Accounting 101 - Chapter 3

Under cash-basis accounting, (Select all that apply.) expenses are recorded in the period related revenue is generated. revenues are recorded when goods or services are provided. expenses are recorded when cash is paid. revenues are recorded when cash is received.

expenses are recorded when cash is paid. revenues are recorded when cash is received.

Which of the following is a temporary account? Retained Earnings Salaries Expense Accounts Receivable Cash

Salaries Expense

The _____ is the average time between purchasing inventory and receiving cash proceeds from its sale. operating cycle reporting period inventory turnover days in inventory

operating cycle

Which relationship between revenue and expense recognition is implied in the matching principle? cause-and-effect directly proportional unrelated perfect correlation

- cause-and-effect

The closing entry for Salaries Expense includes: A debit to Retained Earnings. A credit to Retained Earnings. A debit to Salaries Expense. A credit to Salaries Payable.

A debit to Retained Earnings. Since Salaries Expense has a normal debit balance, it is closed with a credit. The offsetting debit is to Retained Earnings.

The closing entry for Service Revenue includes: A debit to Service Revenue and a credit to Retained Earnings. A debit to Retained Earnings and a credit to Service Revenue. A debit to Service Revenue and a credit to Common Stock. A debit to Common Stock and a credit to Service Revenue.

A debit to Service Revenue and a credit to Retained Earnings. Since Service Revenue has a normal credit balance, it is closed with a debit. The offsetting credit is to Retained Earnings.

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 - Accrued revenue - Deferred revenue - Prepaid expense

Accrued expense Explanation: An accrued expense arises when a company has used costs in the current period, but will not pay cash for those costs until a later period.

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 Cash $500 Debit Utilities Expense $500, Credit Utilities Payable $500 Debit Utilities Payable $500, Credit Cash $500 No adjusting entry is required.

Debit Utilities Expense $500, Credit Utilities Payable $500

Which of the following is an objective for preparing closing entries? To convert from the accrual basis of accounting to the cash basis of accounting. To make sure that proper adjustments are made before preparing an adjusted trial balance. To reverse the effects of double-entry bookkeeping and ensure that the accounting equation is in balance. To transfer the balances of temporary accounts to the Retained Earnings account.

To transfer the balances of temporary accounts to the Retained Earnings account

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred. expenses cash transactions closing entries journal entries

expenses

On June 30, a company provides $900 of services to customers on account. It usually takes the company one week to mail bills to customers and another week for customers to pay. In June, the adjusting entry is recorded as: Debit Accounts Receivable $900, Credit Deferred Revenue $900 Debit Accounts Receivable $900, Credit Service Revenue $900 Debit Cash $900, Credit Deferred Revenue $900 Debit Cash $900, Credit Service Revenue $900

Debit Accounts Receivable $900, Credit Service Revenue $900

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

Debit Deferred Revenue $450, Credit Service Revenue $450

Depreciation on a company's equipment for the year is $6,000. The adjusting entry for depreciation is recorded as: Debit Accumulated Depreciation $6,000, Credit Depreciation Expense $6,000 Debit Depreciation Expense $6,000, Credit Accumulated Depreciation $6,000 Debit Depreciation Expense $6,000, Credit Cash $6,000 Debit Depreciation Expense $6,000, Credit Equipment $6,000

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

T|F: A publisher receives cash for a magazine subscription during Year 1. The publisher sends magazines on a monthly basis to that customer in Year 2. According to the revenue recognition principle, the publisher should report the related magazine subscription revenue in its income statement for Year 1 since it received cash for the magazine subscription in Year 1.

False Explanation: If the company sells products or provides services to a customer in Year 2, it should report the revenue in the Year 2 income statement, irrespective of when cash is received.

Which of the following accounts are listed in a post-closing trial balance? Salaries Expense Supplies Retained Earnings Dividends Service Revenue Deferred Revenue

Supplies, Retained Earnings, Deferred Revenue Explanation: Assets, liabilities (including Deferred Revenue), and the stockholders equity accounts (including Common Stock and Retained Earnings) appear on a post-closing trial balance. Revenue, expense, and dividend accounts do not appear in a post-closing trial balance because these accounts all have zero balances after posting closing entries.

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

accrual-basis accounting.

During a discount sale, Larry buys a CD from Best Buy. Rather than paying cash, Larry uses his Best Buy card to buy the CD on account. Under the accrual basis of accounting, when will Best Buy record revenue from this sale? after cash is received after the discount period is over at the time of sale in the next accounting period

at the time of sale

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 Prepaid Rent $1,000, Credit Cash $1,000 Debit Rent Expense $1,000, Credit Cash $1,000 Debit Rent Expense $1,000, Credit Prepaid Rent $1,000 Debit Rent Expense $12,000, Credit Prepaid Rent $12,000

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

T|F: The adjusted trial balance is used to verify that total debits equal total credits after account balances have been updated to reflect adjusting entries.

True Explanation: A trial balance is used to verify that total debits equal total credits. The adjusted trial balance is prepared after account balances have been updated to reflect adjusting entries.

A company pays one year of rent in advance on January 1. On January 31, the company will record an adjusting entry that will: Increase assets and increase expenses Increase assets and decrease expenses Decrease assets and increase expenses Decrease assets and decrease expenses

Decrease assets and increase expenses Explanation: The adjusting entry for a prepaid expense decreases assets (Prepaid Rent) and increases expenses (Rent Expense).

A company receives cash in March for services that it will provide in April. This scenario is an example of a(n): - Accrued expense - Accrued revenue - Deferred revenue - Prepaid expense

Deferred revenue Explanation: A deferred revenue arises when a company receives cash in advance of providing goods or services.

T|F: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

Falose Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

T|F: The post-closing trial balance does not include any revenues, expenses, or dividends, because these accounts are permanent accounts.

False The post-closing trial balance does not include any revenues, expenses, or dividends, because these accounts all have zero balances after closing entries.

A publisher sends magazines on a monthly basis to a customer throughout Year 2. The customer had paid for this subscription in December Year 1. For the February Year 2 edition of the magazine, the publisher purchases paper in January Year 2 by paying cash. When should the company report the costs associated with the purchase of paper? - December Year 1 - January Year 2 - February Year 2 - March Year 2

February Year 2

T|F: The balance of the Retained Earnings account in the post-closing trial balance will be different from that of the adjusted trial balance.

True The balance of the Retained Earnings account in the post-closing trial balance will be updated from the adjusted trial balance to include all revenues, expenses, and dividends for the period.