Chapter 3 Accounting

-They are a liability. -They are also called deferred revenues. -They refer to cash received in advance of performing a service or product. -They are reported on a balance sheet.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

-the closing process resets the balances in temporary accounts to zero. -the closing process helps to summarize a period's revenues and expenses.

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

-Examples of accrued expenses are wages expense and interest expense. -Adjustments involve increasing both an expense and a liability account. -They are reported on an income statement. -They refer to costs that are incurred in a period, but are both unpaid and unrecorded.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply

-They refer to costs that are incurred in a period, but are both unpaid and unrecorded. -They are reported on an income statement. -Examples of accrued expenses are wages expense and interest expense. -Adjustments involve increasing both an expense and a liability account

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

-Notes payable (due in three months) -Accounts payable -Taxes payable -Unearned rent

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.)

Trademark Goodwill Patent Copyrights Franchise

Identify the accounts below that would be classified as intangible assets on a classified balance sheet. (Check all that apply.)

-Mortgage payable -Bonds payable (due in five years)

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Accounts receivable Prepaid rent Cash Office supplies

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

-Temporary accounts are reported on the income statement. -Retained Earnings is a permanent account, but Dividends is a temporary account. -Temporary accounts have a balance for one period only. -Permanent accounts are reported on the balance sheet. -Permanent accounts will appear on a post-closing trial balance.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

$350

$21,000 of equipment is purchased on December 1. It is estimated that it will have a life of 5 years and zero salvage value. Calculate the first month's depreciation expense as of December 31 using the straight-line method.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Describe an unclassified balance sheet.

-Land held for future expansion -Notes receivable due in 2 years -Investments in bonds

Identify the accounts below that would be classified as a long-term investment. (Check all that apply.)

Machinery Building Equipment Land currently being used

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

1. enter the unadjusted trial balance 2. enter adjustments 3. prepare the adjusted trial balance 4. sort the adjusted trial balance amounts to the financial statements 5. total the statements columns and computer income or loss and balance columns

Place the following steps in preparing a work sheet in the correct order of completion. (Put the first step at the top.) Position 1 of 5 Enter the unadjusted trial balance correct toggle button unavailable Enter the unadjusted trial balance

-Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. -Long-term investments are sometimes referred to as noncurrent investments.

What defines a long-term investment? (Check all that apply.)

adjusted unadjusted

the ______ rial balance is prepared by combining the adjustments in the Adjustments columns with the balances for each account listed on the _______ trial balance.

-Supplies would be credited for $300. -Supplies expense would be debited for $300.

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. Long-term investments are sometimes referred to as noncurrent investments.

What defines a long-term investment? (Check all that apply.)

Depreciation is the process of allocating the costs of long-term assets over their expected useful life

What is depreciation?

-The adjusted trial balance is used to prepare financial statements. -The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. -The adjusted trial balance generally has more accounts listed than the unadjusted trial balance.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

-Accumulated depreciation is subtracted from its plant asset on the balance sheet. -Accumulated depreciation is a contra account. -Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase. -The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account.

Which of the following statements about the Accumulated depreciation account is (are) correct? (Check all that apply.)

temporary, zero

Closing means to transfer account balances from_______ accounts so that they will start with a ________ balance at the beginning of the next period.

cash and other resources that are expected to be sold, collected or used within one year

Current assets are:

year quickly

Current items can be described as those expected to come due within one _________ and are listed in the order of how _______ they could be converted to or paid in cash.

end adjusted after

The closing process takes place at the ______ of an accounting period, after the ________ trial balance is prepared and ________ the financial statements are prepared.

net income net sales

The formula to figure out the profit margin of a company is _______ divided by ________

Insurance expense would be debited for $300.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

revenues expenses incurred

Accrual basis accounting recognizes __________ when earned and records __________ when _________ in order to adhere to the matching principle.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

Define "current" as it applies to assets and liabilities on a classified balance sheet.

