ACCT Chapter 3 ADJUSTING ACCOUNTS AND PREPARING FINANCIAL STATEMENTS

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Prepaid insurance Supplies Prepaid rent

Accrued _____ are earned in a period that are both unrecorded and not yet received in cash.

revenues

The revenue recognition principle requires that revenue be recorded:

when the goods or services are provided to the customers and at an amount expected to be received from customers.

Determine which of the following transactions may require adjustments. (Check all that apply.)

Equipment was purchased in the middle of the year. A 24-month insurance policy was prepaid Six months of rent were paid in advance. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Supplies were purchased at the beginning of the year, but not all were used.

interim financial statements

Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods.

A plant asset can be defined by which of the following statements?

Provide benefits for greater than one period. It is a tangible long-term asset. Its cost (minus any salvage value) is gradually reported as expenses over its useful life. It is reported on the balance sheet.

What is the difference between an adjusted trial balance and an unadjusted trial balance?

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

Explain what unearned revenues are by selecting the statements below which are correct.

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

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.

Which of the following is are true regarding timeliness and the importance of periodic reporting?

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

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

an accounting system that uses the matching principle to determine when to recognize revenues and expenses. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period that are both unpaid and unrecorded. Examples of accrued expenses are salaries expense and interest expense.

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies.

Any unused prepaids existing at end of period are transferred to asset accounts. Record all prepaid expenses with debits to expense accounts.

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries ______(expense/payable) account and _____ (debit/credit) the Salaries _____(expense/payable/unearned) account.

Blank 1: expense Blank 2: credit Blank 3: payable

The formula to compute the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Blank 1: net income Blank 2: net sales

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 _____ and their credit balances are transferred to the income statement as well as all of the _____ and their _____ balances.

Blank 1: revenues Blank 2: expenses Blank 3: debit

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.

What is the difference between an adjusted trial balance and an unadjusted trial balance?

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.

Which of the following describes accrued revenue? (Check all that apply)

The adjustment causes an increase in an asset account and an increase in a revenue account. Accounts receivable is usually increased when accruing revenues. They refer to revenues that are earned in a period, but have not been received and are unrecorded. They refer to earnings which have been earned but not yet billed.

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense