intermediate ACCT.410 CH. 2

Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is

$13,000.

Which of the following transactions would result in a decrease to the company's liabilities?

A payment was made on account to a vendor

Which of the following accounts would most likely use a subsidiary ledger?

Accounts receivable

Which of the following would ordinarily be classified as current assets on the balance sheet?

Accounts receivable, Cash

Which of the following statements regarding adjusting entries is correct?

Adjusting entries are needed because we use accrual-basis accounting.

A trial balance can best be explained as a list of:

All accounts and their balances at a particular date.

The payment of utilities for the period would have what effect on the accounting equation?

Assets decrease; owners' equity decreases

When are adjusting entries recorded?

At the end of a period when preparing financial statements.

Which statement does not report financial data over a period of time?

Balance Sheet

Which of the following steps occurs only at the end of the year?

Close the temporary accounts to retained earnings

The purchase of supplies on account would be recorded in a journal entry with a:

Debit to Supplies

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.

Adjusting entries do not need to be posted to the general ledger.

False

True or false: If a company makes end-of-year accruals, it must use reversing entries.

False (Reversing entries are not required. However, if they are not used, then the accountant must remember to debit and credit the proper accounts in the subsequent year's entries.)

A chronological record of all economic events affecting financial position

Journal

Captures the effect of a transaction on financial position in debit/credit form

Journal entry

Collection of accounts that organizes the accounts and allows for keeping track of increases and decreases and resulting balances

Ledger

Assets =

Liabilities + Owner's Equity

An adjusted trial balance is a:

List of all accounts and their balances after adjusting entries.

Which of the following equations is correctly stated?

Net income +/− Other comprehensive income or loss items = Comprehensive income

Which of the following is not a source document?

Newspaper advertisements

Transferring debits and credits recorded in individual journal entries to the specific accounts affected

Posting

Which of the following are examples of prepayments?

Purchasing supplies that will be used later

Which of the following statements about general ledger accounts is true? a)Asset accounts are permanent accounts that are increased with credits. b)Liability accounts are temporary accounts that are increased with credits. c)Revenue accounts are temporary accounts that are increased with credits. d)Expense accounts are permanent accounts that are increased with debits.

Revenue accounts are temporary accounts that are increased with credits.

Which of the following accounts are closed at the end of the year?

Salaries expense & Service revenue

Prepare an unadjusted trial balance

Step 5

Record and post adjusting entries

Step 6

Prepare an adjusted trial balance

Step 7

Prepare the financial statements

Step 8

Process of reviewing source documents to determine dual effect on the accounting equation

Transaction analysis

Accumulated depreciation is

a balance sheet account, a contra asset account

Which accounts most likely use a subsidiary ledger?

accounts payable, accounts receivable

_____ basis accounting measures income based on accomplishments and resource sacrifices during the period.

accrual

Expenses incurred in one accounting period and paid for in a future accounting period are ________ liabilities.

accrued

The contra account used to record depreciation is _______ depreciation.

accumulated

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

Entries made at the end of the accounting period before the financial statements are prepared are called _______ entries.

adjusting

Accruals occur when cash flow comes:

after revenue recognition, after expense recognition

Recognizing revenue before cash flow is an example of:

an accrual adjusting entry

Accrual accounting measures:

an entity's accomplishments and resource sacrifices during the period

Prepaid expenses are the cost of _______ acquired in one accounting period and _________ in a future period.

assets, expensed

_____ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period.

cash

Prepayments occur when:

cash flow precedes expense or revenue recognition

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 adjusting journal entry required when deferred revenue is recognized includes a ________ entry to revenue.

credit

The normal balance in a contra asset account is

credit

To increase the accumulated depreciation account, you would ______ the account, and to increase depreciation expense, you would _____ the account.

credit, debit

The adjusting journal entry required when deferred revenue is recognized includes a _____ entry to a liability.

debit

A(n) _________ event is any event that directly affects the financial position of the company.

economic

Adjusting journal entries are needed to record

expense incurred, but not yet paid revenue earned, but not yet received

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 is a(n):

liability on the balance sheet

A reversing entry is used:

most often with accruals., at the beginning of a reporting period., to simplify journal entries recorded during the new period.

The components of the income statement are usually classified as:

non-operating items, operating items

How are items classified on the income statement?

operating and nonoperating

Revenue and expenses on the income statement are classified as:

operating items, non-operating items

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

To record an adjusting entry when deferred revenue is recognized:

revenue is credited, deferred revenue is debited

Adjusting entries help a company accurately measure

the company's financial performance., revenues and expenses for the period.

Adjusting entries are recorded:

when the financial statements are prepared

A(n) _____ is an informal tool used to organize the accounting information and to prepare adjusting and closing entries at the end of the period.

worksheet

An informal tool used to organize the accounting information needed to prepare adjusting and closing entries and the financial statements is a:

worksheet