Chapter 3 & 4 Accounting

What is the adjusting process in the correct order in which they would be performed.

1. Determine what the current account balance is. 2. Determine what the correct account balance should be. 3. Record an adjusting entry.

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

1. Expense 2. Credit 3. Payable

Explain what a contra account is by choosing the statements below that correctly describes a contra account.

A contra account would be subtracted from another account. A contra account is linked with another account. Accumulated Depreciation is an example of a contra account. A contra account has an opposite normal balance than its linked account.

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the following statements about the Accumulated depreciation account are correct?

Accumulated depreciation is subtracted from its plant asset on the balance sheet. The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. Accumulated depreciation is a contra account. Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

Adjustments involve increasing both an expense and a liability account. Examples of accrued expenses are wages expense and interest expense. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. They are reported on an income statement.

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

Choose the statement below that demonstrates the correct adjusting entry to recognize depreciation expense on a building.

Debit Depreciation expense; credit Accumulated depreciation.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.

Debit Unearned revenues for $400.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue

Explain a contra account by filling in the following blanks. A contra account is an account that is linked with another (report/account/statement). It has a(n) (similar/opposite) balance and is (added/subtracted) to/from the other account's balance.

Field 1: account Field 2: opposite Field 3: subtracted

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (expense/payable) account and (debit/credit) the Salaries (expense/payable/unearned) account.

Field 1: expense Field 2: credit Field 3: payable

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (debit/credit) the (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

Field 1: interest receivable Field 2: credit Field 3: interest revenue

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the (Retained earnings/Cash) account as well as any debit balance in the (Dividends/Supplies) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the income statement.

Field 1: retained earnings Field 2: dividends

A plant asset can be defined by which of the following statements?

It is a tangible long-term asset. It has a life within the business more than one year. Its original cost is expensed over its useful life. It is reported on the balance sheet.

Determine which of the following transactions may require adjustments. (Check all that apply.) Six months of rent were paid in advance. Supplies were purchased at the beginning of the year, but not all were used. An employee was paid his weekly wages in full at the end of the week. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. a one-month premium on an insurance policy was paid Rent was paid for the month. Equipment was purchased in the middle of the year. a 24-month insurance policy was prepaid

Six months of rent were paid in advance. Supplies were purchased at the beginning of the year, but not all were used. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Equipment was purchased in the middle of the year. a 24-month insurance policy was prepaid

What is the purpose of the Accumulated Depreciation account?

The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Explain what unearned revenues are by selecting the statements below which are correct.

They are a liability. They are also called deferred revenues. They are reported on a balance sheet. They refer to cash received in advance of performing a service or product.

Which of the following describes accrued revenue?

They refer to revenues that are earned in a period, but have not been received and are unrecorded. Accounts receivable is usually increased when accruing revenues. They refer to earnings which have been earned but not yet billed. The adjustment causes an increase in an asset account and an increase in a revenue account.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below.

Unearned revenue would be debited for $700. Service revenue would be credited for $700.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December:

debit accounts receivable credit services revenue

Accrued _______________ are earned in a period that are both unrecorded and not yet received in cash.

revenue