MGMT20000

"accruals?"

Expenses incurred, not yet paid Goods and services provided, not yet collected

Interest is defined as the "cost of borrowing money."

Interest

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

credit to Revenue debit to Deferred Revenue

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

An asset that can quickly be turned into cash has the characteristic of

liquidity

The adjusting entry for supplies used requires a to Supplies and a to Supplies Expense.

Blank 1: credit Blank 2: debit

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for Blank 1Blank 1 adjusting, Correct Unavailable entries.

adjusting

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______. $23,000

Rationale: Prepaid rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

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

closing entries

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

depreciation.

With respect to current assets, Blank 1Blank 1 liquidity, Correct Unavailable refers to how quickly an asset can be converted to cash.

liquidity

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply) Stockholders' equity is increased A liability is decreased Revenue is increased Another asset is increased

A liability is decreased Another asset is increased

occur when the cash flow occurs after either the expense is incurred or the revenue is earned. (Enter only one word.)

Accrual

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 X on hand at the end of the accounting period Rationale: This amount would be found in the Supplies account. The supplies remaining in a company's possession are an asset for the company.

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting.

Reporting revenues only when cash is received and expenses only when cash is paid is called the basis of accounting. (Enter one word per blank.)

cash

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

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

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. The balance sheet reports financial activities only for the current accounting period. Rationale: The balance sheet reports amounts at a specific point in time, i.e. the end of the accounting period. It does not report the activity of only the current accounting period.

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

F. Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

Which of the following statements regarding the statement of cash flows are correct?

Reports cash receipts Reports cash disbursements The financial statement that is typically prepared last

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset Revenues represent amounts recognized during the period when goods and or services are provided to customers. Assets represent economic benefits that remain at the end of the period.

Prepaid rent appears

balance sheet because it is an asset

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______.

remaining at the end of the accounting period

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer. Rationale: Deferred revenue represents the amount of sales or services that have been collected in advance of being earned. Accounts Receivable represents that amount of sales or services provided during the current period, but not yet collected.

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period the cost of supplies used during the accounting period Rationale: This amount would be found in the "Supplies Expense" account. Supplies that have been used up represent an expense for the company.

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) in the period the benefit expires. (Only one word per blank)

expense

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)

liability prepaid expense cash expense Rationale: There is no account called "Cash expense". The debit is to Expense because the expense is incurred. The credit is to a liability because the expense has not yet been paid, i.e., is owed. No adjusting entries involve cash. revenue Rationale: The credit is to a liability, not revenue, when the debit is to an expense. This type of adjusting entry records the expenses incurred during the period that have not been paid, i.e., are owed.

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

35,910 ($53,520/24 months*7 months remaining)+($34,800/24 months*14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period. Adjusting entries reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period. Rationale: Liabilities will increase when expenses are incurred, but not paid. Adjusting entries do not have any effect on liabilities, since cash is not included in the adjusting entries. Rationale: Adjustments may result in either increases or decreases in liability 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. Interest on the note payable will not accumulate because it is paid at the end of each year. Rationale: Interest expense is paid according to the terms of each loan contract. The interest may be paid periodically or it may be paid at the maturity of the note. Interest on a note payable should be credited to Notes Payable because it increases the amount of principal to be repaid at the maturity of the note. Rationale: Interest expense is generally recorded in Interest Payable until it is paid. The amount is not directly added to Notes Payable. Interest on the note payable is classified as a revenue since it is an amount that can be earned on investments. Rationale: Interest on a note payable relates to interest expense. Interest revenue is the account used to record interest earned on investments.

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 Rationale: Katie already provided service for 9 months; $2,400 * 9/12

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.)

Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31. Insurance Expense is to be debited by the cost of insurance used each month which equals $300 ($1,800/6 months). The Prepaid Insurance will be credited by $300 (not $1,500) resulting in a Sept. 30 balance of $1,500.

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is

Three accounts are affected: equipment, notes payable, and cash.

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 a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment Rationale: Adjusting entries for accruals relate to entries that record revenues and expenses earned or incurred during the period prior to when the cash changes hands. Accrual adjustments include increasing assets and revenue or increasing expenses and liabilities. No cash is involved in adjusting entries. the liability recorded when cash was received is increasing as the expense is incurred Rationale: Adjusting entries for accruals relate to entries that record revenues and expenses earned or incurred during the period prior to when the cash changes hands. Accrual adjustments include increasing assets and revenue or increasing expenses and liabilities. the liability recorded when cash was received is decreasing as the expense is incurred Rationale: Adjusting entries for accruals relate to entries that record revenues and expenses earned or incurred during the period prior to when the cash changes hands. Accrual adjustments include increasing assets and revenue or increasing expenses and liabilities.

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date the asset recorded when cash was paid is decreased as the revenue is earned Rationale: The adjusting entry to record revenues earned but not yet collected includes a debit to Accounts Receivable (an increase to an asset) and a credit to Revenue (an increase to stockholders' equity). the asset recorded when cash was paid is increased as the revenue is earned Rationale: The adjusting entry to record revenues earned but not yet collected includes a debit to Accounts Receivable (an increase to an asset) and a credit to Revenue (an increase to stockholders' equity). an asset is decreased since cash is being paid at the time of the adjustment Rationale: The adjusting entry to record revenues earned but not yet collected includes a debit to Accounts Receivable (an increase to an asset) and a credit to Revenue (an increase to stockholders' equity).

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

an increase

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n)

asset

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period An amount owed would be found in a liability account.

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.)

credit to Prepaid Insurance debit to Insurance Expense

Deferred 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. (Enter only one word.)

Deferred

Depreciation is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

Depreciation

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period. Only permanent accounts are found on the financial statements. Rationale: Revenues and expenses are found in the income statement, and they are temporary accounts. Balance sheet accounts are all permanent accounts. Only temporary accounts are used in the adjustments at the end of the accounting period. Rationale: Adjusting entries involve one balance sheet account and one income statement account. Revenues and expenses are found in the income statement, and they are temporary accounts. Balance sheet accounts are all permanent accounts. Only permanent accounts are transferred to Retained Earnings during the closing process. Rationale: Temporary accounts are transferred to Retained Earnings during the closing process.

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

The adjusting entry for prepaid rent requires a(n) Blank 1Blank 1 debit, Correct Unavailable to Rent Expense and a(n) Blank 2Blank 2 credit, Correct Unavailable to Prepaid Rent.

debit, credit

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase The asset value is decreasing as the benefit of the prepayment is being used. Consequently, the expense account is increasing by the value of the benefit used.

The statement of stockholders' equity includes these amounts:

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

Adjusting entries are made at the of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end

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

expense revenue Rationale: The debit is to expense, not revenue, when the credit is to a liability. This type of adjusting entry records the expenses incurred during the period that have not been paid, i.e., are owed. cash expense Rationale: There is no account called "Cash expense". The debit is to Expense because the expense is incurred. The credit is to a liability because the expense has not yet been paid, i.e., is owed. No adjusting entries involve cash.

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

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

recording of adjusting entries