Accounting Chapter 3

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

an accounting system which is consistent with generally accepted accounting principles. an accounting system that best reflects business performance and increases the comparability of financial statements from period to period. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

Accrual basis accounting is: (Check all that apply.)

Debit Salaries expense for $500.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer

Define "current" as it applies to assets and liabilities on a classified balance sheet.

They are reported on a balance sheet. They refer to cash received in advance of performing a service or product. They are a liability. They are also called deferred revenues.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

Unearned revenue; Supplies; Prepaid rent

Identify which group of accounts may require adjustments at the end of the accounting period.

expenses, revenues, adjusting

The expense recognition (matching) principle aims to record (expenses/assets/liabilities) in the same accounting period as the (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the (timing/adjusting/estimating) process.

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

revenues, expenses, incurred

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (revenues/expenses/liabilities) when (incurred/paid) in order to adhere to the matching principle.

Debit Unearned revenues for $400.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

expense, credit, payable

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (expense/payable) account and (debit/credit) the Salaries (expense/payable/unearned) account.

Debit accounts receivable and credit services revenue

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Supplies were purchased at the beginning of the year, but not all were used. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. a 24-month insurance policy was prepaid Six months of rent were paid in advance. Equipment was purchased in the middle of the year.

Determine which of the following transactions may require adjustments. (Check all that apply.)

the closing process helps to summarize a period's revenues and expenses. the closing process resets the balances in temporary accounts to zero.

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. Examples of accrued expenses are wages expense and interest expense. They are reported on an income statement.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

Debit Interest receivable for $600.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Interest receivable, credit, interest revenue

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (debit/credit) the (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. Financial statements are prepared more easily using the adjusted trial balance than with the general ledger. The income statement is the first financial statement prepared after preparing the adjusted trial balance. The adjusted trial balance includes all accounts and balances appearing in financial statements.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

credit services revenue debit accounts receivable

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December:

Unearned revenues refer to cash received in advance of providing a service or product.

What are unearned revenues

Depreciation is the process of allocating the costs of long-term assets over their expected useful life.

What is depreciation?

Wages expense, Interest expense

Which of the accounts below are considered accrued expenses?

Accrued expenses deferred revenues accrued revenues deferred expenses

Which of the following adjustments would be required at the end of the period? (Check all that apply.)

They refer to earnings which have been earned but not yet billed. Accounts receivable is usually increased when accruing revenues. The adjustment causes an increase in an asset account and an increase in a revenue account. They refer to revenues that are earned in a period, but have not been received and are unrecorded.

Which of the following describes accrued revenue? (Check all that apply)

Accrued cash

Which of the following is not a type of adjustment

Depreciation is the original cost of an asset minus any residual value and this amount is expensed over its useful life. Depreciation is recognized at the end of an accounting period. Depreciation is the process of allocating the cost of an asset to the period the asset benefits. Depreciation is recorded through an adjusting entry.

Which of the following statements are true regarding depreciation? (Check all that apply.)

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. Matching of expenses with revenues is a major part of the adjusting process.

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Which of the statements below explains the accounting cycle?

A temporary account will not appear on a post-closing trial balance.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

Temporary accounts have a balance for one period only. Permanent accounts are reported on the balance sheet. Permanent accounts will appear on a post-closing trial balance. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts are reported on the income statement.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)