CH 3
interest
"cost of borrowing money."
referred to as "accruals?"
Expenses incurred, not yet paid Goods and services provided, not yet collected
Which of the following financial statements typically is prepared last?
Statement of cash flows
Which of the following financial statements typically is prepared last? Multiple choice question.
Statement of cash flows
Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.
True
The adjusting entry for an accrued revenue always includes:
a credit to a revenue account, a debit to an asset account
At the beginning of the accounting period, the balances of temporary accounts
are zero
Supplies that are not used immediately are recorded as a(n) ______ when purchased.
asset
permanent accounts
assets, liabilities, stockholders 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
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.)
credit to Prepaid Insurance debit to Insurance Expense
The adjusting entry for supplies used requires a
credit,
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
The process of allocating the cost of an asset to expense over the useful life of the asset is called
depreciation
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
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
The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.
expense; asset
A primary purpose of adjusting entries is to record events that
have occurred but that have not yet been recorded.
Revenues and expenses are reported in the:
income statement
Deferred revenue is a(n)
liability
With respect to current assets, ___________ refers to how quickly an asset can be converted to cash.
liquidity
At year-end, companies that utilize accrual-based accounting systems complete the measurement process through
recording of adjusting entries
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
After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:
the cost of supplies remaining at the end of the accounting period
Adjusting entries:
update the accounts to their proper balances are needed before financial statement prep
Which of the following would be referred to as "accruals?
Goods and services provided, 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
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
A classified balance sheet shows subtotals for current __________ and current_________
asset, liability
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
On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:
credit to Prepaid Insurance debit to Insurance Expense
An adjusting entry for accrued expenses involves:
credit to a liability, debit to an expense
The adjusting entry to record the supplies used during the period will result in a(n) ______.
decrease to Supplies and an increase to Supplies Expense
Prepaid expenses should be ______ by the cost of the asset used during the accounting period.
decreased
If an adjusting entry's credit is to a liability account, then the debit must be to ______.
expense
Under cash-basis accounting,
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
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
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
__________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.
accrual
After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. Multiple choice question.
amount of the prepayment that remains towards future rental periods
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
When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?
debit to Deferred Revenue, credit to Revenue
is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.
depreciation
A classified balance sheet
groups asset and liabilities into current and long-term categories
The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.
increase
After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies
remaining at the end of the accounting period
is the price earned from selling goods or services to customers.
revenue
The two major categories reported in the income statement are:
revenue and expenses
On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.
$22,000 Rent expense of $2,000
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 company pays a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1.
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.
How do temporary accounts differ from permanent accounts?
Only temporary accounts are cleared out at the end of the accounting period.
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:
Prepaid rent of $22,000 Rent expense of $2,000
Which of the following transactions would normally be recorded as an asset when cash is paid?
Rent paid in advance
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
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.)
Taggert will debit Insurance Expense for $300 on Dec. 31 Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance 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
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
Revenue in the income statement for the year ended December 31, 2018 equals the
amount earned by selling goods or services to customers during 2018
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
Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.
asset
The entries that transfer the balances of all temporary accounts to retained earnings are referred to as
closing enteries
After the adjusting entries have been completed, the balance in the Rent Expense account represents the:
cost of rent for the accounting period
Andy records an adjusting entry for deferred revenue. Andy should:
credit a revenue account, debit a liability account
The post-closing trial balance checks that total _____ equals total __________
debits, credits
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
decreased; increased
The statement of stockholders' equity includes these amounts:
dividends for the period ending balance retained earnings net income
The information reported in the statement of cash flows is organized by these activities:
financing, operating, investing
An adjusting entry is necessary to record interest expense at year-end because the interest:
has already been incurred
The adjusting entry for prepaid rent requires a(n) ____________ to Rent Expense and a(n) ______________ to Prepaid Rent.
increase or debit, decrease or credit
The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as __________ expense.
interest
Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:
paid
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
prepaid expense, liability
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
prepaid expense/ liability
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
temporary accounts
revenues, expenses, dividends
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
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