Accounting chapter 4
Adjusting entries are made at the___ of the accounting period, while daily transactions are made throughout the accounting period.
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In its 1st month of business, Brewed Awakenings, Inc. purchased $1,000 of supplies of which it had paid $700 and owes the rest. At the end of the month, it had $400 of supplies available for use. What is the amount of Supplies Expense on the income statement?
$600
Noodlecake previously purchased $800 of supplies and now only has $200 left. What is Supplies Expense equal on its income statement?
$600
On November 1, Lawn & Order, Inc. paid $24,000 for two years of rent in advance for rent beginning on November 1. How much should be expensed for the month of November?
1,000
What is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected?
Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400.
What is true regarding depreciation of equipment?
Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date. Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet.
_____ ensure that the revenues recognized and expenses incurred during the period are reflected in the income statement.
Adjusting entries
How does the timing of adjusting entries differ from the accounting for daily transactions?
Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.
Which two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance?
Amortization Expense Accumulated Amortization
Sonic Gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ______ and a credit to ______.
Amortization Expense; Accumulated Amortization
The annual depreciation taken on a vehicle totals $3,000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to $___ and Accumulated Depreciation equal to $_____
Blank 1: 3,000 Blank 2: 9,000
A(n)_____ trial____ is prepared immediately_____ the adjusting entries have been recorded and ______the financial statement are prepared.
Blank 1: adjusted Blank 2: balance Blank 3: after Blank 4: before
Which of the following entries records the adjustment for income tax accrued, but not yet paid?
Debit Income Tax Expense and credit Income Tax Payable.
What is the purpose of the depreciation adjustment for long-lived assets?
Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.
Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?
Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.
When are financial statements prepared?
Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.
As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?
Interest Expense should be increased, because the cost of interest relates to the current period.
Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance?
Prepaid Rent
The closing entry for dividends involves a debit to ______ and a credit to ______.
Retained Earnings; Dividends
When will Accounts Receivable be involved in an adjusting entry?
Revenue is earned but not yet collected or recorded at the end of the period.
As of December 31, the unadjusted balance in Deferred Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?
Sales Revenue needs to be increased by the amount of gift cards redeemed during the month. Deferred Revenue needs to be decreased by the amount of gift cards redeemed during the month.
The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.
Supplies Expense; Supplies
How does the adjusting entry to record the supplies used during the period affect the financial statements? (Select all that apply.)
Supplies on the balance sheet will decrease Net Income on the income statement will decrease Supplies Expense on the income statement will increase
Which of the following is incorrect regarding the Income Tax Payable account?
The account represents tax refunds due to the company.
Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects?
The carrying value of the assets are decreased. Total expenses on the income statement are increased. Total assets is decreased on the balance sheet.
How does the adjustment for depreciation differ from other deferral adjustments?
The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly.
Which of the following statements is correct regarding a long-lived asset such as equipment?
The original cost in the Equipment account will not change during the adjustment process.
Why are adjustments needed at the end of an accounting period?
To ensure that all assets and liabilities are reported at appropriate amounts
What is the purpose of preparing an adjusted trial balance?
To ensure that total debits equal total credits after the adjustments have been recorded
What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected?
Total assets will increase and total stockholders' equity will increase.
What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the accounting period that had previously been recorded as a liability?
Total liabilities will decrease and total stockholders' equity will increase.
After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased?
accounts receivable
Adjusting entries are required to ______.
adjust the unadjusted balances to the desired balances
Closing journal entries are recorded ______.
after the financial statements have been prepared
A prepayment that is originally recorded as an asset will be ______.
allocated to future accounting periods based on the value of the benefit used during the period
The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit____ to and a credit to _____
amortization expense, accumulated amortization
The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the_____ process.
closing
A(n) ______ has a normal balance opposite of the account it offsets.
contra-account
If an asset account such as Equipment has a normal debit balance, the associated contra-account should have a normal____ balance.
credit
The adjusting entry for supplies used during the period requires a____ (debit or credit) to Supplies and a____ (debit or credit) to Supplies expense.
credit debit
Accumulated Depreciation has a normal ____balance which indicates that it _____Total Assets
credit decreases
The adjusting entry to record the amount of prepaid rent used during the period requires a____ to Rent Expense and a_____ to Prepaid Rent.
debit credit
As of December 31 (the end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) of $ to Income Tax Expense
debit 3,000
The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends.The debit to Retained Earnings causes a(n)______ in the balance of the account.
decrease
Prepaid expenses, such as Prepaid Rent, should be ______ by the benefits that were used up during the accounting period.
decreased
_____ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.
depreciation
After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______.
depreciation for the current fiscal year
The _____ recognition principle requires an adjustment for salaries and wages expense incurred during the accounting period that will be paid in a future accounting period.
expense
The adjusting entry to record salaries and wages owed to employees at the end of the accounting period includes a debit to "Salaries and Wages_____ " and a credit to "Salaries and Wages_____ ."
expense payable
If a company determines that it has $1,400 of supplies on hand at the end of the period, which of the following statements is correct? The company ______.
has $1,400 in supplies remaining at the end of the period
A contra-account ______.
has a normal balance opposite of the account it offsets example is Accumulated Depreciation because it has a normal credit balance
The purpose of recording an adjusting entry for salaries and wages is to record wages ______
incurred but not yet paid
Interest incurred, but not yet paid during an accounting period, should be recorded as an expense and a(n) ______.
liability
The Equipment account balance in a company's ledger equals its ______.
original cost
The adjusting entry for income taxes records income tax that is incurred and ____ by the company.
owed
The adjusting entry to record amortization causes ______.
stockholders' equity to decrease assets to decrease
The Deferred Revenue T-account will show which of the following?
the amounts received in advance that the seller has not yet fulfilled of its obligations on the credit side the amounts the seller has fulfilled of its obligations that were collected in advance on the debit side the normal ending balance on the credit side
After the adjustments have been recorded, Deferred Revenue on the balance sheet reports the amount of ______
the sales or services still owed to the customer
Deferred Revenue should be reduced and Revenue increased for the amount of revenue ______ during the period.
the seller performs of its obligations to its customers
True or false: Supplies is an asset account because it contains the value of supplies that havenot been used, but still remain an economic resource for the company. True false question.
true
To determine the adjusting entries required, a(n) ______ is prepared.
unadjusted trial balance
What is a good starting point for determining which accounts require adjustment?
unadjusted trial balance
The adjusting entry to record wages incurred but not yet recorded includes a credit to ______
wages payable
Accounts Receivable should be increased for ______.
which the seller has performed of its obligations during the period but not yet collected
Salaries and Wages Payable is recorded for salaries and wages incurred, but not yet_____ to employees, at the end of the accounting period.
paid
Deferred Revenue is credited when ______.
cash is collected in advance of the revenue
______Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period
depreciation
Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.
owed
The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the ______.
value of the insurance prepayment that remains to benefit future periods
Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $_____ and a credit to Prepaid Rent in the amount of $.____ The remaining balance in the Prepaid Rent account after the adjustment was $._____
400 400 800
Adjusting entries are important because ______.
without them, the financial statements would be misleading. adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes
Why are the adjustments important to the preparation of the financial statements?
Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results.
True or false: Accumulated Depreciation is a contra-account to a long-lived asset account, such as Equipment. This means that it increases the balance of the long-lived asset on the balance sheet.
false - 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 on the balance sheet.
The adjusting entry to record depreciation on equipment includes a ______.
credit to Accumulated Depreciation debit to Depreciation Expense