-An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. -Supplies were purchased at the beginning of the year, but not all were used. -Six months of rent were paid in advance. -Equipment was purchased in the middle of the year. -a 24-month insurance policy was prepaid

Determine which of the following transactions may require adjustments. (Check all that apply.)

keying the adjustments

Journalizing and posting adjusting entries from the work sheet is aided by which of the following?

credited debited retained earnings

The Income Summary account is _______ for the sum of all revenue accounts and is ________ for the sum of all expense accounts and its balance will be transferred to the _________ account

-Current liabilities are obligations due to be paid within one year. -Current liabilities are usually settled by paying out current assets such as cash. -Current liabilities are reported in the order of those to be settled first.

What are current liabilities? (Check all that apply.)

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

What is a plant asset?

supplies

Which of the following accounts is considered a prepaid expense?

Buildings, Machines

Which of the following lists of assets would be classified as plant assets?

Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

Which of the following statements is correct regarding a work sheet and the adjustment process?

-A temporary account is closed at the end of an accounting period. -A temporary account has a balance for only one period.

Which of the statements below describe(s) a temporary account? (Check all that apply.)

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Which of the statements below explains the accounting cycle?

temporary, earnings

the purpose of the closing process is to reset _______ account balances to zero and to transfer the changes in all of these accounts to the Retained _______ account.

-It is a tangible long-term asset. -It has a life within the business greater than one year. -Its original cost (minus any salvage value) is expensed over its useful life. -It is reported on the balance sheet.

A plant asset can be defined by which of the following statements? (Check all that apply.)

permanent ledger after closing

A post-closing trial balance is a list of _______ accounts and their balances from the ________ all _________ entries have been journalized and posted.

is used to simplify record keeping is optional

A reversing entry: (Check all that apply).

should be recorded when goods or services are provided to customers at an amount expected to be received

The revenue recognition principle states that revenue:

operating

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the _______ cycle

-Shows the effects of what-if transactions -Links accounts and adjustments to financial statements -Helps in the preparation of financial statements -Reduces the risk of errors when working with many accounts and adjustments

What are the benefits of using a work sheet? (Check all that apply.)

revenues

accrued ______ are earned in a period that are both unrecorded and not yet received in cash.

Debit Depreciation expense; credit Accumulated depreciation.

Choose the statement below that demonstrates the correct adjusting entry to recognize depreciation expense on a building.

-The adjustment can be added to a blank line. -The adjustment can be squeezed in on one line of the trial balance. -The adjustment can be combined into one adjustment amount.

Explain how to add adjustments to a work sheet when more than one adjustment is required: (Check all that apply.)

Unearned revenue; Supplies; Prepaid rent

Identify which group of accounts may require adjustments at the end of the accounting period.

At the end of an accounting period

When does the closing process take place?

Wages expense, Interest expense

Which of the accounts below are considered accrued expenses?

one month, six month, one year

what would be a logical or realistic accounting period for a business that is creating financial statements?

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Describe the final step in the adjusting process.

Building Vehicles Land Equipment

Which of the accounts below would be classified as long-term or fixed assets? (Check all that apply.)

Sort adjusted trial balance amounts to the financial statement columns.

After an adjusted trial balance is prepared, what is the next step in completing the work sheet used in preparing financial statements?

Unearned revenues refer to cash received in advance of providing a service or product.

Explain what unearned revenues are by choosing the correct statement below.

Long-term liabilities are debts of a business that are not due to be settled within one year.

Which of the following defines long-term liabilities?

-Profit margin is the ratio of a business's net income to its net sales. -Profit margin is a useful measure of a business's operating results. -Profit margin is also called return on sales.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

-The income statement is the first financial statement prepared after preparing the adjusted trial balance. -The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. -The adjusted trial balance includes all accounts and balances appearing in financial statements. -Financial statements are prepared more easily using the adjusted trial balance than with the general ledger.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

It is a listing of all permanent accounts and their balances after closing.

Select the statement below that describes a post-closing trial balance.

It can help with adjusting and closing accounts and with preparing financial statements.

What is a work sheet? (Check all that apply.)

-Intangible assets are long-term resources that benefit business operations, but lack physical form. -The value of intangible assets comes from the privileges or rights granted to or held by the owner.

