(Complete) Chapter 03: The Accounting Cycle: End of the Period

If revenues equal $100,000 and expenses equal $120,000, then net income (loss) must equal ______.

$(20,000) Reason: When revenues are less than expenses, then a net loss exists, which is a negative, not positive amount: $100,000-120,000=$(20,000)

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in May. Reason: Revenue should recorded when we provide goods or services regardless of whether the cash has been collected. Thus $1,000 of revenue should be recorded in May.

Quartz Instruments had retained earnings of $145,000 at December 31, 2018. Net income for 2019 was $90,000, and dividends for 2019 were $30,000. What amount of retained earnings should be reported at December 31, 2019?

$205,000 Reason: $145,000+$90,000-$30,000=$205,000

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 Reason: Prepaid rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).

On May 1, Cut Above, Inc., collected $3,000 from customers to mow their lawns in June. Under cash-basis accounting, revenues in May will equal:

$3,000

Identify the entries needed for the closing process.

-Credit Dividends Declared and debit Retained Earnings. -Debit each revenue, credit each expense, and record the difference in Retained Earnings.

Which of the following would be reported as "property, plant, and equipment" on a classified balance sheet? (Select all that apply.) -Currently used manufacturing facility -Land on which office building is located -Tools that are held for resale -Land held for future sale

-Currently used manufacturing facility -Land on which office building is located

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31?

-During December, Mueller Corporation sold stock to shareholders -On December 21, Mueller Corporation declared and paid dividends.

It is unnecessary to adjust entries for what two cases.

1. transactions that do not involve revenues or expense activities (such as transactions with owners) 2. transactions that result in revenues or expenses being recorded at the same time as the cash flow

Place the steps in the adjustment process at the end of the accounting period in the correct order.

1. using the unadjusted trial balance, determine the accounts requiring adjustment 2. record and post adjusting entries 3. prepare an adjusted trial balance to check the equality of the debits and credits 4. prepare financial statements 5. record and post-closing journal entries 6. prepare a post-closing trial balance

The closing entry for Salaries Expense includes:

A debit to Retained Earnings.

The closing entry for Service Revenue includes:

A debit to Service Revenue and a credit to Retained Earnings.

occur when the cash flow occurs after either the expense is incurred or the revenue is earned. (Enter only one word.)

Accruals

A company receives a utility bill for operations in May. The company does not expect to pay the bill until June. This scenario is an example of a(n):

Accrued expense

Accruals involve cash flows occurring ___ the revenues and expenses are recognized.

After

Prepayments involve cash flows occurring____ the revenues and expenses are recognized

Before

Reporting revenues only when cash is received and expenses only when cash is paid is called the __________ basis of accounting.

Cash

Which of the following are reported as stockholders' equity on a classified balance sheet? -Dividends -Common stock -Retained earnings -Notes payable

Common stock Retained earnings

On a classified balance sheet, total assets are separated into ..

Current and long-term assets

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

A company receives $450 in February for services that will be performed in March. In March, the adjusting entry is recorded as:

Debit Deferred Revenue $450, Credit Service Revenue $450 Correct

At the end of May, a company receives a utility bill for $500 associated with operations in May. The company plans to pay the bill on June 10. In May, the adjusting entry is recorded as:

Debit Utilities Expense $500, Credit Utilities Payable $500

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

________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

True or false: Since Retained Earnings is involved in the closing process, it is classified as a temporary account.

False Reason: Although Retained Earnings is involved in the closing process, it is a permanent, not a temporary, account.

Cash Basis Accounting is not part of what? Which Means?

GAAP It is not allowed for financial reporting purposes for most companies.

What is GAAP?

Generally Accepted Accounting Principles

Which of the following situations matches a journal entry that debits Deferred Revenue and credits Service Revenue?

Goods or services, for which cash was collected in advance, were provided during the current period.

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Patents, copyrights, franchises, and trademarks are examples of __________assets.

Intangible

______is defined as the "cost of borrowing money."

Interest

Which of the following transactions requires an adjusting entry for accrued revenue?

Interest earned, but not yet collected, on a note receivable Reason: While this transaction is an accrual adjustment, it involves an expense, rather than a revenue. Interest Expense would be increased.

