Chapter 3 Accounting

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Closing entries serve two purposes

1. Transfer the balances to temporary accounts (revenues, expenses and dividends) 2. To reduce the balances of these temporary accounts to zero and prepare them for measuring activity next period.

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

Are zero

Reporting revenues only when cash is received and expenses only when cash is paid is called ?

Cash Basis

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

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

End

When should supplies be recorded as an expense?

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

How do temporary accounts differ from permanent accounts?

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

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

Paid

Cash Basis Accounting

Reporting revenues only when cash is received and expenses only when cash is paid is called

Which of the following statements regarding the statement of cash flows are correct?

Reports cash receipts Reports cash disbursements The final financial statement that is typically prepared

Which of the following financial statements typically is prepared last?

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

Adjusting Entries

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

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

accrual-basis accounting.

Prepaid rent appears in the ______.

balance sheet because it is an asset

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

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

debits credits

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

decreased, increased

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

ending balance retained earnings dividends for the period net income

Accrual Basis Accounting

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

Revenues and expenses are reported in the:

income statement

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

investing operating financing

Prepaid Insurance

is an asset on the balance sheet

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

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

recording of adjusting entries

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

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

A classified balance sheet shows subtotals for current and current . (Enter one word per blank)

assets, liabilities

The two major categories reported in the income statement are:

expense, revenue

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

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

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

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

used during the accounting period