closing process take place?

At the end of an accounting period.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

A company had the following selected balances: Service Revenue: Cr. $4000 Rental Revenue: Cr. $2000 Wages Expense: Dr. $500 Utilities Expense: Dr. $100 Dividends: Dr. $80 Demonstrate the last closing journal entry to close the Dividends account by selecting the correct answer below.

Debit Retained Earnings $80; Credit Dividends $80

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

An advance payment of $1000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid Insurance account was increased for the payment. Demonstrate the required adjusting entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

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

An adjusted trial balance is

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

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year