Acct 201 Chapter 4

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period

Temporary Accounts

Which of the following correctly describes the closing process? A. Net income or net loss is transferred to the Cash account. B. Net income or net loss is transferred to Retained Earnings. C. Permanent accounts become ready to accumulate data in the next accounting period. D. Each revenue and expense account is closed individually to Retained Earnings.

B

The final step in the accounting cycle is to prepare A. closing entries. B. financial statements. C. a post-closing trial balance. D. adjusting entries.

C

The worksheet, used as an aid in the preparation of adjusting entries and the financial statements, consists of how many debit/credit columns? A. 6 B. 8 C. 10 D. 12

C

Adjusting entries are made to ensure that A. expenses are recognized in the period in which they are incurred. B. revenues are recorded in the period in which the performance obligation is satisfied. C. balance sheet and income statement accounts have correct balances at the end of an accounting period. D. All of these answer choices are correct.

D

The closing entry process consists of closing A. all asset and liability accounts. B. out the Retained Earnings account. C. all permanent accounts. D. all temporary accounts.

D

The length of service of a productive asset

Useful Life

T/F Accrued expenses are expenses that have already been paid.

F

T/F An Adjusted Trial Balance is prepared after the books of a company are closed at the end of the accounting period.

F

T/F At the end of the accounting period, all balance sheet accounts are closed out.

F

T/F The accounting cycle requires that closing entries be prepared on a monthly basis.

F

T/F The cash-basis of accounting is in accordance with generally accepted accounting principles.

F

T/F The expense recognition principle requires that expenses be recognized in the same period that they are paid.

F

T/F The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received.

F

T/F The worksheet is part of the permanent record of the company as it documents how the company prepared its financial statement.

F

The difference between an asset's cost and its accumulated depreciation is called A. market value. B. fair value. C. book value. D. real value.

C

Adjustments for unearned revenues A. decrease liabilities and increase revenues. B. increase liabilities and increase revenues. C. increase assets and increase revenues. D. decrease revenues and decrease assets.

A

Which account will have a zero balance after a company has journalized and posted closing entries? A. Service Revenue B. Advertising Supplies C. Prepaid Insurance D. Accumulated Depreciation

A

Which of the following is not a typical example of an accrued expense? A. Depreciation B. Wages C. Interest D. Taxes

A

Which principle dictates that efforts (expenses) be matched with results (revenues)? A. Expense recognition principle B. Historical cost principle C. Periodicity principle D. Revenue recognition principle

A

Which types of accounts will appear in the post-closing trial balance? A. Permanent accounts B. Temporary accounts C. Accounts shown in the income statement columns of a work sheet D. None of these answer choices are corrrect.

A

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged

Accrual-basis Accounting

Expenses incurred but not yet paid in cash or recorded

Accrued Expenses

Revenues for services performed but not yet received in cash or recorded

Accrued Revenues

A list of accounts and their balances after all adjustments have been made

Adjusted Trial Balance

Entries made at the end of an accoutning period to ensure that the revenue recognition and matching principles are followed

Adjusting Entries

Adjustments for accrued revenues A. increase assets and increase liabilities. B. increase assets and increase revenues. C. decrease assets and decrease revenues. D. decrease liabilities and increase revenues.

B

The difference between the cost of a depreciatable asset and its related accumulated depreciation

Book Value

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? A. Salaries and Wages Expense for the year is overstated. B. Liabilities at the end of the year are understated. C. Assets at the end of the year are understated. D. Stockholders' equity at the end of the year is understated.

B

Cash received before services are performed which is recorded as a debit to a Cash account and a credit to a liability account is called A. an accrued revenue. B. an unearned revenue. C. an unrecorded revenue. D. None of these answer choices are correct.

B

Financial statements can be prepared directly from the A. trial balance. B. adjusted trial balance. C. post-closing trial balance. D. reversing trial balance.

B

If the adjusting entry is not made for unearned revenues the result will be to A. overstate assets and understate liabilities. B. overstate liabilities and understate revenues. C. understate net income and overstate retained earnings. D. understate retained earnings and overstate revenues.

B

Saira works for a sports franchise which pays wages and salaries earned on a monthly basis. A new accountant was hired by the sports franchise in late May. Due to inexperience, the new accountant failed to accrue Saira's salary for May. What is the impact on the May 31 financial statements of the sports franchise? A. Revenues are overstated; net income is understated. B. Expenses are understated; net income is overstated. C. Liabilities are overstated; retained earnings is overstated. D. Liabilities are understated; assets are overstated.