The Calculation of revenues minus expenses provides a measure-_____- That represents the success of the company in generating profits for its owners during the period.

Net income

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period?

Net income will be too high.

Long-term assets are expected to be converted to cash after

One Year

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Accruals are the (same/opposite) of Prepayments.

Opposite

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

Paid

Preparing a(n) _______-_______ trial balance is the last step in the accounting cycle and occurs after all accounts have been updated with closing journal entries. (Enter one word per blank.)

Post-closing

Closing entries may affect the following permanent account(s): retained earnings accounts payable accounts receivable common stock

Retained Earnings

According to the Revenue Recognition Principle...

Revenue is recorded in the period in which goods and services are provided to customers

Which activities are part of the operating cycle?

Selling goods and services

Which activities are part of the operating cycle? -Buying property, plant and equipment -Issuing new shares -Selling goods and services

Selling goods and services

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31?

Service is provided during December for cash Shipping expense for December is paid in cash

Which of the following statements is true regarding the post-closing trial balance?

The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

Depreciation is

The process of allocating the cost of a long-term asset to expense over its useful life.

What is the difference between accrual-basis accounting and cash-basis accounting?

The timing of when we record the revenues and expenses.

What are the effects on the accounting equation when dividends are declared and paid?

Total assets decrease and total stockholders' equity decreases.

What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjustment for salaries incurred but not yet paid during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

T or F: Under both Accrual-basis and cash-basis accounting, all revenues are eventually recorded for the same amount

True

True or false: Closing entries do not affect the balances of permanent accounts other than retained earnings.

True

True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

True

Prepaid expenses arise when....

a company pays cash to acquire an asset that is not used until a later period

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

Dividends have _____ on the stockholders' equity of a company

a negative effect

The income statement, statement of stockholders' equity, and balance sheet typically are prepared utilizing information shown in the

adjusted trial balance.

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

adjusting

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

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

Intangible assets are

assets that lack physical substance but have long-term value to the company

A classified balance sheet shows subtotals for current_______ and current_______.

assets; liabilities

An Operating cycle is the

average time it takes to provide a service to a customer and then collect that customer's cash

A classified _____ indicates whether or not a company can meet its obligations in the near future.

balance sheet

Deferred revenue appears on the ______.

balance sheet as a liability

Which of these asset accounts would typically appear first on a company's balance sheet? -Equipment -Supplies -Land -Cash

cash

adjusting entries will never include the _________account

cash

Adjusting entries are used to record...

changes in assets and liabilities that have occurred during the period but that we have not yet recorded

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

closing entries

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

cost

After the adjusting entries have been completed, the balance in the Rent Expense account represents the

cost of rent for the accounting period

Assets that will be used up or converted to cash within the next year are _______assets.

current

Liabilities that will be due within the next year are______liabilities

current

On a classified balance sheet, total liabilities represent the sum of______ and long-term liabilities

current

Liabilities are listed in to two categories

current and Long-term liabilities

On a classified balance sheet, total liabilities are separated into...

current and long-term liabilities

At the end of December, Berber Company receives a utility bill for $920 associated with its December operations. Berber will pay the bill on January 5. On December 31, Berber should

debit Utilities Expense and credit Utilities Payable

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

debit a liability account credit a revenue account

A closing entry includes a ______.

debit to Sales Revenue

A closing entry includes a ______. a. credit to Cash b. debit to Sales Revenue c. debit to Interest Expense d. credit to Accounts Receivable

debit to Sales Revenue Reason: Expenses are closed with a credit entry since they normally carry a debit balance. Assets and liabilities are not closed at the end of the period.

The adjusting entry for prepaid rent requires a(n) ______to Rent Expense and a(n)_____ to Prepaid Rent.

debit; credit

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be______

debited

The post-closing trial balance checks that total _______equal total_______ at the end of the period.

debits ; credits

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

As the balance in the Accumulated Depreciation increases, total assets (Increase/decrease) because Accumulated Depreciation is a(n) (Credit/Debit) account.

decrease; credit

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

The _________ represents the cumulative total of net income less dividends over the life of the company.

