ACCT3302.CH3

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

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

Adjusting entries for accrued expenses can increase liabilities and increase 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

Which of the following would be referred to as "accruals?"

Goods and services provided, but not yet collected.Expenses Incurred, not yet paid.

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 pre-payments requires an adjusting entry at the end of the year?

Nov. 1 Payments for 6 months

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

True

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

accrual-basis accounting.

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

accruals

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

adjusting

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) Blank 1 of 1 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

A classified balance sheet shows subtotals for current _____, and current _____

asset, liability

An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

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.

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

depriciation

Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end, closing, or close

The statement of stockholders' equity includes these amounts:

ending balance retained earnings net income dividends for the period

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

operating investing financing

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

Under cash-basis accounting,

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

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.

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

Asset

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

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

closing entries

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 Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

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 transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

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 dat

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

expense

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

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

recording of adjusting entries

The post-closing trial balance helps to verify that:

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

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

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

cost

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

temporary

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

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

Which of the following financial statements typically is prepared last?

Statement of cash flows

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

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

debit a liability account credit a revenue account

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.