B

Which of the following is not a type of adjusting entry? A. Prepaid expenses B. Earned revenues C. Accrued revenues D. Accrued expenses

B

Which of the following is not based on accrual accounting? A. Retained earnings B. Net cash provided by operating activities C. Total assets D. Net income

B

Which of the following is not included in the computation of net cash provided by operating activities? A. Cash received from customers B. Supplies used C. Payment of rent D. Purchase of insurance

B

Which statement is correct? A. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. B. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles. C. The cash-basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. D. As long as management is ethical, there are no problems with using the cash-basis of accounting.

B

Adjustments for prepaid expenses A. decrease assets and increase revenues. B. decrease expenses and increase assets. C. decrease assets and increase expenses. D. decrease revenues and increase assets.

C

If revenues are recognized only when a customer pays, what method of accounting is being used? A. Accrual-basis B. Recognition basis C. Cash-basis D. Matching basis

C

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the A. periodicity assumption. B. expense recognition principle. C. revenue recognition principle. D. accrued revenues principle.

C

What is the periodicity assumption? A. Companies should recognize revenue in the accounting period in which the performance obligation is satisfied. B. Companies should match expenses with revenues. C. The economic life of a business can be divided into artificial time periods. D. The fiscal year should correspond with the calendar year.

C

Which is the correct order of steps in the accounting cycle? A. Post transactions, journalize transactions, prepare a trial balance, prepare financial statements B. Journalize and post transactions, journalize and post closing entries, journalize and post adjusting entries C. Journalize and post transactions, journalize and post adjusting entries, journalize and post closing entries D. Prepare financial statements, prepare adjusting entries, prepare closing entries, prepare a post-closing trial balance

C

Which statement is incorrect concerning the adjusted trial balance? A. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. B. The adjusted trial balance provides the primary basis for the preparation of financial statements. C. The adjusted trial balance lists the account balances segregated by assets and liabilities. D. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

C

Accounting basis in which a company records revenue only when it receives cash, and an expense only when it pays cash

Cash-basis Accounting

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings

Closing Entries

an account that is offset against an asset account on the balance sheet

Contra Asset Account

A net loss will appear in which column of the worksheet? A. Adjustments - Debit B. Adjusted Trial Balance - Credit C. Income Statement - Debit D. Balance Sheet - Debit

D

All of the following are required steps in the accounting cycle except A. journalizing and posting closing entries. B. preparing an adjusted trial balance. C. preparing a post-closing trial balance. D. preparing a worksheet.

D

Cash received before services are performed are recorded as A. revenues. B. equity. C. expenses. D. liabilities.

D

Each of the following is a major type (or category) of adjusting entry except A. prepaid expenses. B. accrued revenues. C. accrued expenses. D. earned expenses.

D

Which of the following is not a typical example of a prepaid expense? A. Supplies B. Insurance C. Rent D. Wages

D

Which one of the following is not a justification for adjusting entries? A. Adjusting entries are necessary to ensure that the revenue recognition principle is followed. B. Adjusting entries are necessary to ensure that the expense recognition principle is followed. C. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. D. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

D

Which one of these statements about the accrual-basis of accounting is false? A. Companies record events that change a company's financial statements in the periods in which the events occur. B. Companies recognize revenue in the period in which the performance obligation is satisfied. C. This basis is in accord with generally accepted accounting principles. D. Companies record revenue only when they receive cash, and record expense only when they pay out cash.

D

The process of allocating the cost of an asset to expense over its useful life

Depreciation

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.

Earnings Management

The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.

Expense Recognition Principle

An accounting period that is one year in length

Fiscal Year

A temporary account used in closing revenue and expense accounts

Income Summary

An assumption that the economic life of a business can be divided into artificial time periods. Accounting time periods are generally a month, a quarter, or a year.

Periodicity Assumption

Balance sheet accounts whose balances are carried forward to the next accounting period

Permanent Accounts

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Post-closing Trial Balance

EXPENSES PAID IN CASH THAT BENEFIT MORE THAN ONE ACCOUNTING PERIOD AND THAT ARE RECORDED AS ASSETS

Prepaid Expenses

Indicates the level of full and transparent information that a company provides to users of its financial statements

Quality of Earnings

The principal that companies recognize revenue in the accounting period in which the performance obligation is satisfied

Revenue Recognition Principle

an entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period

Reversing Entry

T/F Book value is equal to cost minus accumulated depreciation.

T

T/F In computing net cash provided by operating activities, certain non-cash items such as depreciation must be eliminated from net income.

T

T/F Prior to an accrual adjustment, the revenue account (and the related asset account) or the expense account (and the related liability account) is understated.

T

Cash received and a liability recorded before services are performed.

Unearned Revenues

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Worksheet