Chapter 3 smartbook

temporary account- permanent account-

1.revenues,expenses,dividends 2.assets,liabilities,equity

at year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

-accounts receivable is an asset -deferred revenue is a liability -supplies expense is an expense -salaries payable is a liability -depreciation expense is an expense -service revenue is a revenue

-assets reported in balance sheet -liabilities reported in balance sheet -expense reported in income statement -revenues reported in income statement

the adjusting entry for an accrued revenue always includes

a debit to an asset account, a credit to a revenue account

in an adjusting entry for expenses incurred but not yet paid

a liability is increasing since cash will be paid in the future due to the expense incurred

consistent with blank-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

accrual

reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as blank-basis accounting

accrual

to complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by blank entries

adjusting

adjusting entries:

are needed before financial statement preparation, update the accounts to their proper balances

prepaid insurance is an

asset in the balance sheet

a classified balance sheet shows subtotals for current blank and current blank

assets, liabilities

the entries that transfer the balance of all temporary accounts to retained earnings are referred to as

closing entries

depreciation is an allocation of the blank of buildings,vehicles, and equipment to expenses over time as they are used

cost

andy records an adjusting entry for deferred revenue. andy should

credit a revenue account, debit a liability account

the post-closing trial balance checks that total blank equal total blank at the end of the period

debits, credits

during december, mainzel interior design corporation redecorated the reception areas of a local hotel. the project was completed n december 31 with payment due in 30 days. payment was received on january 21 of the following year. When should mainzel recognize the related revenue using accrual accounting

december 31

blank revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period

deferred

the process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation

the statement of stockholders equity includes these amounts

dividends for the period, net income, ending balance retained earnings

adjusting entries are made at the blank of the accounting period, while daily transactions are made throughout the accounting period

end

if an adjusting entry's credit is to a liability account, then the debit must be to

expense

a classified balance sheet

groups asset and liabilities into current and long-term categories

an adjusting entry is necessary to record interest expense at year-end because the interest

has already been incurred

deferred revenue is a

liability

if an adjusting entrys debit is to an expense account, then the credit must be to which of the following

liability, prepaid expense

which of the following statements regarding the statement of cash flows are correct

reports cash disbursements, the final financial statement that is typically prepared, reports cash receipts

the two major categories reported in the income statement are

revenue, expense

under cash-basis accounting

revenues are recorded when cash is received, expenses are recorded when cash is paid

on april 1, katie inc. collected $2,400 from a customer for a 12-month membership starting on that date. on december 31, katie inc. should credit

service revenue for $1,800

which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends;common stock issued during the year;ending balances of common stock and retained earnings

statement of stockholders' equity

after the adjusting entries have been completed the adjusted balance in the supplies expense account represents the cost of supplies

used during the accounting period

the post-closing trial balance helps to verify that

we prepared and posted closing entries correctly, the accounts are ready for next period's transactions

how do adjusting entries for accrued expenses affect liabilities and expenses

adjusting entries for accrued expenses can increase liabilities and increase expenses

a prepayment that is originally recorded as an asset will be

allocated to future accounting periods based on the cost of the asset used during the period

when should supplies be recorded as an expense

in the period the supplies are used, regardless of when they were purchased

revenues and expenses are reported in the

income statement

which of the following statements is true

income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts

which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable

interest on the note payable is classified as an expense since it is a cost of borrowing.

adam corporation uses the cash-basis accounting. adam corporation should record expenses when

paid

closing entires move the balances from the blank accounts into the retained earnings account

temporary