Adjustments, Financial Statements and Financial Results

What is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected?

Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400.

Noodlecake previously purchased $800 of supplies and now only has $200 left. What is Supplies Expense equal on its income statement?

$600

After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased?

Accounts Receivable

Which line item will have a larger balance related to equipment that has been used over the past 3 years.

Accumulated Depreciation

Which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

Adjusted trial balance

_____ ensure that the revenues recognized and expenses incurred during the period are reflected in the income statement.

Adjusting entries

The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to

Amortization Expense and a credit to Accumulated Amortization

Place the steps in the adjustment process in order. Drag the items to put them in the proper order with the first step on top

Analyze the accounts to determine the amount of the adjustment Record the adjusting entry in the journal Summarize the adjusting entries in the accounts

Which of the following is closed into Retained Earnings by debiting Retained Earnings?

Dividends

Select the following statements that are correct regarding Dividends?

Dividends are closed into retained earnings by crediting Dividends. Dividends are closed into retained earnings by debiting Retained Earnings. Dividends have a normal debit balance.

Which statement is true?

Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which of the following accounts found on an unadjusted balance typically require adjusting entries?

Interest Payable Supplies Prepaid Rent

How does the adjusting entry to record the supplies used during the period affect the financial statements?

Net Income on the income statement will decrease Supplies Expense on the income statement will increase Supplies on the balance sheet will decrease

In its 1st year of business, Daily Grind, Inc. purchased $1,000 of supplies of which it only has $300 left at the end of the period. Which of the following will be found in the year-end financial statements?

Supplies Expense on the income statement of $700 Supplies on the balance sheet of $300

How does the adjustment for depreciation differ from other deferral adjustments?

The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly.

Which of the following statements is correct regarding a long-lived asset such as equipment?

The original cost in the Equipment account will not change during the adjustment process.

Why are adjustments needed at the end of an accounting period?

To ensure that all assets and liabilities are reported at appropriate amounts

Why are the adjustments important to the preparation of the financial statements?

Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes.

The adjusting entry to record wages incurred but not yet recorded includes a credit to ______.

Wages Payable

The adjusting entry to record revenue for services the seller has performed but not yet collected requires ______.

a debit to Accounts Receivable and credit to Service Revenue

Adjusting entries are required to ______.

adjust the unadjusted balances to the desired balances

Closing journal entries are recorded ______.

after the financial statements have been prepared

A prepayment that is originally recorded as an asset will be ______.

allocated to future accounting periods based on the cost of the asset used during the period

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

Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided ______.

but not yet collected

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the

closing process

A(n) ______ has a normal balance opposite of the account it offsets.

contra-account

The adjusting entry to record depreciation on equipment includes a

credit to Accumulated Depreciation debit to Depreciation Expense

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

deferred revenue prepaid rent supplies

The <blank> recognition principle requires that a portion of long-lived assets be transferred to an expense account during the accounting period the asset is being used to generate revenues.

expense

If a company determines that it has $1,400 of supplies on hand at the end of the period, which of the following statements is correct? The company ______.

has $1,400 in supplies remaining at the end of the period

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.

increase

The carrying value of Supplies represents the cost of supplies ______.

on hand at the end of the accounting period

The Equipment account balance in a company's ledger equals its ______.

original cost

The adjusting entry to record amortization causes ______.

stockholders' equity to decrease assets to decrease

After the adjustments have been completed, the adjusted balance in Income Tax Expense account represents ______.

total income tax that has been paid and accrued during the period

As of December 31, the unadjusted balance in Deferred Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

Deferred Revenue needs to be decreased by the amount of gift cards redeemed during the month. Sales Revenue needs to be increased by the amount of gift cards redeemed during the month.

The process of allocating the cost of buildings, equipment, and vehicles to expense over the time periods benefiting from their use.

Depreciation

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?

Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to ______.

Interest Expense and credit to Interest Payable

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?

Interest Expense should be increased, because the cost of interest relates to the current period.

The closing entry for dividends involves a debit to ______ and a credit to ______.

Retained Earnings; Dividends

Which of the following statements is 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.

What is the purpose of preparing an adjusted trial balance?

To ensure that total debits equal total credits after the adjustments have been recorded

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.

What are the effects on the accounting equation from the adjustment for depreciation?

Total assets will decrease and total stockholders' equity will decrease.

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

owed

What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected?

Total assets will increase and total stockholders' equity will increase.

As the balance in the Accumulated Depreciation increases, total assets _____ because Accumulated Depreciation is a _____ account

decrease; contra

What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

Adjusting entries are important because ______.

adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes without them, the financial statements would be misleading.

The adjusted trial balance should be prepared ______ the financial statements are prepared to prove the ______ of the debits and credits.

before; equality

After the adjustments have been completed, the balance in the Rent Expense account represents the ______.

cost of rent for the accounting period

As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages

expense will be debited and Salaries and Wages Revenue will be credited by $700

On September 1, Taggert Company paid $1,800 for a 6-month insurance premium beginning September 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will credit Prepaid Insurance for $300 on Sept. 30. Taggert will debit Prepaid Insurance for $1,800 on Sept. 1. Taggert will debit Insurance Expense for $300 on Sept. 30.

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______.

depreciation for the current fiscal year

What is a good starting point for determining which accounts require adjustment?

unadjusted trial balance

A contra-account ______.

has a normal balance opposite of the account it offsets example is Accumulated Depreciation because it has a normal credit balance

Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance?

Prepaid rent

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

Prepare adjusting entries Prepare an adjusted trial balance Prepare the financial statements

Beauty and the Bistro, Inc. had $500 of Supplies on its balance at the end of its 1st year of business. It purchased $5,000 of supplies during the 2nd year. At the end of the 2nd year, it had $800 of supplies on hand. What is the amount of Supplies Expense on the income statement?

$4700; It started with $500 and purchased $5,000 but only has $800 of supplies left, thus it used $4,700. The amount used is Supplies Expense and is recorded as an adjusting entry with a debit to Supplies Expense (+E,-SE) and credit to Supplies (-A) for $4,700. The Supplies balance on the balance sheet equals $800 (the supplies left).

How does the timing of adjusting entries differ from the accounting for daily transactions?

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

The entry to record income tax accrued, but unpaid, at the end of the accounting period includes both a ______ and a ______.

credit to Income Tax Payable debit to Income Tax Expense