Chapter 3 - ACTG 2200

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

A classified balance sheet shows subtotals for current __________ and current ___________.

assets; liabilities

Interest

defined as the "cost of borrowing money."

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

- A company pays a 6-month insurance premium at the beginning of October. - A company pays for 4 months of advertising in the Wall Street Journal on November 1.

Cash Basis Accounting

- Expenses are recorded when cash is paid. - Revenues are recorded when cash is received. - Reporting revenues only when cash is received and expenses only when cash is paid

Accrual Basis Accounting

- We record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services - Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues

The adjusting entry for an accrued revenue always includes:

- a credit to a revenue account - a debit to an asset account

Adjusting Entries

- are needed before financial statement preparation. - update the accounts to their proper balances.

Adjusting entries:

- are needed before financial statement preparation. - update the accounts to their proper balances.

An adjusting entry for accrued expenses involves:

- credit to a liability - debit to an expense

Andy records an adjusting entry for deferred revenue. Andy should:

- debit a liability account - credit a revenue account

The statement of stockholders' equity includes these amounts:

- ending balance retained earnings - dividends for the period - net income

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

- financing - investing - operating

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

- prepaid expense - liability

The two major categories reported in the income statement are:

- revenue - expense

The post-closing trial balance helps to verify that:

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

Which of the following statements describes the effect that adjusting entries may have on liabilities?

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

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

Asset

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

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

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

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

FALSE Reason: Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

When should supplies be recorded as an expense?

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

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

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 financial statements typically is prepared last? A. Statement of cash flows B. Balance sheet C. Income statement D. Statement of stockholders' equity

Statement of cash flows

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

adjusting

Revenue in the income statement for the year ended December 31, 2018 equals the ______.

amount earned by selling goods or services to customers during 2018

Deferred 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.

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

closing entries

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

cost

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

debits; credits

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

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

depreciation.

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

expenses

A classified balance sheet ____________.

groups asset and liabilities into current and long-term categories

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as ________ expense.

interest

Deferred revenue is a(n) ______.

liability

The adjusting entry for a deferred revenue includes a debit to a(n) _______ account and a credit to a(n) _________ account.

liability; revenue

Accruals

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

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

owed

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

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

Revenue

the price earned from selling goods or services to customers.

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