Ch. 3 smartbook

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below.

Unearned revenue would be debited for $700. Service revenue would be credited for $700.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Office supplies Accounts receivable Cash Prepaid rent

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

- Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. - Matching of expenses with revenues is a major part of the adjusting process.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

- The accounting cycle is a series of steps repeated each reporting period. - The accounting cycle refers to steps followed by a company to prepare its financial statements. - The accounting cycle contains 9 (10 with optional reverse) steps. - The cycle contains steps for adjusting and closing accounts.

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

- the closing process helps to summarize a period's revenues and expenses. - the closing process resets the balances in temporary accounts to zero.

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

1. Prepare an unadjusted trial balance 2. Journalize and post adjusting entries 3. Prepare an adjusted trial balance 4. Prepare financial statements

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

Identify which group of accounts may require adjustments at the end of the accounting period.

Identify which group of accounts may require adjustments at the end of the accounting period.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. (Check all that apply.)

Liability accounts Asset accounts Permanent accounts

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300. Supplies expense would be debited for $300.

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.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

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 accounts below are considered accrued expenses?

Wages expense, Interest expense

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

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

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the __________ account and _________ the ____________ account

accounts receivable credit service revenue

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

The expense recognition (matching) principle aims to record ______ in the same accounting period as the ___________ that are earned as a result of those costs. This principle is a major part of the _________ process.

expenses revenues adjusting

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the __________ account and ________ the _______ account.

interest receivable credit interest revenue

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the ________ cycle

operating

Accrual basis accounting recognizes ___________ when earned and records ____________ when ___________ in order to adhere to the matching principle.

revenues expenses incurred

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received

Complete the following statement. The purpose of the closing process is to reset ________ account balances to zero and to transfer the changes in all of the accounts to the retained ______ account.

temporary earnings

Current items can be described as those expected to come due within one _______ and are listed in the order of how _______ they could be converted to or paid in cash

year quickly

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

- 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.

In preparing a post-closing trial balance, which of the following statements are correct? (Check all that apply.)

- The total of all debit balances will equal the total of all credit balances. - All permanent accounts with a balance in the general ledger will be included. - The retained earnings account on the post-closing trial balance will include the net income or net loss for the period.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

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

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

- six-month - one-month - one-year

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

-The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. - The length of a company's operating cycle depends on its activities. - Most operating cycles are less than one year. - Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current.

Place the steps in the adjusting process in the correct order in which they would be performed.

1. Determine what the current account balance is 2. Determine what the correct account balance should be. 3. Record and adjusting entry

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

- Financial statements are prepared more easily using the adjusted trial balance than with the general ledger. - The income statement is the first financial statement prepared after preparing the adjusted trial balance. - The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. - The adjusted trial balance includes all accounts and balances appearing in financial statements.

A plant asset can be defined by which of the following statements? (Check all that apply.)

- It is a tangible long-term asset. - It is reported on the balance sheet. - It has a life within the business greater than one year. - Its original cost (minus any salvage value) is expensed over its useful life.

Which of the following describe the Salaries payable account? (Check all that apply.)

- It is increased with a credit. - It is reported on the balance sheet. - It is a liability account. - It reports amounts owed to employees.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

- Permanent accounts are reported on the balance sheet. - Temporary accounts have a balance for one period only. - Permanent accounts will appear on a post-closing trial balance. - Retained Earnings is a permanent account, but Dividends is a temporary account. - Temporary accounts are reported on the income statement.

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

- Prepaid insurance - Prepaid rent - Supplies

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

- Salaries expense would be debited for $3,500. - Cash would be credited for $4,000. - Salaries payable will be debited for $500.

At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1st. The journal entry on February 1st is? (Check all that apply.)

- Service revenue would be credited for $200. - Cash will be debited for $600. - Accounts receivable will be credited for $400.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

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

At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? (Check all that apply.)

- Service revenue would be credited for $400. - Accounts receivable will be credited for $500. - Cash will be debited for $900.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

- They refer to costs that are incurred in a period, but are both unpaid and unrecorded. - They are reported on an income statement. - Examples of accrued expenses are wages expense and interest expense. - Adjustments involve increasing both an expense and a liability account.

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

- an accounting system which is consistent with generally accepted accounting principles. - an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. - an accounting system that best reflects business performance and increases the comparability of financial statements from period to period.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

- debit to insurance expense for $400 - credit to prepaid insurance for $400

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 __________ and ________ the salaries __________ account.

expense credit payable

Which of the following accounts is considered a prepaid expense?

supplies