Chapter 3

What happens to Temporary accounts at the end of the accounting period?

They are closed/cleared out

examples of accrued expenses

interest, taxes, utilities, salaries

examples of temporary accounts

revenues, expenses, dividends

The adjusted trial balance shows

A list of all accounts and their balances after we have updated account balances for adjusting entries

Which type of accounting is permitted under the current U.S. GAAP?

Accrual-basis accounting

adjusted entries

Are used at the end of the accounting period to record changes in assets and liabilities (and their related revenues and expenses) that have occurred during the period but have not been recording by the end of the period.

Prepaid expenses are recorded as _______.

Assets

A classified balance sheet shows subtotal for current ______ and current ______.

Assets; liabilities

The post-closing trial balance checks that total ______ equals total _____.

Debits; credits

Define accrued expenses

Expenses that occur when a company has used costs in the current period, but the company hasn't yet paid cash for those costs

A deferred revenue account is a liability or a revenue?

Liability

prepaid expenses

The costs of assets acquired in one period that will be expensed in a future period

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

Used during the accounts period.

A prepayment that is originally recorded as an asset will be _____.

allocated to future accounting periods based on the value of the benefit used during the period

Deferred Revenue

cash received in advance from a customer for products or services to be provided in the future

Accounting Cycle steps at the end of the peiod

1. Measurement process (record and post adjusting entries), 2. reporting process (prepare financial statements), 3. Closing process (record and post closing entries).

Define depreciation

An allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

The Adjusted trial balance should be prepared _______ the financial statements are prepared in order to prove the _______ of the debits and credits.

Before; equality

A classified balance sheet groups assets and liabilities into ______ and ______-______ categories.

Current; long-term

The closing entry for expense accounts involves a ______ to the retained earnings account and a ______ to the expenses acciunt

Debit, credit

A primary purpose is adjusting entries is to record events that ______.

Have occurred but that have not yet been recorded.

Accrual Basis Accounting

Helps measure and report revenues and expenses in a way that clearly represents the net income of a company.

Adjusting entries for accrued expenses affect liabilities and expenses by _______.

Increasing liabilities and increasing expenses

An adjusted entry for a deferred revenue includes a debit to a(n) ________ account and a credit to a(n) _______ account.

Liability; revenue

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

Recording of adjusted entries

Revenue Recognition Principle

Recording revenue in the period in which goods and services are provided to customers

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records _______. (Hint 2 answers)

Revenues in the period when the revenue is earned, even though the bash has not yet been collected; expenses in the period incurred, even though the cash has not yet been paid.

The difference between cash-basis and accrual-basis accounting is the ______ of when revenues and expenses are recorded.

Timing

examples of permanent accounts

assets, liabilities, owner's equity

Adjusting entries are not needed in two cases:

1) for transactions that do not involve revenue or expense activities, and 2) for transactions that result in revenues or expenses being recorded at the same time as the cash flow.

True or False: To close out an account at year end, you would do the opposite of the account norm in the DEALOR acronym.

True (example you would credit an expense account, and debit the retained earnings account)