What is an intangible asset? (Check all that apply.)

Prepaid insurance Supplies Prepaid rent

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

-They refer to earnings which have been earned but not yet billed. -Accounts receivable is usually increased when accruing revenues. -The adjustment causes an increase in an asset account and an increase in a revenue account. -They refer to revenues that are earned in a period, but have not been received and are unrecorded.

Which of the following describes accrued revenue? (Check all that apply)

-Businesses report financial information at regular intervals to ensure timeliness of data. -The value of information is often linked to its timeliness. -Useful information must reach decision makers frequently.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Wages Expense; Income Summary; Dividends

Which of the following lists contains only temporary accounts?

depreciation expense credit accumulated depreciation

A depreciation adjustment would include a debit to _____ and ______ to ________

statements end adjustments adjusted

A work sheet is a helpful tool which may be used to help prepare financial ________. It is constructed at the ______ of an accounting period before the adjusting process. All adjustments can easily be seen in the _______ trial balance columns and then an ________ trial balance can be prepared.

-an accounting system which is consistent with generally accepted accounting principles. -an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. -an accounting system that best reflects business performance and increases the comparability of financial statements from period to period.

Accrual basis accounting is:

a list of accounts and balances after adjusting entries have been recorded and posted

An adjusted trial balance is:

Debit Salaries expense for $500.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

revenue liability

Cash received from a customer for unearned subscription revenue can initially be recorded as either a(n) ______ or a(n). No matter how an unearned revenue was initially recorded, after the adjusting entry, net income will be identical.

Closing means to bring an account balance to zero.

Choose the statement below that explains what "closing" means.

-Plant assets are equipment and other assets that have a life greater than one year. -Plant assets are difficult to convert to cash quickly. -Plant assets are property, plant and equipment that are tangible.

Define plant assets by selecting the correct statements below. (Check all that apply.)

It is a temporary account used during the closing process to summarize revenues and expenses.

Define the Income Summary account.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Explain the difference between the unadjusted and the adjusted trial balance.

1) determine what the current account balance equals 2) determine what the current account balance should equal 3) record an adjusting entry

Place the steps in the adjusting process in the correct order in which they would be performed.

-Any unused prepaids existing at end of period are transferred to asset accounts. -Record all prepaid expenses with debits to expense accounts.

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.)

-Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life. -Depreciation is recorded through an adjusting entry. -Depreciation is the process of allocating the cost of an asset to the period the asset benefits. -Depreciation is recognized at the end of an accounting period.

Which of the following statements are true regarding depreciation? (Check all that apply.)

-The accounting cycle contains 10 steps. -The accounting cycle refers to steps followed by a company to prepare its financial statements. -The accounting cycle is a series of steps repeated each reporting period. -The cycle contains steps for adjusting and closing accounts.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

A temporary account will not appear on a post-closing trial balance.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

-The length of a company's operating cycle depends on its activities. -The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. -Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current. -Most operating cycles are less than one year.

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

Select the statement below that explains how to use the Income Summary account.

-One purpose is to verify that total debits equal total credit for permanent accounts. -One purpose is to verify that all temporary accounts have zero balances.

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

1. prepare an unadjusted trial balance 2. journalize and post adjusting entries 3. prepare an adjusted trial balance 4. prepare financial statement

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

-A temporary account -An account that contains a credit for the sum of all revenues -An account whose balance equals net income or net loss -An account used during the closing process

The Income Summary account can be defined as which of the following? (Check all that apply.)

expenses revenues adjusting

The expense recognition (matching) principle aims to record ________ in the same accounting period as the ________ that are earned as a result of those costs. This principle is a major part of the _________ process.

-Entering the unadjusted balance for each account in the correct Debit or Credit columns of the Unadjusted Trial Balance columns. -Entering the titles of all accounts and their account number.

The first step in preparing a work sheet includes:

credit debit summary

The journal entry to close all of a company's expense accounts would include a ________ to each of the expense accounts and a corresponding __________ to the Income ________ account.