Account 101: Chapter 3 -

Match the accounts with the correct terms.

Temporar= revenues, expenses, dividends Permanent= assets, liabilities, equity

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.

---basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company. (Enter only one word.)

acctual

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by________entries.

adjusting, adjusted, adjust, or adjustment

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as adjusting entries post-closing entries closing entries external entries

closing entries

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period. decreased; increased increased; decreased decreased; decreased increased; increased

decreased; increased

The process of allocating the cost of an asset to expense over the useful life of the asset is called book value. depreciation. asset valuation. contra accounting.

depreciation.

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, closing, close, or ending

1. Adjusting entries (Select all that apply.) update the accounts to their proper balances. are prepared at the beginning of the period. are needed before financial statement preparation. are required in cash-basis accounting only.

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

a classified balance sheet shows subtotals for current a classified balance sheet shows subtotals for current _____________and current_________________

Blank 1: assets or asset Blank 2: liabilities or liability

The post-closing trial balance checks that total______equal total_______at the end of the period

Blank 1: debits, total debits, debit, temporary, or dr Blank 2: credits, total credits, credit, zero, or cr

______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, Unearned, or Deffered

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on 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? January 31 December 31 January 21

December 31

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

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? Income statement Balance sheet Comprehensive income statement Statement of stockholders' equity Retained earnings statement

Statement of stockholders' equity

At the beginning of the accounting period, the balances of temporary accounts reflect the prior period ending balance are zero depend on whether the company was profitable during the prior period

are zero

Prepaid rent appears in the ______. income statement because it is an asset balance sheet because it is a stockholders' equity account balance sheet because it is a liability income statement because it is an expense balance sheet because it is an asset

balance sheet because it is an asset

Prepaid rent appears in the ______. ncome statement because it is an asset balance sheet because it is a liability balance sheet because it is a stockholders' equity account balance sheet because it is an asset income statement because it is an expense

balance sheet because it is an asset

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.) credit a revenue account debit a liability account debit revenue account credit a liability account

credit a revenue account debit a liability account

The two major categories reported in the income statement are: expense revenue assets equity

expense revenue

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

expense (right) revenue (Wrong) Reason: 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. prepaid expense cash expense Reason: 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.

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. True false

false Reason: 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.

__________ 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

Which of the following financial statements typically is prepared last? Balance sheet Statement of cash flows Income statement Statement of stockholders' equity

Statement of cash flows

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period. wed paid used that represent probable future benefits

owed

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.) revenue prepaid expense cash expense liability

prepaid expense liability revenue Reason: 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. prepaid expense cash expense Reason: 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.

When should supplies be recorded as an expense? Multiple choice question. In the period the supplies are used, regardless of when they were purchased In the period the supplies are purchased, regardless of when cash is paid In the period cash is paid for the supplies, regardless of when the supplies were received

In the period the supplies are used, regardless of when they were purchased In the period the supplies are purchased, regardless of when cash is paid Reason: Supplies are recorded as an asset when purchased and later expensed as they are used up.

Under cash-basis accounting, (Select all that apply.) expenses are recorded in the period related revenue is generated. revenues are recorded when goods or services are provided. expenses are recorded when cash is paid. revenues are recorded when cash is received.

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

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following? debit to Cash credit to Revenue credit to Deferred Revenue credit to Cash credit to Accounts Receivable debit to Deferred Revenue

credit to Revenue debit to Deferred Revenue

The post-closing trial balance helps to verify that: (Select all that apply.) the company was profitable during the current period we prepared and posted adjusting entries correctly the accounts are ready for next period's transactions we prepared and posted closing entries correctly

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

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period. increased; increased decreased; decreased decreased; increased increased; decreased

decreased; increased

The adjusting entry for an accrued revenue always includes a debit to a revenue account a credit to a revenue account a debit to a liability account a debit to an asset account a credit to an asset account a credit to a liability account

