Chapter 2 - Smartbook
The contra account used to record depreciation is depreciation.
accumulated
The balance sheet account that depreciation is recorded to is:
accumulated depreciation
Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared?
adjusted trial balance
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
Accrual accounting measures:
an entity's accomplishments and resource sacrifices during the period
Accrued liabilities are costs incurred in an accounting period:
before a cash payment
Prepayments occur when:
cash flow precedes expense or revenue recognition
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
The normal balance in a contra asset account is
credit
The normal balance of the contra asset accumulated depreciation account is a _____________________.
credit
Which of the following steps occurs only at the end of the year?
Close the temporary accounts to retained earnings
Which of the following are economic events?
- Borrowing $10,000 from the bank. - The payment of employee salaries for the week.
Adjusting entries are recorded for
- accruals - prepayments - estimates
Accruals occur when cash flow comes:
- after expense recognition - after revenue recognition
Revenue and expenses on the income statement are classified as:
- operating items - non-operating items
The components of the income statement are usually classified as:
- operating items - non-operating items
Adjusting journal entries are needed to record
- revenue earned, but not yet received - expense incurred, but not yet paid
Adjusting entries help a company accurately measure
- revenues and expenses for the period. - the company's financial performance.
Adjusting entries help a company accurately measure:
- revenues and expenses for the period. - the company's financial performance.
Prepayments are:
- transactions in which cash flow precedes revenue recognition. - transactions in which cash flow precedes expense recognition.
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:
Use COGS Formula: Beginning inventory + purchases - ending inventory
What is the correct order of the accounting process?
1. Analyze the transaction 2. Record the transaction 3. Post the journal to the General Ledger. 4. Prepare the unadjusted trial balance.
What are the steps in the Accounting Period in the correct order.
1. Prepare an unadjusted Trial Balance. 2. Record Adjusting Entries 3. Prepare an adjusted Trial Balance. 4. Prepare Financial Statements. 5. Close the temporary accounts.
On October 1, Hill Corporation signed a 6-month note with principal of $10,000 and interest of $600 due in six months. The stated rate of interest on the note is
12% To do this: $600 / $10,000 = .06% Then multiply this x 2 since this is a 6 month note, and interest is always stated in an annual rate
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 % x 3/12. (Input the number used to compute interest.)
8
Adjusting journal entries are necessary for three situations: deferrals, ____________________ , and estimates.
Accruals
Entries made at the end of the accounting period before the financial statements are prepared are called _____________ entries.
Adjusting
Entries made at the end of the accounting period before the financial statements are prepared are called ______________________ entries. (Enter only one word.)
Adjusting
Entries made at the end of the accounting period before the financial statements are prepared are called _________________________ entries. (Enter only one word.)
Adjusting
When are adjusting entries recorded?
At the end of a period when preparing financial statements.
Which of the following is the correct formula to calculate cost of goods sold?
Beginning inventory + purchases - ending inventory
Prepaid expenses are the cost of _______________ acquired in one accounting period and _____________________ in a future period.
Blank 1: Assets Blank 2: Expensed
Cost of assets acquired in one accounting period and expensed in a future accounting period are ____________________ _______________________.
Blank 1: Prepaid Blank 2: Expense
To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.
Blank 1: credit Blank 2: debit
_______________________ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period.
Cash
The adjusting journal entry required when deferred revenue is recognized includes a _____________ entry to revenue.
Credit
The adjusting journal entry required when deferred revenue is recognized includes a ____________________ entry to a liability.
Debit
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.
A(n) _______________ event is any event that directly affects the financial position of the company. (Enter one word per blank)
Economic
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.
Deferred revenue is a ________________ on the balance sheet
Liability
Deferred revenue should be classified as a _____________ on the balance sheet.
Liability
Expenses and revenues that relate directly to the principal revenue-generating activities of the company are classified as _______________ items on the income statement.
Operating
Which of the following is an example of an accrued receivable?
Recording interest revenue before it is received.
True or False: The stated interest rate on debt instruments is always stated as an annual rate.
True Interest rates always are stated as the annual rate.
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 Rationale: ERP systems are usually customized packages used in larger firms.
Adjusting journal entries are necessary for three situations: deferrals, accruals, and ___________________.
estimates
Adjusting journal entries are necessary for three situations: deferrals, accruals, and ____________________.
estimates
Prepaid expenses are:
expensed in a later period than cash was paid
Accrued liabilities are:
expenses incurred before cash was paid
Economic events cause changes in the:
financial position of a company
Deferred revenue should be classified as a(n) _____________ on the balance sheet.
liability
Deferred revenue is a:
liability on the balance sheet
How are items classified on the income statement?
operating and nonoperating
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
Adjusting entries are recorded:
when the financial statements are prepared