ending balance of retained earnings

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's: (Select all that apply.) -equity decreases -liabilities decrease -liabilities increase -equity increases -assets decrease -assets increase

equity decreases liabilities increase

Norbert Company debits Accounts Receivable and credits Service Revenue. As a result of this adjusting entry, Norbert Company's

equity increases assets increase

Norbert Company debits Accounts Receivable and credits Service Revenue. As a result of this adjusting entry, Norbert Company's:

equity increases assets increase

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

An advantage of a classified balance sheet is that it is easy to see ______.

if current assets are large enough to pay current liabilities

Revenues and expenses are reported in the

income statement

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as ________expense.

interest

Unpaid interest should be credited to ______payable.

interest

Besides sales or service revenue, what is another common example of a transaction that is recorded as an accrued revenue.

interest revenue

Long-term investments are

investments in another company's debt or stock

Long-term assets are expected to provide benefits for

more than one year

Since dividends represent the payment of company resources to owners, they will have a ____ effect on the stockholders' equity of the company

negative

Transactions that do not involve revenues or expenses and transactions that result in revenues and expenses being recorded at the same time as the cash flows

never require adjusting entries.

Timing differences between expenses recognition and cash outflows often cause account balances of assets, liabilities, revenues, and expenses to.....

not be recorded during the period.

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

recording of adjusting entries

The journal entry to close dividends _____ retained earnings.

reduces

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends Declared. The debit to Retained Earnings causes a(n)______ in the balance of the account.

reduction

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

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.

A company may properly classify an asset that provides benefits for 15 months as a current asset if

the company's operating cycle is longer than one year.

The ending balance of retained earnings represents ______.

the cumulative total of net income less dividends over the life of the company.

Temporary accounts are found in:

the income statement

Cash typically is the first current asset reported on the balance sheet because it is:

the most liquid asset

Current assets are assets that provide a benefit within...

the next year

Under Cash-basis accounting, the revenues and expenses are recorded only at....

the time cash is exchanged

Accrued expenses occurs

when a company has used costs in the current period, but the company hasn't yet paid cash for those costs.

Accrued revenues occurs

when a company provides products or services but hasn't yet received cash.

Selected items reported on Gunter Company's balance sheet are as follows: accounts payable: $10,000; notes payable: $15,000; common stock: $50,000; retained earnings: $25,000; equipment: $30,000; accumulated depreciation: (5,000). Total stockholders' equity reported on Gunter Company's balance sheet should be:

$75,000 Reason: $50,000 (common stock)+$25,000 (retained earnings)

Transactions with owners do not involve recognition of revenues and expenses. Therefore they do not require....

Adjustments

What are current assets?

Assets that provide benefits within the next year.

Depreciation on a company's equipment for the year is $6,000. The adjusting entry for depreciation is recorded as:

Debit Depreciation Expense $6,000, Credit Accumulated Depreciation $6,000

On January 1, a company pays one year of rent in advance for $12,000 ($1,000 per month). On January 31, the adjusting entry is recorded as:

Debit Rent Expense $1,000, Credit Prepaid Rent $1,000 Correct

In which type of liability does the company fulfill its current obligation to its customers by providing services in the future?

Deferred revenue

Which of the following current liabilities does not involve the future payment of cash? -Salaries payable -Accounts payable -Interest payable -Deferred revenue

Deferred revenue

Which of the following are commonly classified as current liabilities?

Deferred revenue Accounts payable Salaries payable

Closing entries:

Entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account

Accrual-Basis accounting

Record revenues when goods and services are provided to customers, and record expenses for the costs used to provide those goods and services to customers.

Which of the following financial statements typically is prepared last? -Statement of stockholders' equity -Balance sheet -Statement of cash flows -Income statement

Statement of cash flows

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

On December 31, Mueller Inc., makes an adjusting entry to accrue salaries expense. As a result of this entry, Mueller's:

liabilities will increase equity will decrease

Deferred revenue is reported on the balance sheet as a current

liability

Cash is the most _________ asset owned by the company.

liquid

Current assets are typically listed in order of...

liquidity

Adjusting entries never affect the asset account called

cash

Total expenses includes

costs used to operate the business during the reporting period

During the closing process, the closing entries to individual expense accounts will be recorded with a ______ journal entry in order to reduce the account balance to zero.

credit

If an asset account such as Equipment has a normal debit balance, the associated contra account should have a normal _______balance.

credit

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts______ at the end of the accounting period.

