Acct study guide 1

The entry to close the expense accounts includes:

A debit to Retained Earnings.

Which of the following is a characteristic of adjusting entries?

Allows for proper application of the revenue recognition principle (revenues) or expenses recognition.

An adjusted trial balance

- Lists all accounts and their balances at a particular date after updating account balances for adjusting entries. - Is used to prepare the financial statements. - Includes balances for revenues, expenses, and dividends.

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

1000 of revenue should be recorded in may

Which of the following describes the purpose(s) of closing entries? 1. Adjust the balances of asset and liability accounts for unrecorded activity during the period. 2. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. 3. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

2 & 3

Sampson Corporation issues common stock for $25,000 cash and uses some of the proceeds to purchase equipment for $10,000 cash. Sampson also purchases $4,000 of supplies on account. After recording these transactions total assets are

29,000

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?

35,910

Clem Corporation issues 1,000 shares of common stock for $25,000. Clem purchased equipment for $10,000 by borrowing from the bank. Clem's total assets are

35k

On May 1, Cut Above, Inc., collected $3,000 from customers to mow their lawns in June. Under cash-basis accounting, revenues in May will equal:

3k

______ basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company. (Enter only one word.)

Accrual

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

A trial balance can best be explained as a list of

All accounts and their balances at a particular date.

The accounting equation is

Assets = Liabilities + Stockholders' Equity

Which of the following describes the information reported in the statement of stockholders' equity?

Change in stockholders' equity through changes in common stock and retained earnings.

Financial accounting and reporting standards in the United States are established primarily by the

Financial Accounting Standards Board (FASB).

Which of the following entries records the adjustment for revenue earned, but not yet collected?

Debit Accounts receivable and credit Sales revenue.

On November 1, 2021, a company receives cash of $6,000 from a customer for services to be provided evenly over the next six months. Deferred revenue is recorded at that time. Which of the following adjusting entries is needed on December 31, 2021?

Debit Deferred Revenue for $2,000; Credit Service Revenue for $2,000.

A company owes employee salaries of $5,000 on December 31 for work completed in the current year, but the company doesn't plan to pay those salaries until the following year. What adjusting entry, if any, is needed on December 31?

Debit Salaries Expense for $5,000; Credit Salaries Payable for $5,000.

The payment for utilities of the current month would be recorded as

Debit Utilities Expense; Credit Cash.

lorna pays 36k of rent in advance. the effects of this transaction are to

Decrease cash increase prepaid rent

Under cash-basis accounting, companies typically record revenue:

In the period in which we received cash from customers for goods and services.

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31?

During December, Mueller Corporation sold stock to shareholders On December 21, Mueller Corporation declared and paid dividends.

The balance of retained earnings in the adjusted trial balance:

Equals the balance of retained earnings at the beginning of the accounting period.

True or false: The term debit means increase, and the term credit means decrease.

False

independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States.

Financial Accounting Standards Board

The body of rules and procedures that guide the measurement and communication of financial accounting information is known as

Generally Accepted Accounting Principles (GAAP).

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

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

The revenue recognition principle states that companies typically record revenue:

In the period in which we provide goods and services to customers.

When should supplies be recorded as an expense?

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

Under accrual-basis accounting, companies typically report expenses:

In the same period as the revenue they help to generate.

Which of the following causes the accounting equation not to balance?

Increase assets; increase dividends.

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

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

Closing entries are:

Made to transfer the balances of temporary accounts to retained earnings.

Which of the following describes the information reported in the statement of cash flows?

Net cash flows from operating, investing, and financing activities.

which of the following describes the information reported in the income statement?

Net income for the period calculated as revenues minus expenses.

Which of the following describes the information reported in the income statement?

Net income for the period is calculated by subtracting expenses from revenues.

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income for the current period?

Net income will be too high.

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Which of the following transactions causes a decrease in stockholders' equity?

Paying advertising expense for the current month.

in a classified balance sheet, long-term assets used in the normal course of business are known as

Property, plant, and equipment.

Which of the following is an example of an accrued revenue?

Providing services to a customer without having yet collected the cash.

Which of the following is not a characteristic of adjusting entries?

Reduce the balances of revenue, expense, and dividend accounts to zero.

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.)

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

Which of the following transactions causes a decrease in total liabilities?

Repay amounts previously borrowed from the bank.

Group that has been given power by Congress to enforce the proper application of financial reporting rules for companies whose securities are publicly traded.

Securities and Exchange Commission

On September 9, Clearmore Services receives a request for services from a customer. The service is scheduled for September 15. On September 15, the service is provided, and the customer pays one week later on September 22. Using accrual-basis accounting, on which date should Clearmore Services record service revenue?

