Accounting Chapter 3

a liability is increasing since cash will be paid in the future due to the expense incurred

In an adjusting entry for expenses incurred but not yet paid ______.

Which of the following would be referred to as "accruals?"

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

adjusting entries:

-are needed before financial statement preparation. -update the accounts to their proper balances.

under cash-basis accounting:

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

groups asset and liabilities into current and long-term categories

A classified balance sheet ______.

assets; liabilities

A classified balance sheet shows subtotals for current

decrease; increase

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.

asset/debit

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.

allocated to future accounting periods based on the cost of the asset used during the period

A prepayment that is originally recorded as an asset will be ______.

cash

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

debits; credits

The post-closing trial balance checks that total _______ equal total _______ at the end of the period.

deferred

______ 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.

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

Which of the following pre-payments requires an adjusting entry at the end of the year?

Rent paid in advance

Which of the following transactions would normally be recorded as an asset when cash is paid?

expenses

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _______ in the period the benefit expires.

$35,910

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

decreased

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

asset in the balance sheet

Prepaid insurance is a(n) ______.

balance sheet because it is an asset

Prepaid rent appears in the ______.

-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.

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?

liability; revenue

The adjusting entry for a deferred revenue includes a debit to a(n) account and a credit to a(n) account.

expense; asset

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

used during the accounting period

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

interest

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

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 company pays for 4 months of advertising in the Wall Street Journal on November 1. -A company pays a 6-month insurance premium at the beginning of October.

paid

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

asset

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

owed

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

Expenses

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

the amount of the sales or services still owed to the customer.

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

amount of the prepayment that remains towards future rental periods

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

cost of rent for the accounting period

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

expense

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

-liability -prepaid expense

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

asset; revenue

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

Service revenue for $1,800

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

-credit to Prepaid Insurance -debit to Insurance Expense

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.)

-operating -investing -financing

The information reported in the statement of cash flows is organized by these activities: Multiple select question.

-we prepared and posted closing entries correctly -the accounts are ready for next period's transactions

The post-closing trial balance helps to verify that: (Select all that apply.)

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

The statement of stockholders' equity includes these amounts: (Select all that apply.)

dividends for the period ending balance retained earnings net income

The statement of stockholders' equity includes these amounts: (Select all that apply.)

adjusting

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

False

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period. True false question.

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

Under cash-basis accounting, (Select all that apply.)

end

adjusting entries are made at the ____ of the accounting period, while daily transactions are made throughout the accounting period.

-credit to a liability -debit to an expense

An adjusting entry for accrued expenses involves: (Select all that apply.)

are zero

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

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

When should supplies be recorded as an expense?

Accurals

occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

recording of adjusting entries

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

prepaid expenses; assets

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 _____. Multiple choice question.

liability

Deferred revenue is a(n) ______.

December 31

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?

-Rent expense of $2,000 -Prepaid rent of $22,000

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.)

decreased; increased

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

Accural Basis Accounting

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

Statement of stockholders' equity

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 cash flows

Which of the following financial statements typically is prepared last?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Depreciation

____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used

accural

basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.