Accounting Ch.3

The adjusting entry for an accrued revenue always includes:

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

The post-closing trial balance helps to verify that: (Select all that apply.)

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

Which of the following would be referred to as "accruals?" (Select all that apply.)

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

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

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

- credit to Revenue - debit to Deferred Revenue

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

Adjusting Entries (Select all that apply.)

At the beginning of the accounting period, the balances of temporary accounts

Are zero

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

Assets

______ 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

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

Equipment expense & accumulated depreciation

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.

Expense

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.

False

When should supplies be recorded as an expense?

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

Which of the following statements is true?

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

The adjusting entry for a deferred revenue includes a debit to a(n) _________ account and a credit to a(n)______ account

Liability, Revenue

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.

How do temporary accounts differ from permanent accounts?

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

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.

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 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

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

A prepayment such as "Prepaid Insurance" is originally recorded as a(n)__________ when an insurance policy is purchased and will later be expensed in the period used.

asset

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

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

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

decreased

Answer Mode Multiple Choice QuestionYour Answer incorrect The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

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

expense

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

expense; asset

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

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

paid

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.)

prepaid expense liability

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

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

_______ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

Prepaid rent appears in the _____

balance sheet because it is an asset

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

GAAP-basis accounting.

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

recording of adjusting entries

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

liquidity

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

basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

Accrual

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

Accrual based Accounting

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

Accruals

Expense should be recorded to recognize the the cost of using long-lived assets, such as equipment, during the accounting period.

Depreciation

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.

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

Owed

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

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

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

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 credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

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

Temporary

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

cost of rent for the accounting period