September 15 (date of service).

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31?

Service is provided during December for cash Shipping expense for December is paid in cash

The balance in retained earnings represents:

The amount of income earned over the company's life minus the dividends paid to shareholders over the company's life.

In a classified balance sheet, liabilities are separated into two categories based on

The length of time until the obligation is expected to be satisfied—less than one year versus more than one year.

stockholders equity

The owners' claim to assets.

Which of the following best describes an important function of financial accounting?

To support the efficient distribution of society's resources.

Which of the following describes the information reported in the balance sheet?

Total assets equal total liabilities plus stockholders' equity.

Which of the following is true about a trial balance?

Total debit amounts should always equal total credit amounts.

describes the closing process?

Transfer the balances of temporary accounts (revenues, expenses, and dividends) to retained earnings.

Posting is the process of

Transferring the debit and credit information from the journal to individual accounts in the general ledger.

income statement

a financial statement that gives operating results for a specific period

when supplies are purchased on account, which of the following occurs

a liability increases

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

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

All transactions related to a particular item over a period of time are summarized in a(n):

account

A debit is used to decrease which of the following accounts?

accounts payable

Egon Inc. delivered goods and services during December. Payment is expected during the first week of January. An adjusting entry at the end of the period should consist of a debit to ____ and a credit to _____.

accounts receivable; service revenue

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

accrual

Recording salaries owed to employees that will not be paid by the company until the following accounting period is an example of a(n):

accrued expense

financial statements are prepared from which of the following trial balances?

adjusted trial balance

Sampson Corporation issues common stock for $25,000 cash and uses some of the proceeds to purchase equipment for $10,000 cash. Sampson also purchases $4,000 of supplies on account. After recording these transactions total assets are

advertising expense accounts receivable supplies

Prepaid insurance is a(n) ______.

asset in the balance sheet

resources of a company

assets

A classified balance sheet shows subtotals for current _____ and current ____

assets liabilities

Independent intermediaries that help to ensure that management appropriately applies financial reporting rules in preparing the company's financial statements.

auditors

The financial statement that shows the financial position of a company at a specific point in time is called the:

balance sheet

Which financial statement reports a company's assets and liabilities?

balance sheet

Prepaid rent appears in the ______.

balance sheet bc it is an asset

retained earnings:

beginning retained earnings + net income - dividends

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

borrowing cash and signing a promissory note

credit customers

bulled at the time service is performed. pay at a later date (cash)

A credit is used to decrease which of the following accounts?

cash

Which accounts require a debit entry to increase the account?

cash utility expense

A list of all account names used to record transactions of a company is referred to as a:

chart of accounts

The two components of stockholders' equity are

common stock retained earnings

Which of the following are stockholder equity accounts?

common stock retained earnings

2 parts of stockholder's equity

common stock and retained earnings

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

credit to Prepaid Insurance debit to Insurance Expense

An adjusting entry for accrued expenses involves:

credit to a liability debit to an expense

The adjusting entry to record interest earned during the period includes a:

credit to interest revenue

Providing services to customers for cash would be recorded with a:

credit to service revenue

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of this equation are increased with

credits

Beverly Company incurred interest on its bank loan; interest is due and will be paid at the beginning of next year. On December 31, Beverly Company should

debit interest expense and credit interest payable

The purchase of supplies with cash would be recorded as

debit supplies; credit cash

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

debit to Insurance Expense credit to Prepaid Insurance

An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

Paying dividends to stockholders would be recorded with a:

debit to dividends

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

debit to insurance expense credit to prepaid insurance

The purchase of supplies on account would be recorded with a:

debit to supplies

The adjusting entry to record supplies used during the period includes a:

debit to supplies expense

the adjusting entry for prepaid rent requires a(n) to Rent Expense and a(n) to Prepaid Rent.

debit; credit

The adjusting entry for prepaid rent requires a(n) _____ to Rent Expense and a(n) _____ to Prepaid Rent.

debit;credit

Because dividends reduce retained earnings, a ______ to dividends is essentially a ______ to retained earnings.

debit;debit

a credit to cash will

decrease assets

On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to

decrease cash increase paid rent

A debit to Salaries Expense will:

decrease stockholders equity

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

Dividends ______ retained earnings; therefore, to increase dividends, one would ______ the dividends account.

decrease; debit

Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.

decrease; debit

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.

decrease; increase

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

decreased; increased

______ 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. (Enter only one word.)

deferred

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation

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

depreciation

distribution to stockholders

dividends

The statement of stockholders' equity includes these amounts:

dividends for the period ending balance retained earnings net income

Which of the following transactions causes an increase in total assets?

