Ch 3: The Adjusting Process

Assets

Accrued revenue and prepaid expense are: Assets or Liabilities

Depreciation Expense

Beginning accumulation depreciation + ___________-Accumulated depreciation of retiring assets = Ending depreciation

Expense

Beginning prepaid expense + Additional payments -______________= Ending prepaid

Supplies Expense

Beginning prepaid expense + Supplies bought -_________= Ending supplies

True

Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting. True/False

True

Generally accepted accounting principles require accrual-basis accounting. True/False

Adjusted Trial balance

The trial balance prepared after all the adjusting entries have been posted.

Accruals and Deferrals accounts

The type of accounts require adjustment are:

When they are incurred, whether or not cash is paid

Using accrual accounting, expenses are recorded and reported only -if they are paid after they are incurred - if they are paid before they are incurred - when they are incurred and paid at the same time -when they are incurred, whether or not cash is paid

When the service are rendered without regard to when cash is received.

Using accrual accounting, revenue is recorded and reported only -when the services are rendered without regard to when cash is received - when cash is received at the time services are rendered - if cash is received after the services are rendered - when cash is received without regard to when the services are rendered

Net Book Value

_____________=Cost-Accumulated depreciation

Liabilities

Accrued expenses and Unearned revenue are : Assets or Liabilities

states that the revenues and related expenses should be reported in the same period

. The matching principle - determines whether the normal balance of an account is a debit or credit - requires that the dollar amount of debits equal the dollar amount of credits on a trial balance - addresses the relationship between the journal and the balance sheet - states that the revenues and related expenses should be reported in the same period

Unadjusted Trial Balance

A summary listing of the titles and balances of accounts in the ledger prior to the posting of adjusting entries.

Adjusting process

An analysis and updating of the accounts when financial statements are prepared.

Matching

The accounting principle upon which deferrals and accruals are based is -price-level adjustment - conservatism -matching -cost

Adjusting entries

The journal entries that brings the accounts up to date at the end of the accounting period.

True

The matching principle requires expenses be recorded in the same period that the related revenue is recorded. True/False

Determines when revenue is credited to a revenue account

The revenue recognition principle -controls all revenue reporting for the cash basis of accounting -states that revenue is not recorded until the cash is received -is not in conflict with the cash method of accounting - determines when revenue is credited to a revenue account

True

The revenue recognition principle states that revenue should be recorded in the same period as the cash is received. True/False

False - this is the Expense Recognition Principle or the Matching Principle

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting. True/False

Deferrals o If the cash received is related to future revenue, it is initially recorded as a liability called unearned revenue. -The adjusting entry in the period when the revenue is earned debits an unearned revenue account and credits a revenue account. o If the cash paid is related to a future expense, it is initially recorded as an asset called prepaid expense. -The adjusting entry in the period when the expense is incurred debits an expense account and credits a prepaid expense (asset) account.

occurs when cash related to a future revenue or expense has been initially recorded as a liability or an asset.

Accruals o If the accrual is for revenue, the adjusting entry debits an asset (Accounts Receivable) and credits a revenue account. o If the accrual is for an expense, the adjusting entry debits an expense account and credits a related liability account such as Accounts Payable or Wages Payable.

occurs when revenue has been earned or an expense has been incurred but has not been recorded.