ACCT 2301: Chapter 3 SmartBook

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

Depreciation

Consistent with the __________-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

accrual

Prepaid insurance is a(n) ______.

asset in the balance sheet

Which of the following statements is true? Multiple choice question. a. The income statement reports the financial position of a company at a point in time. b. Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. c. The balance sheet reports financial activities only for the current accounting period.

b

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

closing entries

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

Select all that apply An adjusting entry for accrued expenses involves: (Select all that apply.) Multiple select question. a. credit to a revenue b. credit to a liability c. credit to an expense d. debit to an asset e. debit to an expense f. debit to a liability

b & e

The adjusting entry for prepaid rent requires a(n)____________ to Rent Expense and a(n)__________ to Prepaid Rent.

debit, credit

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

decreased

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

owed

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

paid

_____ are recorded in the period that goods and services are provided to customers and _____ are recorded in the period that costs are incurred while providing those goods and services.

Revenues; expenses

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

Select all that apply The two major categories reported in the income statement are: Multiple select question. a. revenue b. assets c. expense d. equity

revenue & expenses

Select all that apply 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.) Multiple select question. a. cash expense b. revenue c. prepaid expense d. liability

c & d

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________ basis of accounting.

cash

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

expense; asset

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

liability; revenue

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

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

Depreciation

Select all that apply. If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? a. prepaid expense b. cash expense c. revenue d. liability

a & d

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.

__________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

Accruals

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

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

Interest

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

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? Multiple choice question. a. $35,910 b. $44,160 c. $52,410 d. $88,320

a

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.) Multiple select question. a. credit a revenue account b. debit revenue account c. debit a liability account d. credit a liability account

a & c

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.) Multiple select question. a. Taggert will credit Prepaid Insurance for $300 on Dec. 31. b. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. c. Taggert will debit Insurance Expense for $300 on Dec. 31. d. Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. e. Taggert will debit Insurance Expense for $1,800 on Dec. 1.

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

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

adjusting

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.

asset

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

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

b

Which of the following would be referred to as "accruals?" a. Cash paid prior to expenses being incurred b. Expenses incurred, not yet paid c. Cash collected prior to goods or services being provided d. Goods and services provided, not yet collected

b & d

Prepaid rent appears in the ______.

balance sheet because it is an asset

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

cost

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

cost of rent for the accounting period

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

credit; debit

The post-closing trial balance checks that total __________ equal total __________ at the end of the period.

debits; credits

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

expense

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

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

expenses

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

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Deferred revenue is a(n) ______.

liability

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

recording of adjusting entries

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 $1800

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

temporary

Which accounts are temporary?

revenues, expenses, dividends

Which accounts are permanent?

assets, liabilities, equity

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

c & d

Select all that apply When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following? Multiple select question. a. debit to Cash b. credit to Cash c. debit to Deferred Revenue d. credit to Accounts Receivable e. credit to Revenue f. credit to Deferred Revenue

c & e

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.) Multiple select question. a. Rent expense of $1,000 b. Prepaid rent of $22,000 c. Prepaid rent of $24,000 d. Rent expense of $2,000 e. Rent expense of $24,000

b. Prepaid rent of $22,000 d. Rent expense of $2,000

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

c & d

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. A company pays a utility bill for charges incurred in the previous month. b. A company records interest expense that has accrued, but will not be paid until next year. c. A company pays for 4 months of advertising in the Wall Street Journal on November 1. d. A company pays a 6-month insurance premium at the beginning of October.

c & d

Select all that apply 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.) Multiple select question. a. debit to Insurance Expense b. credit to Prepaid Insurance c. debit to Cash d. debit to Prepaid Insurance e. credit to Cash

a. debit to Insurance Expense b. credit to Prepaid Insurance

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

Revenues and expenses are reported in the:

income statement