issue common stock in exchange for cash

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

expense

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

costs of selling products or services

expenses

Credits increase revenues, whereas debits increase

expenses and dividends

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______

expenses in the period incurred, even though cash has not yet been paid revenues in the period when the revenue is earned, even though the cash has not yet been collected

True or false: Since Retained Earnings is involved in the closing process, it is classified as a temporary account.

false

A classified balance sheet ______

groups asset and liabilities into current and long-term categories

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

After the closing entries are posted to the accounts, all temporary accounts:

have 0 balances

change in cash as a result of operating, investing, and financing activities

imcome statement

In which financial statement does a company report its expenses?

income statement

In which financial statement does a company report its revenues?

income statement

Which financial statement conveys a company's ability to generate profits in the current period?

income statement

Which financial statement shows a company's revenues and expenses?

income statementq

Providing services to customers for cash would have what effect on the accounting equation?

increase total assets and total stockholders' equity.

Revenues ______ retained earnings; therefore, to increase any revenue, one would ______ the revenue account.

increase; credit

Zelda purchases $10,000 of supplies on account. The effects of this transaction are to

increases assets increase liabilities

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as _______ expense.

interest

_____ is defined as the "cost of borrowing money."

interest

Body that is attempting to develop a single set of high-quality, understandable global accounting standards.

international Accounting Standards Board

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. Using cash-basis accounting, on which date should Papa's Pizza record the extermination expense?

jan 29 (date of cash payment)

Transactions are recorded using debits and credits in a(n):

journal

amounts owed

liabilities

Deferred revenue is a(n) ______.

liability

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

liability prepaid expense

When supplies are purchased on account, which of the following occurs?

liability increases

Purchasing land with cash would have what effect on the accounting equation?

no effect

what is an example of a liability account

notes payable

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

notes payable increases cash increases

The information reported in the statement of cash flows is organized by these activities:

operating investing financing

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

owed

cash customers

pay at the time the service is performed (accrual)

Which of the following transactions decreases total assets?

pay dividends to stokcholders

Which of the following transactions decreases stockholders' equity?

pay salaries for the current period

Retained earnings is an example of a ____ account, meaning its balance is carried forward from one period to the next

permanent

The process of transferring debit and credit information from the general journal to the general ledger is known as:

posting

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

prepaid expense liability

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 _____.

prepaid expenses; assets

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits?

prepare a trial balance

Which of the following transactions increases total assets?

provide serivces to customers on acount

Which of the following transactions causes an increase in stockholders' equity?

provide services to customers on account

Zweig Company's adjusting entries include a debit to accounts receivable and a credit to service revenue. This means that Zweig:

provided services for which it did not yet receive payment

Which of the following transactions increases total liabilities?

purhcase office supplies on account

Chan Sports purchases one year of rent on November 1 for $12,000 ($1,000 per month), debiting Prepaid Rent. On December 31, Chan Sports would record the following year-end adjusting entry:

rent expense: 2000 prepaid rent: 2000

Which accounts require a credit entry to increase the account?

retained earnings accounts payable

Identify accounts that require a credit to increase the account.

revenue common stock

sales of products or services

revenues

sales of products or services are referred to as

revenues

Which of the following accounts is listed in a post-closing trial balance?

salaries payable

Which of the following accounts is not listed in a post-closing trial balance?

salarues expense

Which of the following transactions do not require an adjusting journal entry for Mueller Corporation on December 31?

service is provided during december for cash shipping expense for december is paid in cash

A credit is used to increase which of the following accounts?

service revenue

Which of the following accounts is not listed in a post-closing trial balance?

service revenue

Which of the following accounts normally has a credit balance?

service revenue

Which of the following financial statements typically is prepared last?

statememnt of cash flows

profitiability of a company

statement of cash flow

resrouces equal creditors and owners claim to those resources

statement of cash flows

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 stockholders equity

change in owners claim to resources

statement of stockholders equity

owners claim to resources

stockholders equity

Which of the following accounts normally has a debit balance?

supplies

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

Under accrual-basis accounting, which of the following result in an expense being recorded in May? (Select all that apply.)

the company pays cash in june for salaries earned in may. the company pays cash in april for supplies used in may

The difference between cash-basis and accrual-basis accounting is the ______ of when revenues and expenses are recorded.

timing

Which of the following correctly describes a list of accounts and their balances, showing that total debits equal total credits?

trail balance

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. T of F?

true

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. T or F?

true

A debit is used to increase which of the following accounts?

utilities expense

define deferred revenue

when cash has been received for a good or service that will be provided in the future example: magazine subscription revenue