ACCT Ch 4 Test Bank

As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use. (T/F)

False

Cash is a temporary account. (T/F)

False

Closing entries deal primarily with the balances of permanent accounts. (T/F)

False

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting. (T/F)

False

The adjusting entry for accrued salaries requires a debit to Salaries and Wages Payable. (T/F)

False

The adjusting entry for unearned revenue results in an increase (a debit) to an asset account and an increase (a credit) to a revenue account. (T/F)

False

The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. (T/F)

False

The post-closing trial balance will contain only permanent—balance sheet—accounts. (T/F)

False

Prepaid expenses are first recognized as ________, then _________

asset, expense

Adjustments for accrued revenues: debit _____, credit _______

assets, revenue

the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. - when they are incurred whether or not cash is paid - if they are paid before they are incurred - if they are paid after they are incurred

when they are incurred whether or not cash is paid

A contra asset account is subtracted from a related account in the balance sheet. (T/F)

True

AR is a permanent account (T/F)

True

Adjusting entries are made to ensure that balance sheet and income statement accounts have correct balances at the end of an ac-counting period. (T/F)

True

Adjusting entries are made to ensure that expenses are recognized in the period in which they are incurred. (T/F)

True

Adjusting entries are made to ensure that revenues are recorded in the period in which the performance obligation is satisfied. (T/F)

True

Adjusting entries are often made because some business events are not recorded as they occur. (T/F)

True

An adjusted trial balance proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made. (T/F)

True

An adjusted trial balance should show ledger account balances. (T/F)

True

An adjusting entry always involves a balance sheet account and an income statement ac-count. (T/F)

True

An adjusting entry to a prepaid expense is required to recognize expired expenses. (T/F)

True

An expense account is closed with a credit to the expense account and a debit to the Income Summary account. (T/F)

True

Closing entries result in the transfer of net income or net loss into the Retained Earnings ac-count. (T/F)

True

Financial statements can be prepared from the information provided by an adjusted trial balance (T/F)

True

Under the accrual basis of accounting, events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. (T/F)

True

The primary source used in the preparation of the financial statements is the: - trial balance - post-closing trial balance - general trial balance - adjusted trial balance

adjusted trial balance

An adjusting entry always involves two balance sheet accounts. (T/F)

False

An adjusting entry would be made to the revenue account only when cash is received. (T/F)

False

Adjusting entry can include: - debit asset, credit revenue - debit revenue, credit asset - credit expense, debit revenue - debit expense, credit revenue

debit asset, credit revenue

Before adjusting entries, unearned revenues are recognized as ________. then _________

liabilities, revenue

The adjusting entry to an unearned revenue account will debit _____, credit _______

liabilities, revenue

Adjustments for unearned revenue decrease _______, increase _________

liabilities, revenues

Goods purchased for future use in the business, such as supplies, are called: - assets - prepaid expenses

prepaid expenses

Mary Richardo has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Mary make? debit ____, credit _____

AR, service revenue

Which account is neither adjusted nor closed? - Cash - Accumulated depreciation

Cash

A revenue account is closed with a credit to the revenue account and a debit to Income Summary. (T/F)

False

Accrued revenues are revenues that have been received but not yet recognized. (T/F)

False

Accrued revenues are revenues that have been recorded but cash has been received before financial statements have been prepared. (T/F)

False

Accumulated Depreciation is a liability account and has a credit normal account balance. (T/F)

False

Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. (T/F)

False

An adjusted trial balance cannot be used to prepare financial statements (T/F)

False

An adjusted trial balance is prepared after the financial statements are completed. (T/F)

False

An adjusted trial balance must be prepared before the adjusting entries can be recorded. (T/F)

False

Under the accrual basis of accounting, cash must be received before revenue is recognized (T/F)

False

Under the accrual basis of accounting, net income is calculated by matching cash outflows against cash inflows. (T/F)

False

Under the accrual basis of accounting, the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. (T/F)

False

Oakville Inc. purchased a 12-month insurance policy on March 1, 2022 for $2,400. At March 31, 2022, the adjusting journal entry to record expiration of this asset will include: debit ____, credit ______

Insurance expense, prepaid insurance

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in:

January

Is accepting cash from an established customer for services to be performed over the next three months an application of revenue recognition? (Yes/No)

No

Which of the following accounts is adjusted but not closed? - Supplies Expense - Supplies - Depreciation Expense - Service Revenue

Supplies

The cash basis of accounting is not in accordance with generally accepted accounting principles (T/F)

True

The expense recognition principle is frequently referred to as the matching principle. (T/F)

True

The only accounts that are closed are temporary accounts. (T/F)

True

The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied. (T/F)

True

The use of the cash basis of accounting violates both the revenue recognition and ex-pense recognition principles. (T/F)

True

Is Billing customers on June 30 for services completed during June an application of revenue recognition? (Yes/No)

Yes

Is receiving cash for services performed an application of revenue recognition? (Yes/No)

Yes

Is recording revenue as an adjusting entry on the last day of the accounting period an application of revenue recognition? (Yes/No)

Yes

Adjusting entries can be classified as: - postponements and advances. - accruals and advances. - accruals and deferrals.

accruals and deferrals

The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is: accrued or prepayment

accrued

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause: - net income to be understated - an overstatement of assets and overstatement of liabilities - an understatement of expenses and understatement of liabilities - an overstatement of expenses, overstatement of liabilities

an understatement of expenses and an understatement of liabilities

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause: - net income to be overstated. - an understatement of assets and an understatement of revenues. - an understatement of revenues and an understatement of liabilities. - an understatement of revenues and an overstatement of liabilities.

an understatement of revenues and an overstatement of liabilities.

An adjusting entry impacts: - balance sheet accounts - income sheet accounts - both

both

Under the cash basis of accounting: - revenue is recognized when services are performed. - expenses are matched with the revenue that is produced. - cash must be received before revenue is recognized. - a promise to pay is sufficient to recognize revenue.

cash must be received before revenue is recognized.

Accumulated Depreciation is a(n) _____ account

contra asset

Accumulated depreciation has a normal _____ balance

credit

The final step in the accounting cycle is to prepare: - closing entries - financial statements - post-closing trial balance - adjusting entries

post-closing trial balance

As prepaid expenses expire with the passage of time, the correct adjusting entry will be: debit ______, credit ________

expense, asset

Prepaid expenses are: - paid and recorded in an asset account before they are used or consumed. - paid and recorded in an asset account after they are used or consumed.

paid and recorded in an asset account before they are used or consumed

On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning Ju-ly 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is: debit ____, credit ______

rent expense, prepaid rent

Which of the following account's balance will change between the adjusted trial balance and the post-closing trial balance? - CS - Prepaid rent - Unearned service revenue - retained earnings

retained earnings

Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n): revenue or liability

revenue

Closing entries cause ____ and ____ accounts to have zero balance

revenue, expense

Which account will have a zero balance after closing entries have been journalized and posted? - service revenue - supplies - prepaid insurance - accumulated depreciation

service revenue

The Vintage Laundry Company purchased $8,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,500 on hand. The adjusting entry that should be made by the company on June 30 is: debit ____, credit _______

supplies expense, supplies

If a business has received cash in advance of services performed and credits a liability ac-count, the adjusting entry needed after the services are performed will be: Debit _____, credit _____

unearned revenue, service revenue

Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the ad-justing entry is for the amount of supplies: - remaining - used - purchased

used

Adjusting entries are: - not necessary if the accounting system is operating properly. - usually required before financial statements are prepared. - made to balance sheet accounts only. - made whenever management desires to change an account balance.

usually required before financial statements are prepared.