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An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

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 Reason: (($53,520/24 months) x 7 months remaining)+(($34,800/24 months) x 14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

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

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

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.

How do temporary accounts differ from permanent accounts?

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

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

accrual-basis accounting.

Deferred revenue is a(n) ______.

liability

The statement of stockholders' equity includes these amounts:

net income dividends for the period ending balance retained earnings

Accrual, Accural, or Accruals

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

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

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.

_____ 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, Unearned, or Deffered

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.

Deffered

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

Depreciation

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _____expense.

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.

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.

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.)

Rent expense of $2,000 Prepaid rent of $22,000

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

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

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?

Statement of stockholders' equity

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

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

adjusting entries

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

Adjusting entries: (Select all that apply.)

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

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

are zero

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

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

asset

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

asset

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 or debit

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

Classified balance sheet shows subtotals for current

assets & liabilities

Temporary accounts

assets, liabilities, dividends

Permanent accounts

assets, liabilities, equity

Prepaid rent appears in the ______.

balance sheet because it is an asset

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

cash

Andy records an adjusting entry for deferred revenue. Andy should:

credit a revenue account debit a liability account

Post-closing trial balance checks that total____ equal total ____

credits & debits

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

decreased; increased

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)___the period the benefit expires.

expense or expenses

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

expenses

Under cash-basis accounting, (Select all that apply.)

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

Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

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

financing operating investing

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

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

liability prepaid expense

Accruals, Accrual, or Accurals

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

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 adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

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

decreased

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

depreciation

The two major categories reported in the income statement are:

revenue expense

Which of the following financial statements typically is prepared last?

statement of cash flows

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

temporary

The post-closing trial balance helps to verify that

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

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.