Accounting Chapter 3
debits; credits
The post-closing trial balance checks that total _______ equal total _______ at the end of the period.
deferred
______ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.
On November 1, the company pays rent for the next six months
Which of the following pre-payments requires an adjusting entry at the end of the year?
Rent paid in advance
Which of the following transactions would normally be recorded as an asset when cash is paid?
decreased
Prepaid expenses should be ______ by the cost of the asset used during the accounting period.
asset in the balance sheet
Prepaid insurance is a(n) ______.
balance sheet because it is an asset
Prepaid rent appears in the ______.
liability; revenue
The adjusting entry for a deferred revenue includes a debit to a(n) account and a credit to a(n) account.
paid
Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:
expense
If an adjusting entry's credit is to a liability account, then the debit must be to ______.
-liability -prepaid expense
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
asset; revenue
Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.
Service revenue for $1,800
On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:
-credit to Prepaid Insurance -debit to Insurance Expense
On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.)
-operating -investing -financing
The information reported in the statement of cash flows is organized by these activities: Multiple select question.
-we prepared and posted closing entries correctly -the accounts are ready for next period's transactions
The post-closing trial balance helps to verify that: (Select all that apply.)
-ending balance retained earnings -dividends for the period -net income
The statement of stockholders' equity includes these amounts: (Select all that apply.)
dividends for the period ending balance retained earnings net income
The statement of stockholders' equity includes these amounts: (Select all that apply.)
adjusting
To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by ______ entries.
-credit to a liability -debit to an expense
An adjusting entry for accrued expenses involves: (Select all that apply.)
are zero
At the beginning of the accounting period, the balances of temporary accounts
In the period the supplies are used, regardless of when they were purchased
When should supplies be recorded as an expense?
recording of adjusting entries
At year-end, companies that utilize accrual-based accounting systems complete the measurement process through
prepaid expenses; assets
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 _____. Multiple choice question.
liability
Deferred revenue is a(n) ______.
December 31
During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?
-Rent expense of $2,000 -Prepaid rent of $22,000
On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.)
decreased; increased
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
Statement of stockholders' equity
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 cash flows
Which of the following financial statements typically is prepared last?
Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
Which of the following statements describes the effect that adjusting entries may have on liabilities?
Interest on the note payable is classified as an expense since it is a cost of borrowing.
Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?
Depreciation
____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used
accural
basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.
Accurals
occur when the cash flow occurs after either the expense is incurred or the revenue is earned.
cash
Reporting revenues only when cash is received and expenses only when cash is paid is called the ______ basis of accounting
Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?
-A company pays for 4 months of advertising in the Wall Street Journal on November 1. -A company pays a 6-month insurance premium at the beginning of October.
Which of the following would be referred to as "accruals?"
-Goods and services provided, not yet collected -Expenses incurred, not yet paid
adjusting entries:
-are needed before financial statement preparation. -update the accounts to their proper balances.
under cash-basis accounting:
-expenses are recorded when cash is paid. -revenues are recorded when cash is received.
groups asset and liabilities into current and long-term categories
A classified balance sheet ______.
assets; liabilities
A classified balance sheet shows subtotals for current
decrease; increase
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.
asset/debit
A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ___ when an insurance policy is purchased and will later be expensed in the period used.
allocated to future accounting periods based on the cost of the asset used during the period
A prepayment that is originally recorded as an asset will be ______.
asset
Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.
owed
Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.
Expenses
Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.
the amount of the sales or services still owed to the customer.
After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:
amount of the prepayment that remains towards future rental periods
After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.
used during the accounting period
After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:
cost of rent for the accounting period
After the adjusting entries have been completed, the balance in the Rent Expense account represents the:
a liability is increasing since cash will be paid in the future due to the expense incurred
In an adjusting entry for expenses incurred but not yet paid ______.
expenses
Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _______ in the period the benefit expires.
$35,910
On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?
-Taggert will credit Prepaid Insurance for $300 on Dec. 31. -Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. -Taggert will debit Insurance Expense for $300 on Dec. 31.
Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?
Accural Basis Accounting
The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as
expense; asset
The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.
interest
The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _______ expense
False
True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period. True false question.
-revenues are recorded when cash is received. -expenses are recorded when cash is paid.
Under cash-basis accounting, (Select all that apply.)
end
adjusting entries are made at the ____ of the accounting period, while daily transactions are made throughout the accounting period.