Ch. 2 smartbook
Which accounts most likely use a subsidiary ledger?
accounts payable accounts receivable
_________ basis accounting measures income based on accomplishments and resource sacrifices during the period. (Enter only one word.)
accrual
Adjusting journal entries are necessary for three situations: deferrals, _____, and estimates. (Enter only one word.)
accruals
The contra account used to record depreciation is ________ depreciation.
accumulated
Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared? Multiple choice question. post-closing trial balance adjusted trial balance unadjusted trial balance
adjusted trial balance
Entries made at the end of the accounting period before the financial statements are prepared are called _______entries.
adjusting
Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition. Multiple choice question. the same as after before
after
Recognizing revenue before cash flow is an example of: Multiple choice question. -a prepayment adjusting entry -an estimate adjusting entry -an accrual adjusting entry
an accrual adjusting entry
______ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period. (Enter only one word.)
cash
The adjusting journal entry required when deferred revenue is recognized includes a _______ entry to revenue.
credited
Ragland Corp. purchases supplies on account for $1,000 and appropriately records the transaction in an asset account. A count of inventory at year-end indicates that $300 of supplies are remaining. The adjusting journal entry required at year-end includes
debit to supplies expense 700 credit to supplies 700
Adjusting journal entries are necessary for three situations: deferrals, accruals, and ________
estimates
Deferred revenue should be classified as a(n) ________ on the balance sheet.
liability
A group of subsidiary accounts associated with a particular general ledger control account is called a: Multiple choice question. -subsidiary journal -subsidiary ledger -control ledger
subsidiary ledger
Accumulated depreciation is (Select all that apply.) Multiple select question. -a balance sheet account -a stockholder's equity account -an expense account -a contra asset account
-a balance sheet account -a contra asset account
Prepayments occur when: Multiple choice question. -cash flow precedes expense or revenue recognition -customers are unable to pay the full amount due when goods are delivered -manufactured goods await quality control inspections -sales are delayed pending credit approval
-cash flow precedes expense or revenue recognition
A reversing entry is used: (Select all that apply.)
to simplify journal entries recorded during the new period. at the beginning of a reporting period. most often with accruals.
Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is
13,000
The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n) Multiple choice question. Electronic Data Processing system. Enterprise Resource Planning (ERP) system. Accounting Data system.
Enterprise Resource Planning (ERP) system.
True or false: If a company makes end-of-year accruals, it must use reversing entries. True false question.
False
On July 1, Perry Company signed a note with principal of $80,000 and a stated interest rate of 4%. The principal and interest are due on April 1 of the following year. Perry will accrue interest on December 31st of 1,600
Reason: $80,000 x 4% x 6/12 - Interest is always stated as an annual rate regardless of loan term. The 4% interest is annual and must by multiplied by 6/12 to account for the six months July-December when recording the accrued interest on 12/31.
A(n) __________event is any event that directly affects the financial position of the company.
economic (an economic event is any event that directly affects the financial position of the company
Expenses and revenues that relate directly to the principal revenue-generating activities of the company are classified as ________ items on the income statement. (Enter only one word.)
operating
The components of the income statement are usually classified as: (Select all that apply.)
operating items non-operating items
When rent is paid in advance for 2 years, it is appropriately recorded as a(n) __________ , whereas when rent is paid and used during one month, it is appropriately recorded as a(n) ________ .
prepayment expense
Prepaid expenses are costs of assets acquired in an accounting period: Multiple choice question. -after they will be expensed -before they will be expensed -at the same time they will be expensed
-before they will be expensed
Beginning inventory was $50,000. Inventory purchased during the year cost $75,000. Inventory on hand at year-end was $40,000. Cost of goods sold was
50+75-40=85g
Which of the following is an example of an accrued receivable? Multiple choice question. -Recording interest revenue before it is received. -Selling goods to customers for cash. -Receiving cash from clients.
Recording interest revenue before it is received.
A company paying rent in advance for the month of April records: a liability an asset an expense revenue
an asset
Accrued liabilities are costs incurred in an accounting period: Multiple choice question. at the same time of a cash payment after a cash payment before a cash payment
before a cash payment
The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.
closing
Adjusting journal entries are needed to record (Select all that apply.) Multiple select question. -cash that has been collected from customers -expense incurred, but not yet paid -revenue earned, but not yet received -cash that has been paid for expenses
expense incurred, but not yet paid revenue earned, but not yet received
Prepaid expenses are: Multiple choice question. expenses incurred before cash is paid expenses paid at the time incurred expensed in a later period than cash was paid
expensed in a later period than cash was paid
Accrued liabilities are: Multiple choice question. -expensed in a later period than the cash was paid -expenses incurred before cash was paid -expenses paid at the time incurred
expenses incurred before cash was paid
Adjusting journal entries are needed to record (Select all that apply.) Multiple select question. -revenue earned, but not yet received -cash that has been collected from customers -cash that has been paid for expenses -expense incurred, but not yet paid
revenue earned, but not yet received expense incurred, but not yet paid
Adjusting entries help a company accurately measure (Select all that apply.) Multiple select question. -the cash received and paid during the year. -revenues and expenses for the period. -the company's financial performance.
revenues and expenses for the period. the company's financial performance.
Prepayments are: (Select all that apply.) Multiple select question. -transactions in which cash flow follows expense recognition. -transactions in which cash flow precedes revenue recognition. -transactions in which cash flow precedes expense recognition. -transactions in which cash flow follows revenue recognition
transactions in which cash flow precedes revenue recognition. transactions in which cash flow precedes expense recognition.
Adjusting entries are recorded: Multiple choice question. after closing entries have been prepared when the financial statements are prepared at the beginning of an accounting period after the financial statements have been prepared
when the financial statements are prepared
An informal tool used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements is a: Multiple choice question. trial balance worksheet balance sheet journal
work sheet
Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased. Multiple choice question. -credited, debited -debited, debited -debited, credited -credited, credited
-debited, credited
Deferred revenue is a(n): Multiple choice question. -liability on the balance sheet -expense on the income statement -revenue on the income statement -asset on the balance sheet
-liability on the balance sheet
How are items classified on the income statement? Multiple choice question. -assets and liabilities -operating and nonoperating -current and noncurrent -operating, investing, and financing
-operating and nonoperating
The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account? Multiple choice question. -cash -common stock -dividends -retained earnings
-retained earnings
The steps of the accounting cycle
1. Obtain information about transaction from source documents 2. Analyze the transaction 3.Record the transaction in a journal 4. Post from the journal to the general ledger accounts 5. Prepare an unadjusted trial balance 6. Record and post adjusting entries 7. prepare an adjusted trial balance 8.prepare the financial statements 9.close the temporary accounts to retained earnings 10. prepare a post-closing trial balance
On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is... 12%
Reason: $10,000 x 6/12 x I = $600; $5,000 x I = $600; I = 12% $10,000 x 12% x 6/12 = $600 - Interest is an annual rate regardless of the length of the loan so 12% for the year x 6/12.
An accrued receivable occurs when revenue is earned: Multiple choice question. at the same time as cash flow before cash flow after cash flow
before
The normal balance in a contra asset account is a _________
credit
the normal balance of the contra asset accumulated depreciation account is a(n) ___________
credit
To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.
credit, debit
One of the purposes of adjusting entries is to Multiple choice question. recognize all revenues earned during the period. record all external transactions at the end of the year. make assets equal liabilities plus owners' equity. ensure debits equal credits
recognize all revenues earned during the period.
True or false: The stated interest rate on debt instruments is always stated as an annual rate.
true