Chapter 4

accrual adjustment involving a revenue account

interest revenue on a note receivable

found on income statement and statement of retained earnings

net income

reported on both income statement and statement of retained earnings

net income

found on statement of retained earnings

net income dividends NOT: sales revenue rent expense interest payable

an adjusting entry affects _______

one balance sheet account and one income statement account

How do temporary accounts differ from permanent accounts?

only temporary accounts are closed at the end of the accounting period

Preparing a _______ trial balance is the last step in the accounting cycle.

post-closing

salaries and wages payable will be paid in the future period, what will be effect on the accounts be when the wages and salaries are paid?

salaries / wages payable will decrease cash will decrease

Found on an income statement

sales rev rent expense interest expense NOT: interest payable prepaid rent dividends

adjusted trial balance

will be used to determine the asset and liability balances on the balance sheet

entries needed for the closing process

-Credit Dividends Declared and debit Retained Earnings - Debit each revenue, credit each expense, and record the difference in Retained Earnings.

Steps at the end of the accounting period to complete the financial statement preparation process

1- prepare adjusted entries 2- prepare adjusted trial balance 3- prepare the financial statements

the purpose of adjusting entries for income taxes is to record income taxes ____________ the accounting period.

accrued, but not yet paid, at the end of

debut to expense and credit to liability

accruing services received that have not yet been paid

What describes the effect that adjustments may have on liabilities?

adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period

after closing process, which accounts will have a zero balance?

all temporary accounts dividends expenses revenues NOT: all permanent accounts retained earnings

used to record the adjusting entry for the amortization of long-term assets that lack physical substance

amortization expense accumulated amortization

if an adjusting entry decreased an asset on the balance sheet, then one can conclude that ....

an expense was increased on the income statement

adjusting entries never affect the asset account called ________

cash

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the ________ process.

closing

if an asset account such as equipment has a normal debit balance, the associaled contra-account should have a normal _______ balance

credit

At Dec 31, profit before tax = 12,000 tax rate 25% adjustment will include a __________ of __________ to income tax expense

debit of 3,000

adjusting entry to record interest owed on obligations at the end of the accounting period

debit to interest expense credit to interest payable

salaries and wages payable

debited when the wages that are previously recorded are paid

adjusting entry to record revenue the seller has performed of its obligations but not yet collected

equity increase assets increase

interest incurred but not yet paid

expense and liability

temporary accounts

income statement

the adjusting entry to record interest owned on obligations at the end of the accounting period includes a debit to ____

interest expense and credit to notes payable

adjustment 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

found on a balance sheet

interest payable prepaid rent NOT: dividends rent expense sales revenue interest expense

permanent accounts are found on

only the balance sheet

The adjusting entry for income taxes records income tax that is incurred and _______ by the company.

owed The payable balance represents the amount of taxes owned, but not yet paid.

which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance

retained earnings

why is it necessary to make adjustments to revenue accounts at the end of the accounting period

revenues the seller has performed of its obligations but not yet billed to accounts receivable, should be recorded as revenue. deferred revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period

financial statement reports the dividends during the current accounting period

statement of retained earnings

what are the reports made available to the public?

statement of retained earnings balance sheet notes to the financial statement statement of cash flows income statement

what is the purpose of preparing an adjusted trial balance?

to ensure that total debits equal total credits after the adjustments have been recorded

effects on the financial condition from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected

total assets increases equity increases

After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents...

total income tax that has been paid or accrued during the period

after adjustments, adjusted balance on Interest Expense account

total interest that has been paid or accrued during the period

T or F: After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet

true

what are the reports that are NOT made available to the public?

unadjusted trial balance

adjusted income before income tax expense is 10,000 tax rate is 20% what is net income?

8,000

adjusting entry for supplies used during the period

credit to supplies debit to supplies expense

adjusting entry to record depreciation on equipment

debit to depreciation expense credit to accumulated depreciation