Accounting chapter 4

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected?

assets will increase stockholders' equity will increase

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 Payable.

increase 3000

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 $________

3000 9000

Place the steps in the adjustment process in order. Drag the items to put them in the proper order with the first step on top.

1. Analyze the accounts to determine the amount of the adjustment. 2. Record the adjusting entry in the journal 3. Summarize the adjusting entries in the account.

Bristol, Inc. paid $800 for a 4-month insurance policy, for the duration of August to November, on August 1 of the current year. On August 31, Bristol, Inc. made an adjusting entry to account for the insurance that expired during the month of August. The adjusting entry contained a debit to Insurance Expense in the amount of $ _____ and a credit to Prepaid Insurance in the amount of $______ The remaining balance in the Prepaid Insurance account after the adjustment was $_____

200 200 600

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

_____ 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 of the following statements describes the effect that adjustments may have on liabilities?

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

Why is the Deferred Revenue account reduced during the adjustment process?

As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account.

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest _________" and a credit to "Interest _____________"

Expense Payable

T/F A contra-account is added to the account it offsets.

False

T/F One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

False

T/F The amount charged for a good or service provided to a customer on account is recorded as revenue only after the payment is received.

False

T/F The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.

False

Which of the following types of transactions represent accrual adjustments? (Select all that apply.)

Increase to Interest Payable and Increase to Interest Expense. Increase to Income Taxes Payable and Increase to Income Taxes Expense.

Which of the following accounts are found on a balance sheet?

Prepaid Rent Interest Payable

Place the steps taken at the end of the accounting period to complete the financial statement preparation process in the correct order.

Prepare the adjusting entries Prepare an adjusted trial balance Prepare the financial statements

Which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance?

Retained Earnings

T/F If a company forgot to record depreciation on equipment for a period, Total Assets would be overstated, and Total Stockholders' Equity would be overstated on the Balance Sheet.

True

T/F The temporary accounts will have zero balances in a post-closing trial balance.

True

T/F When a company pays its rent in advance, an asset is reported on the balance sheet.

True

Adjusting entries are required to ______.

adjust the unadjusted balances to the desired balances

After the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected? (Select all that apply.)

assets will increase stockholders' equity will increase

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

Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.)

debit rent expense

Salaries and Wages Payable is ______.

debited when the wages that were previously recorded are paid

The adjusting entry to record the revenue earned by the seller fulfilling its obligation results in a(n) ____________to the Deferred Revenue account.

decrease

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

Adjusting entries are made at the of the ______________ accounting period, while daily transactions are made throughout the accounting period.

end

Adjustments made to expense accounts at the end of the accounting period adhere to the ____________ recognition (matching) principle.

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

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

expenses

T/F Adjusting entries often involve cash.

false

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account

increase

An adjusting entry affects ______.

one balance sheet account and one income statement account

Adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the ______ principle.

revenue-recognition

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

Which of the following entries records the adjustment to revenue for which the seller has performed its obligations but has not yet been collected or billed?

Debit Accounts Receivable and credit Sales Revenue

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.

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.

Gift cards are an example of a transaction in which a company receives payment in advance of fulfilling a sale or performing a service. This type of transaction will result in:1) an increase to the account called Cash, an asset, and 2) a(n) ____________ to the account called ___________, ____________, a ___________

Increase deferred revenue liability

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to ______.

Interest Expense and credit to Interest Payable

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

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 accounting equation from the adjustment for depreciation?

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

A(n) __________ trial ____________ is prepared immediately ___________ the adjusting entries have been recorded and _____________ the financial statement are prepared.

adjusted balance after before

Closing journal entries are recorded ______.

after the financial statements have been prepared

_________________ Expense should be recorded to recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period.

depreciation

T/F As a company uses supplies, an adjustment should be made to decrease an expense account and increase an asset account.

false

T/F Depreciation is a measure of the decline in market value of an asset

false

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

owed

If a company records a debit to Salaries and Wage Payable and a credit to Cash, what has occurred? The company is ______.

paying for salaries and wages that had been accrued earlier

Why are the adjustments important to the preparation of the financial statements?

Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results.

Adjusting entries are important because ______.

adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes without them, the financial statements would be misleading.

The adjusted trial balance should be prepared ______ the financial statements are prepared to prove the ______ of the debits and credits.

before; equality

How do deferral adjustments for prepaid expenses—such as rent—that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?

Deferral adjustments decrease assets and increase expenses.

Deferred Revenue is credited when ______.

cash is collected in advance of the revenue

The balance in the Dividends account represents a reduction to Retained Earnings under stockholders' equity. Therefore, the Dividends account has a normal ___________ balance.

debit

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

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

After the adjustments have been completed, the balance in the Rent Expense account represents the ______.

cost of rent for the accounting period

If an adjusting entry decreased an asset on the balance sheet, then one can conclude that ______.

an expense was increased on the income statement

Without _____________ entries, financial statements would present an incomplete and misleading picture of the company's financial position.

adjustment

Deferral adjustments affect the balance sheet by ______.

decreasing assets for amounts used and liabilities for amounts of services/goods delivered to customers

The Accounts Receivable account should be _____________ when adjusting at the end of the period for any revenues from fulfilling obligations to buyers which has not yet been collected or recorded. (Enter one word per blank.)

increased

Accumulated Depreciation has a normal _________ balance which indicates that it ___________Total Assets

credit decreases

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.

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.

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.

Without ________ entries, financial statements would present an incomplete and misleading picture of the company's financial position.

adjustment