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

An adjusting entry is necessary to record interest expense at year-end because the interest: is due at the beginning of the following period is a material business expense has already been incurred is earned by the company

has already been incurred interest expense is incurred not earned

Deferred revenue is a(n) ______. expense revenue Reason: When cash is collected in advance of the goods or services being provided the entry is a debit to Cash, an asset, and a credit to Deferred Revenue, a liability. asset Reason:

liability

The statement of stockholders' equity includes these amounts: (Select all that apply.) net income total revenues for the period ending balance retained earnings cash dividends for the period

net income ending balance retained earnings dividends for the period

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 deferred revenue; liabilities deferred revenue; assets prepaid expenses; expenses

prepaid expenses; assets

t year-end, companies that utilize accrual-based accounting systems complete the measurement process through posting of non-cash transactions occurring during the year recording of adjusting entries conversion to cash-basis the preparation of an unadjusted trial balance

recording of adjusting entries

The information reported in the statement of cash flows is organized by these activities:

financing operating investing

A classified balance sheet ______. contains confidential information shows only current assets and current liabilities groups asset and liabilities into current and long-term categories shows changes in assets, liabilities, revenues and expenses

groups asset and liabilities into current and long-term categories

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31 A company pays a utility bill for charges incurred in the previous month. A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company records interest expense that has accrued, but will not be paid until next year. A company pays a 6-month insurance premium at the beginning of October.

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 is correct regarding the adjusting entry to record interest accrued on a note payable? 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. Interest on the note payable is classified as a revenue since it is an amount that can be earned on investments. 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.

Interest on the note payable is classified as an expense since it is a cost of borrowing. 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. Reason: 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. Reason: Interest on a note payable relates to interest expense. Interest revenue is the account used to record interest earned on investments. 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. Reason: 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.

Which of the following pre-payments requires an adjusting entry at the end of the year? On December 31, the company pays next year's fire insurance. On November 1, the company pays rent for the next six months. On December 20, the company pays its liability insurance; coverage starts January 1.

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

How do temporary accounts differ from permanent accounts? Only temporary accounts are used in the adjustments at the end of the accounting period. Only temporary accounts are cleared out at the end of the accounting period. Only permanent accounts are transferred to Retained Earnings during the closing process. Only permanent accounts are found on the financial statements.

Only temporary accounts are cleared out at the end of the accounting period

Which of the following statements regarding the statement of cash flows are correct? Reports cash disbursements The final financial statement that is typically prepared The financial statement that is typically prepared first Reports cash receipts It is an optional financial statement

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

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: Deferred revenue for $1,800 Service revenue for $1,800 Service revenue for $600 Deferred revenue for $600

Service revenue for $1,800 (right) Deferred revenue for $1,800 Reason: Katie already provided service for 9 months; $2,400 * 9/12 Service revenue for $1,800 Service revenue for $600 Reason: Katie already provided service for 9 months; $2,400 * 9/12 Deferred revenue for $600 Reason: Katie already provided service for 9 months; $2,400 * 9/12

In an adjusting entry for expenses incurred but not yet paid ______. the liability recorded when cash was received is decreasing as the expense is incurred a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment the liability recorded when cash was received is increasing as the expense is incurred a liability is increasing since cash will be paid in the future due to the expense incurred

a liability is increasing since cash will be paid in the future due to the expense incurred the liability recorded when cash was received is decreasing as the expense is incurred Reason: 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. a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment Reason: 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 Reason: 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.

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

asset (right) Reason: Expenses represent the economic benefits used during the period. Assets represent the economic benefits that remain at the end of the period. 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. Not all accounts, just the asset accounts, are reported at amounts representing economic benefits that remain at the end of the period.

Closing entries move the balances from the ______ accounts into the Retained Earnings account. temporary balance sheet permanent

temporary

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies: purchased during the accounting period on hand at the end of the accounting period used during the accounting period purchased, but not yet paid for, at the end of the accounting period

used during the accounting period