Chapter 3 questions

Adjusting entries ensure that

- asset and liability accounts are reported at their correct amounts, - revenues are recorded in the period in which they are earned, - and expenses are recorded in the period in which they are incurred.

An adjusting entry for accrued expenses involves

- debit to an expense - credit to a liability

Which of the following would be referred to as accurals? - expenses incurred, net yet paid - cash collected prior to goods or services being provided - cash paid prior to expenses being incurred - goods and services provided, not yet collected

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

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

Accrual basis accounting

Prepaid expenses should be

Decrease by the cost of an asset over time

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, and increase

The "cost of borrowing money"

Interest

The statement of stockholders' equity includes these amounts:

Net income,

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 December 20, the company pays its liability insurance, coverage starts January 1st On December 31, the company pays next years fire insurance

On November 1, the company pays rent for the next six months.

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

Recording of adjusting entries

After the adjusting entries have been completed, the adjusting balance in the supplies expense account represents the cost of supplies

Used during the accounting period

The adjusting entry for an accrued revenue always includes

a credit to a revenue account a debit to an asset account

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 ____ equal total _____ at the end of the period

debits and credits

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

depreciation

Adjusting entries are made to ensure that:

expenses are recognized in the period in which they are incurred.

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Deferred revenue is a

liability

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid