Chapter 2

Select all that apply Accumulated depreciation is (Select all that apply.)

a contra asset account a balance sheet account

Prepayments occur when:

cash flow precedes expense or revenue recognition

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

The normal balance of the contra asset accumulated depreciation account is a(n) (1). (Enter one word per blank)

credit

Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared?

adjusted trial balance

Accrued receivables involve situations when the revenue is earned in a period ______ the cash receipt.

before

Deferred revenue should be classified as a(n) (1) on the balance sheet. (Enter one word per blank)

liability

A group of subsidiary accounts associated with a particular general ledger control account is called a:

subsidiary ledger

When are adjusting entries recorded?

At the end of a period when preparing financial statements.

Select all that apply Adjusting entries help a company accurately measure (Select all that apply.)

the company's financial performance. revenues and expenses for the period.

Select all that apply Which of the following are economic events? (Select all that apply.)

Borrowing $10,000 from the bank. The payment of employee salaries for the week.

Fill in the blanks to complete the sentence. Mann Corporation signed a note with principal and interest due in 6 months. The stated rate of interest on the note was 8%. If Mann accrues three months of interest at year-end, the formula Mann will use will be: Principal x (1)% x 3/12. (Input the number used to compute interest.)

1. 8

True or false: If a company makes end-of-year accruals, it must use reversing entries.

False

To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.

credit, debit

The adjusting journal entry required when deferred revenue is recognized includes a (1) entry to a liability.

debit

Select all that apply Adjusting entries are recorded for (Select all that apply.)

estimates accruals prepayments

Which of the following is an example of an accrued receivable?

Recording interest revenue before it is received.

True or false: The objective of an Enterprise Resource Planning (ERP) system is to create a customized software program that integrates the information of departments and functions of a company into a single computer system.

True

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

$85,000

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

How are items classified on the income statement?

operating and nonoperating

Select all that apply Revenue and expenses on the income statement are classified as: (Select all that apply.)

operating items non-operating items

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

Lassiter Corp. uses the periodic inventory method. During the year, Lassiter purchases $10,000 of inventory. Ending inventory is $6,000. Cost of goods sold is $12,000. Beginning inventory was:

$8,000

Entries made at the end of the accounting period before the financial statements are prepared are called (1) entries. (Enter only one word.)

1. Adjusting

Click and drag on elements in order Place the steps in the accounting process in the correct order.

1. Analyze the transaction. 2. Record the transaction. 3. Post from the journal to the general ledger. 4. Prepare the unadjusted trial balance.

(1) basis accounting measures income based on accomplishments and resource sacrifices during the period. (Enter only one word.)

1. accrual

Expenses incurred in one accounting period and paid for in a future accounting period are (1) liabilities. (Enter only one word.)

1. accrued

The contra account used to record depreciation is (1) depreciation. (Enter only one word.)

1. accumulated

When rent is paid in advance for 2 years, it is appropriately recorded as a(n) (1), whereas when rent is paid and used during one month, it is appropriately recorded as a(n) (2). (Enter one word per blank)

1. asset 2. expense

Prepaid expenses are the cost of (1) acquired in one accounting period and (2) in a future period. (Enter one word per blank.)

1. assets 2. expensed

(1) basis accounting measures the difference between cash receipts and cash disbursements during a reporting period. (Enter only one word.)

1. cash

The adjusting journal entry required when deferred revenue is recognized includes a Blank 1 of 1 entry to revenue.

1. credit

A(n) (1) event is any event that directly affects the financial position of the company. (Enter one word per blank)

1. economic

Adjusting journal entries are necessary for three situations: deferrals, accruals, and (1). (Enter only one word.)

1. estimates

Expenses and revenues that relate directly to the principal revenue-generating activities of the company are classified as (1) items on the income statement. (Enter only one word.)

1. operating

Cost of assets acquired in one accounting period and expensed in a future accounting period are (1) (2). (Enter one word per blank.)

1. prepaid 2. expenses

Adjusting journal entries are necessary for three situations: deferrals, (1), and estimates. (Enter only one word.)

1. prepayments

A(n) (1) is an informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period. (Enter only one word.)

1. worksheet

Which of the following accounts would most likely use a subsidiary ledger?

Accounts receivable

Which of the following is the correct formula to calculate cost of goods sold?

Beginning inventory + purchases - ending inventory

Which of the following steps occurs only at the end of the year?

Close the temporary accounts to retained earnings

On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1, will include which of the following entries?

Debit to deferred revenue $300.

The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n)

Enterprise Resource Planning (ERP) system.

Which of the following are examples of prepayments?

Purchasing supplies that will be used later

Select all that apply Which accounts most likely use a subsidiary ledger?

accounts payable accounts receivable

Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition.

after

Recognizing revenue before cash flow is an example of:

an accrual adjusting entry

Interest earned, but not yet received is an example of:

an accrued receivable

A company paying rent in advance for the month of April records:

an asset

Accrual accounting measures:

an entity's accomplishments and resource sacrifices during the period

Select all that apply A reversing entry is used: (Select all that apply.)

at the beginning of a reporting period. to simplify journal entries recorded during the new period. most often with accruals.

An accrued receivable occurs when revenue is earned:

before cash flow

Prepaid expenses are costs of assets acquired in an accounting period:

before they will be expensed

Cash basis accounting measures income based on

cash receipts and cash disbursements.

A deferred revenue liability appears on the balance sheet for:

cash received before revenue is earned

The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.

closing

Accrued liabilities are:

expenses incurred before cash was paid

Economic events cause changes in the:

financial position of a company

Deferred revenue is a(n):

liability on the balance sheet

One of the purposes of adjusting entries is to

recognize all revenues earned during the period.

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?

retained earnings

Select all that apply Adjusting journal entries are needed to record (Select all that apply.)

revenue earned, but not yet received expense incurred, but not yet paid

Select all that apply Prepayments are: (Select all that apply.)

transactions in which cash flow precedes revenue recognition. transactions in which cash flow precedes expense recognition.

Adjusting entries are recorded:

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:

worksheet