owed

After the adjusting entries have been completed, the adjusted balance in the Salaries Payable account represents wages earned by employees, but not yet______ by the company.

paid

Which of the following items would be reported as intangible assets on a classified balance sheet? -patents -accounts receivable -equipment -copyrights -trademarks

patents copyrights trademarks

Retained earnings is an example of a ____ account, meaning its balance is carried forward from one period to the next.

permanent

Which of the following accounts should be classified as stockholders' equity?

retained earnings common stock

_________is the price earned from selling goods or services to customers.

revenue

The primary components of net income are:

revenues expenses

A closing entry may include a ______. -credit to Wages Expense -debit to Deferred Revenue -credit to Interest Revenue -debit to Prepaid Insurance

credit to Wages Expense

Interest payable, salaries payable, and accounts payable are common examples of items classified as

current liabilities.

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should

debit retained earnings and credit dividends

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes

debit to Insurance Expense credit to Prepaid Insurance

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

In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account.

expenses and dividends; revenues

Sam earned interest on his bank account, for which he has not yet received cash by December 31. Sam should debit interest receivable and credit

interest revenue.

A long-term liability:

is not due within the next year

The liquidity of an asset refers to how quickly...

it can be converted to cash

Revenues, expenses, and dividends are referred to as _______accounts.

temporary

Selling common stock and paying dividends are examples of...

transactions with owners

Deferred revenues arise

when a company receives cash in advance from customers, but goods and services won't be provided until a later period.

Creative Advertising Company had retained earnings of $100,000 at December 31, 2018. Net income for 2019 was $150,000, and dividends for 2019 were $80,000. What amount of retained earnings should be reported at December 31, 2019?

$170,000 Reason: $100,000+$150,000-$80,000

Retained earnings have three components

-revenue -dividend -expenses

Beverly Company incurred interest on its bank loan; interest is due and will be paid at the beginning of next year. On December 31, Beverly Company should

debit interest expense and credit interest payable

Peter Inc. earned interest on its bank deposit. The interest will be received at the beginning of next year. On December 31, Peter should

debit interest receivable and credit interest revenue

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit retained earnings for:

$14,600 Reason: retained earnings is debited for the sum of expenses

Burrow, Inc. borrowed $20,000 with an annual rate of 6%, the note and interest are due at the end of two years. Calculate the interest for a three-month period.

$300 Reason: $20,000 x 0.06 x 3/12 = $300

During the year, a company had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. These items caused retained earnings to:

$57,000 Reason: Revenues increase while expenses and dividends decrease retained earnings. $100,000-40,000-3,000=$57,000

During the year, Pizza Company, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. Net income equals ______.

$60,000 Reason: $100,000-40,000=$60,000. Dividend payments do not affect net income.

X Company began the month with $500 in retained earnings. During the month, X Company had revenues of $800, expenses of $600 and dividends of $50. Retained earnings at the end of the month equals $______

$650

Which of the following are commonly classified as current liabilities? -Notes payable due in 15 months -Accumulated depreciation -Salaries payable -Accounts payable -Deferred revenue

-Salaries payable -Accounts payable -Deferred revenue

True or false: The adjusted trial balance presents the ending balance of retained earnings.

False

With respect to current assets, _____refers to how quickly an asset can be converted to cash.

Liquidity

What are the effects on the accounting equation from an adjusting entry for revenues earned, but not yet collected, during the accounting period?

Total assets will increase and total stockholders' equity will increase.

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality

The retained earnings balance shown in an adjusted trial balance is the account's (ending/beginning) balance.

beginning

Long-lived assets, such as equipment, are reported at their ______ value in the balance sheet.

book

Long-lived assets are reported in the balance sheet at _____ value, which is equal to its original cost less _____.

book; accumulated depreciation

Supplies should be (Increased/decreased) and Supplies Expense should be (Increased/decreased) for the cost of supplies used up during the period.

decreased; increased

Which of the following account balances are shown in the adjusted trial balance and the income statement?

depreciation expense interest expense

During the year, a company had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. The net of these items caused total stockholders' equity to ______.

increase by $57,000 Reason: Revenues increase, while expenses and dividends decrease stockholders' equity.

