Adjusting Entries and the Work Sheet

The cash basis of accounting is used by some small businesses and by most individuals for tax purposes.

True

The historical cost principle allows for assets to be recorded at actual cost.

True

The only correct way to change the balance of a ledger account is to make a journal entry.

True

The original cost of an asset less the trade-in or salvage value of an asset equals the depreciable cost of that asset.

True

Under the cash basis of accounting, a certain expense may be incurred in one period but not entered until the following period.

True

Under the modified cash basis of accounting, adjustments are made only for prepaid items and depreciation on plant and equipment.

True

While certain distinctive problems may arise in keeping the accounts of any specific enterprise, the principles of accounting on the cash basis are generally the same.

True

Net income is shown on the work sheet as a(n)

credit in the Balance Sheet columns.

Net income is shown on the work sheet as a

debit in the Income Statement column.

A computer workstation costs $35,000, has an expected life of 7 years, and an expected salvage value of $7,000. Depreciation expense using the straight-line method will be $5,000 per year.

False

A contra-asset appears on the income statement.

False

A fiscal year is always the same as the calendar year.

False

A manual work sheet is usually prepared in pencil.

False

Accounting for expenses on the cash basis generally means that expenses are entered in the accounts even though they may have been charged and not paid for in cash.

False

Adjusting entries do not always affect both the income statement and the balance sheet.

False

Adjusting entries may affect the cash account.

False

Depreciable cost is the amount of depreciation expense recorded for each accounting period.

False

If the total of the Income Statement Credit column, before determining net income or net loss, exceeds the total of the Income Statement Debit column, the result is a net loss for the year.

False

It is not necessary to post adjusting entries.

False

The balance sheet reports assets, liabilities, and owner's equity for a specific period of time.

False

The balance sheet reports earnings on a specific date.

False

The cash basis of accounting and the accrual basis of accounting result in the same measures of net income.

False

The cost of plant assets less the accumulated depreciation is called the salvage value of the asset.

False

The formula to calculate straight-line depreciation is depreciable cost times the expected life of the asset.

False

The matching of assets and expenses of a business on a periodic basis is referred to as the matching concept.

False

The original cost of an asset added to its salvage value represents the depreciable cost of an asset.

False

The columns of the work sheet that report the adjusted balances for only revenue and expense accounts are the ______________ ______________ columns.

Income Statement

The fourth pair of columns on a 10-column work sheet prepared at the end of the period would be the

Income Statement columns.

Owner's equity at the start of the period is $35,000; net income for the period is $30,000; the total investments by the owner is $15,000; and total withdrawals by the owner is $5,000. The owner's equity at the end of the period is

$75,000.

A typical account number for a contra-account would be

185.1.

The third pair of columns on a 10-column work sheet prepared at the end of the period would be the

Adjusted Trial Balance columns.

The second pair of columns on a 10-column work sheet prepared at the end of the period would be the

Adjustments columns.

Under the _____________ _____________ principle, assets are recorded at their actual cost, and this cost remains on the books as long as the business owns an asset.

historical cost

When assets are recorded at original value, they are recorded under the

historical cost principle.

Accounting for revenue on a cash basis means that no entry of revenue is made in the account until the cash is received for the services performed.

True

Depreciation expense is recorded for a specific period of time.

True

Depreciation matches the cost of an asset against the revenues it will produce.

True

If the debits in the Income Statement columns of the work sheet total $50,000 and the credits total $60,000 before net income or net loss has been determined, the business has a net income of $10,000.

True

If the total credits exceed total debits in the Income Statement columns of the work sheet, the business has had net income.

True

The 10-column work sheet is used to facilitate the preparation of the income statement, the statement of owner's equity, and the balance sheet.

True

The Income Statement columns of a work sheet include all revenue and expense accounts.

True

The amount of depreciation taken each period will be the same using the straight-line method.

True

The business or professional person using the cash basis of accounting takes the view that there is no revenue until it is received in such a form that it can be spent.

True

The matching principle offers the best measure of net income.

True

The modified cash basis of accounting combines aspects of the cash method of accounting and the accrual method of accounting.

True

The net income or loss for the year can be found on the work sheet as the balance item at the bottom of either the Balance Sheet columns or the Income Statement columns.

True

The owner's capital account in the last two columns of the work sheet is not up-to-date because it does not yet include net income and withdrawals of the current period.

True

Under the modified cash basis of accounting, cash payments for assets with lives longer than one accounting period (buildings, equipment, insurance, etc.) are recorded as assets and adjustments are made each period.

