Accounting Ch 4

The adjusting entry to record depreciation, includes a debit to _____ ______ and a credit to ____ _____

1. Depreciation expense 2. Accumulated depreciation

Depreciation

A decrease or loss in value When equipment is used to generate revenues in the current period, part of the cost should be transferred to an expense account.

Select the following statements that are correct regarding Dividends? (Check all that apply.) A. Dividends are closed into retained earnings by crediting Dividends. B. Dividends are closed into retained earnings by crediting Retained Earnings. C. Dividends are closed into retained earnings by debiting Retained Earnings. D. Dividends are closed into retained earnings by debiting Dividends. E. Dividends have a normal credit balance. F. Dividends have a normal debit balance.

A. Dividends are closed into retained earnings by crediting Dividends. C. Dividends are closed into retained earnings by debiting Retained Earnings. F. Dividends have a normal debit balance.

Adjustments

Adjusting account records at the end of a period to ensure assets and liabilities are reported at the appropriate amounts.

A 2 year premium of $7,300 was paid on January 1, 2021, for coverage beginning on that date. As of December 31, 2021, the unadjusted balances were $7,300 for Prepaid Insurance and $0 for Insurance Expense. Of the $7,300 paid for insurance, what amount should be reported on the 2021 income statement as Insurance Expense? What amount should be reported on the December 31, 2021, balance sheet as Prepaid Insurance?

Assets: Prepaid insurance - 3650 Stockholder's equity: Insurance expense - 3650 Prepaid insurance: 3650 Insurance expense: 3650

Revenue Recognition

Companies recognize revenue in the accounting period in which the sale/service is completed. Examples: 1. Company receives cash before sale/service: Cash is increased Revenue not yet reported. 2. Service/sale is given before cash accounts receivable increases: Revenue reported 3. Cash received with sale/service: Cash increases, revenue reported

How are liabilities recorded at the end of a period?

Liabilities are reported as amounts owed

The Equipment account balance in a company's ledger equals its ______.

Original cost

How will the supplies expense and interest payable be affected by adjusted entries?

They usually increase

Contra-account

an account that is an offset to, or reduction of, another account

Find change in liabilities

Subtract current liabilities and previous liabilities to get change in liabilities

How are supplies adjusted at the end of a period?

The adjusted balance in the supplies expense account represents the cost of supplies used during the period.

What are the effects on the accounting equation from the adjustment for depreciation?

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

Depreciation is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.

True

At December 31, 2021, you obtained the following data relating to supplies. Unadjusted balance in Supplies on December 31: $ 15,500 Unadjusted balance in Supplies Expense on December 31: 73,000 Supplies on hand, counted on December 31: 10,400 What amount should be reported on the 2021 income statement as Supplies Expense? What amount should be reported on the December 31, 2021, balance sheet as Supplies?

Unadjusted balance - balance on hand = 5100 Assets: Supplies -5100 Stockholder's equity: Supplies expense: -5100 Supplies: 15500 - 5100 = 10400 Supplies expense: 73000 - 5100 = 67900

The balance in Prepaid Insurance after adjusting entries have been recorded represents _______

Value of the insurance repayment that remains to benefit future periods.

After the adjustments have been completed, the Supplies account on the balance sheet represents the cost of supplies ______.

1. On hand at the end of the accounting period.

Steps taken at the end of the accounting period

1. Prepare the Adjustment entries 2. Prepare an unadjusted trial balance 3. Prepare financial statements

How do the adjusting entry to record the supplies used during the period affect the financial statements?

1. Supplies on balance sheet will decrease 2. Supplies on income statement will increase 3. Net income on the income statement will decrease.

On Sept 1st, Taggert Company paid $1800 for a 6 month insurance premium beginning Sept 1st. What is true regarding the account for the insurance over the 6 month period?

1. Taggert will debit prepaid insurance for $1800 Sept 1st. 2. Taggert will debit insurance expense for $300 Sept 30th 3. Taggert will credit prepaid insurance for $300 Sept 30th

The adjusting entry to record depreciation on equipment includes a ______.

1. credit to Accumulated Depreciation 2. debit to Depreciation Expense

A contra-account ______

1. has a normal balance opposite of the account it offsets 2. example is Accumulated Depreciation because it has a normal credit balance

Which of the following is true regarding depreciation of equipment? (Select all that apply) A. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet. B. Accumulated Depreciation is decreased as the equipment is used causing the carrying value to increase. C. Depreciation directly decreases the Equipment account causing the carrying value to decrease. D. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date. E. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet.

A. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet. D. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date. E. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet.

Expense Recognition

Record expenses in the period the related revenue is recognized Examples: 1. Cash before expense. Such as, buying supplies for the next period: Decrease in cash, increases in supplies asset. Once supplies are used, supplies asset decreases, and supplies expense increases 2. Expense before cash. Such as, paying for advertising on account. Advertising expense increases, accounts payable increases. - When advertising is paid in cash, accounts payable decreases, and cash decreases. 3. Expenses are initially recorded as assets until they're used. Once used, the asset decreases, and expenses increases.