Assets that provide benefits for more than one year are classified as

long-term

Property, plant, and equipment and intangible assets are typically classified as _____ assets.

long-term

Property, plant, and equipment are

long-term productive assets used in the normal course of business

Total Revenue includes

products and services provided to customers during the reporting period

Long-term productive assets used in the normal course of business are classified as

property, plant, and equipment

Which of the following account balances are shown in the adjusted trial balance and reported in the income statement?

service revenue supplies expense

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit

service revenue.

Closing entries move the balances from the ______ accounts into the Retained Earnings account. -permanent -temporary -balance sheet

temporary

Which of the following statements most accurately describes the purposes of the closing entries?

to establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

On a classified balance sheet, the sum of current and long-term liabilities refers to______ liabilities.

total

The sum of current and long-term assets reported on the balance sheet is referred to as _______ ________

total assets

After the adjusting entries have been completed, the adjusted balance in the Interest Expense account represents:

total interest that has been paid or accrued during the period

Net income equals

total revenues minus total expenses

The adjusted trial balance provides account balances reported in which financial statements?

-statement of stockholders' equity -balance sheet -income statement

Which of the following are results of closing entries? a. Retained earnings includes current year income less dividends b. Retained earnings has a zero balance c. Temporary accounts are updated for current year income less dividends d. Balances in temporary accounts are zero e. Balances in permanent accounts are zero

a. Retained earnings includes current year income less dividends d. Balances in temporary accounts are zero

Klein Corporation's retained earnings account showed a balance of $200 at 1/1/18. During the year, the company earned revenues of $5,000 and incurred expenses of $3,000. Dividends declared were $500. The amount of retained earnings reported on the 12/31/18 balance sheet will be

$1,700 Reason: $200+$5,000-$3,000-$500

ABC, Inc.'s income statement shows Service revenue of $40,000, Wages expense of $25,000 and Net income of $1,000. The other expenses on ABC's income statement must equal ______.

$14,000 Reason: $40,000 - 25,000 - other expenses =$1,000; other expenses =$14,000.

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for:

$20,000 Reason: retained earnings is credited for the balance of revenue

The adjusted trial balance typically is used to prepare which financial statements? -Statement of cash flows -Income statement -Balance sheet -Statement of stockholders' equity

-Income statement -Balance sheet -Statement of stockholders' equity

On a classified balance sheet, long-term assets may be reported in these sub-categories:

-Property, plant, and equipment -Intangible assets -Long-term investments

The statement of stockholders' equity includes these amounts

-dividends for the period -net income -ending balance retained earnings

Which of the following would be included (added or subtracted) in the calculation of retained earnings? (Select all that apply.) -cash received from sales -revenues -cash paid for expenses incurred -dividends declared -beginning balance retained earnings -expenses

-revenues -dividends declared -beginning balance retained earnings -expenses

Adjusted trial balance

A list of all accounts and their balances after we have updated account balances for adjusting entries.

On December 1, Emilia Company borrowed $100,000 and signed a promissory note. The principal and interest are due on May 1 of the following year. On December 31, the company accrues interest for the month of December. The company's bookkeeper should debit interest expense and credit

Interest payable

On a classified balance sheet, after assets what is listed next?

Liabilities

Accounts receivable are usually collected within one month, so the are highly____ assets and typically listed after cash

Liquid

Investments in another company's stock expected to be held for five years are reported on a classified balance sheet under this category.

Long-term investments

The adjusting entry for an accrued revenue always includes:

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

Utility costs that relate to current year's operations but are not paid until the following year require:

a debit to Utilities Expense a credit to Utilities Payable

Long-term assets are assets that provide a benefit for more than

a year

Which of the following statements regarding the statement of cash flows are correct? a. The final financial statement that is typically prepared b. It is an optional financial statement c. Reports cash disbursements d. Reports cash receipts e. The financial statement that is typically prepared first

a,c,e

The_______ trial balance shows a list of all accounts and their balances after we have updated account balances for adjusting entries.

adjusted

accounts receivable are

amounts owed by customers to the company

After posting adjusting entries to the general ledger, a company typically prepares

an adjusted trial balance

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

an increase

At the beginning of the accounting period, the balances of temporary accounts

are zero

On December 30, Superior Strategies, Inc., collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal:

$10,000

Burrow, Inc. borrowed $20,000 with an annual rate of 6%, the note and interest are due at the end of two years. By the end of the first month, the interest incurred equals $___

$100

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?

