Accounting principles and financial statement preparation (learnsmart week 3)

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on post-trial closing balance

At the end of the previous year, a customer owed Days Company $400. On February 1 of the current year, the customer paid $600 total, which included the $400 owed plus $200 owed through February 1st. The journal entry on February 1st is? (Check all that apply.)

Accounts receivable will be credited for $400. Cash will be debited for $600. Service revenue would be credited for $200.

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

Debit Prepaid insurance $800.

Mouse Inc. received a $2,500 prepayment of rent from one of its tenants and immediately credited the Rent revenue account. By the end of the period, $500 of the rent had not been earned by Mouse Inc.. Demonstrate the required adjustment needed at the end of the period.

Debit Rent revenue for $500.

On December 31, AB Consulting recorded two days' wages of $100 in an adjusting entry which included a debit to Wages Expense and a credit to Salaries Payable. On January 1, the accountant prepared a reversing entry which included which of the following?

Debit Salaries Payable $100; credit Salaries expense $100.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit unearned service revenues for $400

Which of the following statements are true regarding depreciation? (Check all that apply.)

Depreciation is recorded through an adjusting entry. Depreciation is recognized at the end of an accounting period. Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life. Depreciation is the process of allocating the cost of an asset to the period the asset benefits.

What is depreciation?

Depreciation is the process of allocating the costs of long-term assets over their expected useful life.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Service revenue) account and (debit/credit) the (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

Field 1: Accounts receivable Field 2: credit Field 3: Service revenue

Illustrate your understanding of how to use the adjusted trial balance to prepare the balance sheet by completing the following sentence. In order to prepare a balance sheet using the account balances on an adjusted trial balance, all of the (expenses/assets) and their debit balances are transferred to the balance sheet as well as all of the (liabilities/revenues) and their (debit/credit) balances.

Field 1: assets Field 2: liabilities Field 3: credit

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

Field 1: expense Field 2: credit Field 3: payable

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (expense/payable) account and (debit/credit) the Salaries (expense/payable/unearned) account.

Field 1: expense Field 2: credit Field 3: payable

The expense recognition (matching) principle aims to record (expenses/assets/liabilities) in the same accounting period as the (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the (timing/adjusting/estimating) process.

Field 1: expenses Field 2: revenues Field 3: adjusting

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (debit/credit) the (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

Field 1: interest receivable Field 2: credit Field 3: interest revenue

The formula to figure out the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Field 1: net income Field 2: net sales

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the _______ cycle.

Field 1: operating

A post-closing trial balance is a list of (permanent/temporary) accounts and their balances from the (journal/ledger) (after/before) all (adjusting/closing) entries have been journalized and posted.

Field 1: permanent Field 2: ledger Field 3: after Field 4: closing

Accrued _______ are earned in a period that are both unrecorded and not yet received in cash.

Field 1: revenue or revenues

Accrued are earned in a period that are both unrecorded and not yet received in cash.

Field 1: revenue or revenues

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (revenues/expenses/liabilities) when (incurred/paid) in order to adhere to the matching principle.

Field 1: revenues Field 2: expenses Field 3: incurred

Complete the following statement. The purpose of the closing process is to reset (temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Retained (Earnings/Summary/Withdrawal) account.

Field 1: temporary Field 2: earnings

The purpose of the closing process is to reset (temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Retained (Earnings/Summary/Withdrawal) account.

Field 1: temporary Field 2: earnings

Current items can be described as those expected to come due within one (month/year) and are listed in the order of how (quickly/slowly) they could be converted to or paid in cash.

Field 1: year Field 2: quickly

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

What is a work sheet? (Check all that apply.)

It can help with adjusting and closing accounts and with preparing financial statements.

A plant asset can be defined by which of the following statements? (Check all that apply.)

It has a life within the business greater than one year. It is a tangible long-term asset. Its original cost (minus any salvage value) is expensed over its useful life. It is reported on the balance sheet.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Which of the following statements describes the expense recognition (matching) principle?

Matching of expenses with revenues is a major part of the adjusting process. Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Office supplies, Cash, Prepaid rent, Accounts receivable

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that total debits equal total credit for permanent accounts. One purpose is to verify that all temporary accounts have zero balances.

Which statements below are true regarding permanent and temporary accounts?

Permanent accounts will appear on a post-closing trial balance. Permanent accounts are reported on the balance sheet. Temporary accounts have a balance for one period only. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts are reported on the income statement.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

Profit margin is the ratio of a business's net income to its net sales. Profit margin is a useful measure of a business's operating results. Profit margin is also called return on sales.

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.)

Record all prepaid expenses with debits to expense accounts. Any unused prepaids existing at end of period are transferred to asset accounts.

Rather than crediting the Unearned rent account for $400 of prepaid rent received from a customer, which of the following statements explains an alternate recording procedure to journalize this receipt?

Record receipt with a credit to the Rent revenue account. Any unused portion of the prepayment still existing at the end of the period will be transferred to the Unearned rent account.

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

Salaries expense would be debited for $3,500. Salaries payable will be debited for $500. Cash would be credited for $4,000.

At the end of the previous year, a customer owed Chocolates R US $500. On January 31 of the current year, the customer paid $900 total, which included the $500 owed plus $400 owed for the current month of January. What would be the journal entry on January 31 that reflects this? (Check all that apply.)

Service revenue would be credited for $400. Cash will be debited for $900. Accounts receivable will be credited for $500.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

Determine which of the following transactions may require adjustments. (Check all that apply.)

Six months of rent were paid in advance. a 24-month insurance policy was prepaid An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Equipment was purchased in the middle of the year. Supplies were purchased at the beginning of the year, but not all were used.

Which of the following accounts is considered a prepaid expense?

Supplies

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies expense would be debited for $300. Supplies would be credited for $300.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Supplies, Prepaid rent, Prepaid insurance

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle contains 9 (10 with optional reverse) steps. The accounting cycle refers to steps followed by a company to prepare its financial statements. The accounting cycle is a series of steps repeated each reporting period. The cycle contains steps for adjusting and closing accounts.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is used to prepare financial statements.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. Most operating cycles are less than one year. The length of a company's operating cycle depends on its activities. Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

They are reported on an income statement. Adjustments involve increasing both an expense and a liability account. Examples of accrued expenses are wages expense and interest expense. They refer to costs that are incurred in a period, but are both unpaid and unrecorded.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They refer to cash received in advance of performing a service or product. They are also called deferred revenues. They are a liability. They are reported on a balance sheet.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Useful information must reach decision makers frequently. Businesses report financial information at regular intervals to ensure timeliness of data. The value of information is often linked to its timeliness.

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

An adjusted trial balance is:

a list of accounts and balances after adjusting entries have been recorded and posted

Accrual basis accounting is: (Check all that apply.)

an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system that best reflects business performance and increases the comparability of financial statements from period to period. an accounting system which is consistent with generally accepted accounting principles.

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

debit to Insurance expense for $400. credit to Prepaid insurance for $400.

A reversing entry: (Check all that apply).

is optional is used to simplify recordkeeping

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

one-month, six-month, one-year

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

the closing process resets the balances in temporary accounts to zero. the closing process helps to summarize a period's revenues and expenses.