Ch 3: The Accounting Cycle: End of the Period

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.

False

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accural-basis accounting

______-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

acural

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

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ______ when an insurance policy is purchased and will later be expensed in the period used.

asset

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

Reporting revenues only when cash is received and expenses only when cash is paid is called the ____ basis of accounting

cash

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

After the adjusting entries have been completed, the balance in the Rent Expense account represents the

cost of rent for the accounting period

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

The adjusting entry for prepaid rent requires a(n) _____ to Rent Expense and a)n_ _____ to Prepaid Rent

debit, credit

the adjusting entry for prepaid rent requires a(n) _____ to Rent Expense and a(n) _______ to Prepaid rent

debit/increase, credit/decrease

The post-closing trial balance checks that total ________ equal total _____ at the end of the period

debits; credits

Prepaid expenses should be ______ by the cost of the asset used during the accounting period

decreased

a classified balance sheet _______

groups asset and liabilities into current and long-term categories

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

increase

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

The adjusting entry for supplies used requires a _______ to Supplies and a _____ to Supplies Expense.

credit, debit

a primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded

an asset that can quickly be turned into cash has the characteristic of

liquidity

_______ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

accruals

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

- debit to deferred revenue - credit to revenue

Which of the following would be referred to as "accruals?" (Select all that apply.) - Goods and services provided, not yet collected - Cash collected prior to goods or services being provided - Expenses incurred, not yet paid - Cash paid prior to expenses being incurred

- goods and services provided, not yet collected - expenses incurred, not yet paid

match accounts with correct terms: temporary: permanent: revenues, expenses, dividends assets, liabilities, equity

temporary: revenues, expenses, dividends permanent: assets, liabilities, equity

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?

$35,910 (office: $53,520/24 months = monthly rent * months remaining warehouse: $34,800/24 months = month rent * months remaining total - total paid)

Which of the following statements regarding the statement of cash flows are correct? - It is an optional financial statement - The final financial statement that is typically prepared - The financial statement that is typically prepared first - Reports cash disbursements - Reports cash receipts

- The final financial statement that is typically prepared - Reports cash disbursements - Reports cash receipts

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.) - debit to Prepaid Insurance - credit to Prepaid Insurance - debit to Cash - debit to Insurance Expense - credit to Cash

- credit to prepaid insurance - debit to insurance expense

Andy records an adjusting entry for deferred revenue. Andy should: (select all that apply): - debit a liability account - credit a liability account - credit a revenue account - debit a revenue account

- debit liability - credit revenue

an adjusting entry for accured expenses involves: (select all that apply) - debit to liability - credit to revenue - credit to expense - debit to asset - debit to expense - credit to liability

- debit to expense - credit to liability

the statement of stockholder's equity includes these amounts: - ending balance retained earnings - total revenues for the period - net income - dividends for period - cash

- ending balance retained earnings - net income - dividends for the period

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: (Select all that apply.) - Rent expense of $2,000 - Rent expense of $1,000 - Prepaid rent of $22,000 - Prepaid rent of $24,000 - Rent expense of $24,000

- rent expense of $2,000 - prepaid rent expense of $22,000

The post-closing trial balance helps to verify that: (Select all that apply.) - the accounts are ready for next period's transactions - we prepared and posted closing entries correctly - we prepared and posted adjusting entries correctly - the company was profitable during the current period

- the accounts are ready for next period's transactions - we prepared and posted closing entries correctly

Select all that apply Adjusting entries: - update the accounts to their proper balances - are required in cash-basis accounting only - are prepared at the beginning of the period - are needed before financial statement preparation

- update the accounts to their proper balance - are needed before financial statement preparation

How does adjusting entries effect liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

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?

December 31

Which of the following pre-payments requires an adjusting entry at the end of the year? - On December 20, the company pays its liability insurance; coverage starts January 1. - On December 31, the company pays next year's fire insurance. - On November 1, the company pays rent for the next six months.

On November 1, the company pays rent for the next six months.

Which of the following statements is true? - Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. - The balance sheet reports financial activities only for the current accounting period. - The income statement reports the financial position of a company at a point in time.

T: Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by _______ entries

adjusting

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of prepayment that remains towards future rental periods

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

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 a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

prepaid rent appears in the

balance sheet an an asset

Depreciation is the allocation of the ______ of buildings, vehicles, and equipment to expense over time as they are used.

cost

the adjusting entry for an accrued revenue always includes: (select all that apply) - debit to liability - debit to revenue - credit to liability - credit to asset - credit to revenue - debit to asset

credit to revenue and debit to asset

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

_________ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

deferred

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense, asset

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _______ expense

interest

______ is defined as the "cost of borrowing money."

interest

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.) - prepaid expense - revenue - cash expense - liability

liability and prepaid expense

How do temporary accounts differ from permanent accounts?

only temporary accounts are cleared out at the end of the accounting period.

Which of the following transactions would normally be recorded as an asset when cash is paid?

rent paid in advance

the two major categories reported in the income statement are

revenue and expenses

which of the following financial statements typically is prepared last? - balance sheet - statement of cash flows - statement of stockholder's equity - income statement

statement of cash flows

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n)

asset

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ________ in the period the benefit expires

expense

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

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?

statement of stockholder's equity

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _______ in the period the benefit expires

expense

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.) - A company records interest expense that has accrued, but will not be paid until next year. - A company pays a utility bill for charges incurred in the previous month. - A company pays a 6-month insurance premium at the beginning of October. - A company pays for 4 months of advertising in the Wall Street Journal on November 1.

- A company pays a 6-month insurance premium at the beginning of October. - A company pays for 4 months of advertising in the Wall Street Journal on November 1.

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.) - Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Insurance Expense for $1,800 on Dec. 1. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. - Taggert will debit Prepaid Insurance for $1,500 on Dec. 31.

- Taggert will credit Prepaid Insurance for $300 on Dec. 31. - Taggert will debit Insurance Expense for $300 on Dec. 31. - Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

A classified balance sheet shows subtotals for current _______ and current _____

assets; liabilities

with respect to current assets, ____ refers to how quickly an asset can be converted to cash

liquidity

closing entries move the balances from the ____ account into the retained earnings account

temporary