-Taggert will credit Prepaid Insurance for $300 on Dec. 31. -Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. -Taggert will debit Insurance Expense for $300 on Dec. 31.

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.

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in April. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January Reason: The pizza ingredients are expensed in the month the ingredients are used (January), not in the month when the payment is made.

Adjusting entries: (Select all that apply.) a. are needed before financial statement preparation. b. update the accounts to their proper balances. c. are prepared at the beginning of the period. d. are required in cash-basis accounting only.

a,b

In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? a. $1,000 of revenue should be recorded in June. b. $500 of revenue should be recorded in May and $500 in June. c. $1,000 of revenue should be recorded in May.

a. $1,000 of revenue should be recorded in June. Reason: Revenue should be recorded when services are performed, regardless of when the cash is collected. The entry in May was a debit to Cash and credit to Deferred Revenue. The entry in June was a debit to Deferred Revenue and credit to Revenue.

Which of the following pre-payments requires an adjusting entry at the end of the year? a. On November 1, the company pays rent for the next six months. b. On December 31, the company pays next year's fire insurance. c. On December 20, the company pays its liability insurance; coverage starts January 1.

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

_____ are recorded in the period that goods and services are provided to customers and _____ are recorded in the period that costs are incurred while providing those goods and services. a. Revenues; expenses b. Revenues; revenues c. Expenses; revenues d. Expenses; expenses

a. Revenues; Expenses

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. a. expense; asset b. revenue; liability c. liability; revenue d. asset; expense

a. expense; asset

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. A company pays a 6-month insurance premium at the beginning of October. b. A company records interest expense that has accrued, but will not be paid until next year. c. A company pays a utility bill for charges incurred in the previous month. d. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

a;d

The following two cases mean that the accountant does not have to do what? 1. transactions that do not involve revenues or expense activities (such as transactions with owners) 2. transactions that result in revenues or expenses being recorded at the same time as the cash flow

adjust entries

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

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

The adjusting entry for supplies used requires a _______ to Supplies and a _______to Supplies Expense.

credit;debit

Which of the following transactions would normally be recorded as an asset when cash is paid? a. Current month utilities b. Advance payments from customers c. Current month salaries d. Rent paid in advance

d. rent paid in advance

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following? -credit to Deferred Revenue -credit to Cash -credit to Accounts Receivable -debit to Deferred Revenue -debit to Cash -credit to Revenue

debit to Deferred Revenue credit to Revenue

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

After the adjusting entries have been completed, the adjusted balance in the Interest Payable account represents:

interest that has accrued, but has not been paid, at the end of the period

The adjusting entry for a deferred revenue includes a debit to a(n) ______ account and a credit to a(n) ________ account. (Enter only one word per blank.)

liability; revenues

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as a. accrual-basis accounting. b. GAAP-basis accounting. c. cash-basis accounting.

Accrual-Basis accounting

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

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

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

A Contra account is...

An account with a balance that is opposite, or "contra," to that of its related accounts

Where is the adjustment entered at regarding a long-lived asset such as equipment.

The adjustment for use of the asset is entered in the Accumulated Depreciation account rather than directly into the Equipment account. So, the Equipment account will not change.

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

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ expenses and are initially recorded as _____.

prepaid; assets

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

Book value is

An asset's original cost less accumulated depreciation.

_______Expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period.

Depreciation

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest_____" and a credit to "Interest___"

Expense Payable

Any costs used to help generate revenues are recorded as______ in the same period as those revenues.

Expenses

True or False: A contra-asset account, such as Accumulated Depreciation, will have a normal debit balance.

False Reason: A contra-account is a negative account. It carries the opposite balance of the account with which it is paired. Consequently, Accumulated Depreciation reduces the long-lived asset when portrayed in the balance sheet.

There is a cause-and-effect relationship between revenues and expenses that dictates:

when costs are recognized as expenses in the income statement

In the period these assets are used, an adjusting entry is needed to... (2 things)

1. Decrease the asset's balance to its remaining(unused) amount 2. recognize an expense for the cost of asset used

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses

in the same period as related revenue.