Accounting - Chapter 4

Beauty and the Bistro, Inc. had $5,000 of supplies available to use during the year. At the end of the year, it recorded an adjusting entry for $4,500 for the amount used during the year. Supplies on the balance sheet equals ___

$500

Accrual adjustments are needed when a company has provided goods or services to customers or incurred an expense but ___ has not been exchanged.

Cash

As of December 31 (the 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; $3,000

The seller's adjusting entry to record the revenue earned by fulfilling its obligation to its buyers which had been collected to advance requires a ___ (debit/credit) to Deferred Revenue and a ___ (debit/credit) to Sales Revenue.

Debit; credit

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

End

Adjustments ensure that ____ balances are reported at amounts amounts representing the economic benefits that remain at the end of the period and will be used up in future periods.

Asset

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

Assets to increase

A closing entry may include a ___

Credit to Wages Expense

Accumulated Depreciation has a normal ___ balance which indicates that it ___ Total Assets.

Credit; decreases

Which of the following types of transactions represent deferral adjustments that are recorded to adjust for amounts expired or used during the period?

Decrease to prepaid insurance and increase to insurance expense. Decrease to supplies and increase to supplies expense.

The adjustment for supplies used during the period will result in a(n) ___ to the supplies expense account.

Increase

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

Revenue; expense

After all closing process, which accounts will have zero balances?

Revenues, expenses, dividends, all temporary accounts

The adjusting entry to record the revenue earned by the seller fulfilling its obligation results in a(n) ___ to the Deferred Revenue account.

Decrease

Which of the following account balances will typically be increased as a result of adjusting entries?

Interest payable. Supplies expense.

Interest incurred, but not yet paid during an accounting period, should be recorded as an expense and a(n) ___

Liability

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

Paid

Bristol, INC. paid $800 for a 4-month insurance policy on August 1 of the current year. On August 31, Bristol, Inc. made an adjusting entry to account for the insurance that expired during the month of August. The adjusting entry contained a debit to Insurance Expense in the amount of ___ and a credit to Prepaid Insurance in the amount of ___. The remaining balance in the Prepaid Insurance account after the adjustment was ___?

$200, $200, $600

Place the steps taken at the end of the accounting period to complete the financial statement preparation process in the correct order.

1. Prepare the adjusting entries 2. Prepare the adjusted trial balance 3. Prepare the financial statements

At the end of the accounting period, adjusting entries are required. Place the steps in the adjustment process in the correct order.

1. Use the unadjusted trial balance to determine the accounts requiring adjustment. 2. Record and post adjusting entries. 3. Prepare an adjusted trial balance to check the equality of the debits and credits. 4. Prepare financial statements 5. Record closing journal entries and post to the accounts. 6. Prepare a post-closing trial balance.

Which of the following is true regarding depreciation of equipment?

Accumulated depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet. Accumulated depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date. Depreciation is reported in Accumulated Depreciation which netted against the related equipment account on the balance sheet.

Accounts Payable

Amount owed for supplies purchased on an account.

Supplies

Amount remaining and reported on the balance sheet.

Supplies Expense

Amount used and reported on the income statement.

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected?

Assets will increase Stockholders' equity will increase

The entry to close Service Revenue to Retained Earnings includes a ___

Debit to Service Revenue Credit to Retained Earnings

The adjusting entry to record depreciation on equipment includes a ___.

Debit to depreciation expense. Credit to accumulated depreciation.

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

Decreased

Deferral adjustment affect the balance sheet by ___

Decreasing assets for amounts used and liabilities for amounts of services/goods delivered to customers.

What is the purpose of the depreciation adjustment for long-lived assets?

Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.

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.

Increased

In an accrual adjustment for expenses incurred but not paid, a liability is ___

Increased because cash will be paid in the future due to the expense incurred.

On June 30, Daily Kneads paid 12000 in advance for insurance coverage beginning July 1 through June 30. Match each line item with the correct amount that would be reported in the following month, July, and on which July financial statement the line item would be reported.

Insurance: $1,000 on the income statement Prepaid insurance: $11,000 on the balance sheet.

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.

Which of the following statements s 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.

Which of the following is incorrect regarding the income tax payable account?

The account represents tax refunds due to the company.

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 are decreased. Total expenses on the income statement are increased.

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.