Ch. 3 Financial Accounting
balance sheet because it is an asset
Prepaid rent appears in the _____.
closing entries
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
temporary
Closing entries move the balances from the ______ accounts into the Retained Earnings account.
accrual
Consistent with the ____ -basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.
prepaid expenses; assets
Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ____ and are initially recorded as ____.
December 31
During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?
expenses
Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as an ____ in the period the benefit expires.
In the period the supplies are used, regardless of when they were purchased
When should supplies be recorded as an expense?
have occurred but that have not yet been recorded.
A primary purpose of adjusting entries is to record events that
used during the accounting period
After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:
1. debit a liability account 2. credit a revenue account
Andy records an adjusting entry for deferred revenue. Andy should:
are zero
At the beginning of the accounting period, the balances of temporary accounts
17840
On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet.
Rent expense of $2,000 Prepaid rent of $22,000
On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:
decreased
Prepaid expenses should be ____ by the cost of the asset used during the accounting period.
decreased; increased
Supplies should be _____ and Supplies Expense should be _____ for the cost of supplies used up during the period.
liability; revenue
The adjusting entry for a deferred revenue includes a debit to a _____ account and a credit to a _____ account.
depreciation.
The process of allocating the cost of an asset to expense over the useful life of the asset is called
1. ending balance retained earnings 2. net income 3. dividends for the period
The statement of stockholders' equity includes these amounts:
Rent paid in advance
Which of the following transactions would normally be recorded as an asset when cash is paid?
groups asset and liabilities into current and long-term categories
A classified balance sheet _____.
assets; liabilities
A classified balance sheet shows subtotals for current _____ and current _____.
asset
A prepayment such as "Prepaid Insurance" is originally recorded as an ____ when an insurance policy is purchased and will later be expensed in the period used.
allocated to future accounting periods based on the cost of the asset used during the period.
A prepayment that is originally recorded as an asset will be
end
Adjusting entries are made at the ____ of the accounting period, while daily transactions are made throughout the accounting period.
asset
Adjusting entries ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period.
1. credit to a liability 2. debit to an expense
An adjusting entry for accrued expenses involves:
recording of adjusting entries
At year-end, companies that utilize accrual-based accounting systems complete the measurement process through
liability
Deferred revenue is a _____.
cost
Depreciation is an allocation of the _____ of buildings, vehicles, and equipment to expense over time as they are used.
Only temporary accounts are cleared out at the end of the accounting period.
How do temporary accounts differ from permanent accounts?
A liability is increasing since cash will be paid in the future due to the expense incurred
If an adjusting entry for expenses incurred but not yet paid _____.
expense
If an adjusting entry's credit is to a liability account, then the debit must be to ______.
liability, prepaid expense
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
an asset is increased since cash will be collected at a later date.
In recording an accrual adjusting entry to account for revenues earned but not yet collected,
Temporary: revenues, expenses, dividends. Permanent: assets, liabilities, equity.
Match the accounts with the correct terms.
asset; revenue
Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to an ______ account and a credit to a _____ account.
cash
Reporting revenues only when cash is received and expenses only when cash is paid is called the _____ basis of accounting.
income statement
Revenues and expenses are reported in the:
interest
The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _____ expense.
1. operating 2. investing 3. financing
The information reported in the statement of cash flows is organized by these activities:
1. revenues are recorded when cash is received. 2. expenses are recorded when cash is paid.
Under cash-basis accounting,
Interest
______ is defined as the "cost of borrowing money."
1. the accounts are ready for next period's transactions 2. we prepared and posted closing entries correctly
The post-closing trial balance helps to verify that:
adjusting
To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by _____ entries.
False
True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.
Statement of stockholders' equity
Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?
On November 1, the company pays rent for the next six months.
Which of the following pre-payments requires an adjusting entry at the end of the year?
Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
Which of the following statements describes the effect that adjusting entries may have on liabilities?
1. reports cash receipts 2. the final financial statement that is typically prepared 3. reports cash disbursements
Which of the following statements regarding the statement of cash flows is are correct?
1. A company pays for 4 months of advertising in the Wall Street Journal on November 1. 2. A company pays a 6-month insurance premium at the beginning of October.
Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?
1. Expenses incurred, not yet paid 2. Goods and services provided, not yet collected
Which of the following would be referred to as "accruals?"
Revenues; expenses
____ are recorded in the period that goods and services are provided to customers and ____ are recorded in the period that costs are incurred while providing those goods and services.
Accruals
_____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.
Deferred
_____ revenue arises when a business received cash in one period, but does not provide all of the related goods or services until a later period.