True

When an account balance is not affected by an adjusting entry, the amount shown in the Trial Balance columns is extended directly to the Adjusted Trial Balance columns.

True

A method of accounting under which revenues are recorded when cash is received and expenses are recorded when cash is paid is known as _________ ______________ _______________ .

cash basis accounting

To record the purchase of assets on account under the modified cash basis of accounting method,

debit the asset and credit Accounts Payable.

The cost of an asset that is subject to depreciation is called

depreciable cost.

Matching the cost of an asset with the revenue it is expected to produce is called

depreciation.

The balance sheet reports

liabilities.

The ________________ __________ ___________is a method of accounting that combines aspects of the cash and accrual methods. It uses the cash basis for recording revenues and most expenses. Exceptions are made when cash is paid for assets with useful lives greater than one accounting period.

modified cash basis

The ____________ __________ _______________ ____ ______________ is a method of accounting that combines aspects of the cash and accrual methods.

modified cash basis of accounting

If a business records revenue when it is received and records the purchase of a building as an asset and makes adjustments to allocate the cost of the building over many accounting periods, the business accounting system is a(n)

modified cash basis of accounting.

To record wages earned but not paid under the modified cash accounting method,

no entry is required.

Adjusting entries are

posted to the general ledger at the end of the accounting period.

Plant assets provide benefits over a long period of time.

True

Recording adjustments on the work sheet has no effect on the ledger accounts.

True

A 12-month fiscal year can end on any month of the calendar year.

True

A contra-asset has a credit balance.

True

When posting an adjusting entry to the general ledger, write

"adjusting" in the Item column.

If the book value of an asset is $12,500 and the accumulated depreciation is $3,500, the original cost of the asset is

$16,000.

An asset costs $33,000. It has an expected useful life of 5 years and an expected salvage value of $3,000. Depreciation expense for the first year of the asset's life using the straight-line method is

$6,000.

The book value of a plant asset is determined by subtracting the accumulated depreciation from the cost of the plant asset.

True

___________________ entries are posted to the general ledger in the same manner as all other entries.

Adjusting

A contra-account is used with a related account to bring about an increase in the net amount of the two account balances.

False

The adjusting entry for the depreciation of office equipment for the period includes

debiting Depreciation Expense-Office Equipment and crediting Accumulated Depreciation-Office Equipment.

The matching principle in accounting requires the matching of

revenue earned with the expenses incurred to produce the revenue.

The expected market value or selling price of the asset at the end of its useful life is called the ____________ ___________ .

salvage value

The _____________-__________method is a depreciation method in which the depreciable cost is divided by the estimated useful life.

straight-line

What does the credit balance in the Accumulated Depreciation account represent?

the amount of depreciation taken in all years of use to date

The period of time that an asset is expected to help produce revenues is called its ___________ ____________.

useful life

The time an asset is expected to last is called its

useful life.

The _____________ ______________ is a form used to pull together all of the information needed to enter adjusting entries and prepare the financial statements.

work sheet

The work sheet columns that show the amounts that will be reported in the statement of owner's equity and the balance sheet are the _____________ _________ ____________.

Balance Sheet columns

The fifth pair of columns on a 10-column work sheet prepared at the end of the period would be the

Balance Sheet columns.

_________________ is a method of matching an asset's original cost against the revenues produced over its useful life.

Depreciation

In completing the work sheet, what is the reason for adding the net income for the year to the Balance Sheet Credit column?

Owner's equity is not up to date.

___________ ______________ are assets of a durable nature that are expected to provide benefit to the business over several years.

Plant assets

"Adjusting" is written in the Item column of the general ledger when posting adjusting entries.

True

A contra-asset is deducted from the related asset on the balance sheet.

True

The first pair of columns on a 10-column work sheet would be the

Trial Balance columns.

If a business records revenues when earned, regardless of whether cash has been received, and records expenses when they are incurred, the accounting system is a(n)

accrual basis of accounting.

The difference between the asset account and the contra-asset account is known as the _____________ _____________ .

book value

An account used with a related account to bring about a decrease in the net amount of the two account balances is called a(n)

contra-account.

Accumulated Depreciation-Delivery Equipment is an example of a(n) _________-____________ account.

contra-asset

Supplies originally cost $600, but only $150 worth of supplies were used this period. The adjusting entry would be

debit Supplies Expense, $150; credit Supplies, $150.