Chapter 3 SmartBook

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.

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased Reason: Supplies are recorded as an asset when purchased and later expensed as they are used up.

Which of the following statements is true?

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

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

Interest

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 statements regarding the statement of cash flows are correct?

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

__________ is the amount earned from selling goods or services to customers.

Revenue or sales

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

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

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

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, 2021 equals the:

amount earned by selling goods or services to customers during 2021.

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

are zero

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

assets liabilities

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

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

cost

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

credit to Revenue debit to Deferred Revenue

An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

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 Reason: The asset value is decreasing as the benefit of the prepayment is being used. Consequently, the expense account is increasing by the value of the benefit used.

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

decreased; increased

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

depreciation.

The statement of stockholders' equity includes these amounts:

dividends for the period net income ending balance retained earnings

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

end

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

expense

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.

Consistent with accrual-basis accounting, expenses should be recognized

in the period when the related revenue is generated

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses:

in the same period as related revenue

Revenues and expenses are reported in the:

income statement

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

interest

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

investing financing operating

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

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

liability revenue

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

owed

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

paid

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

recording of adjusting entries

The two major categories reported in the income statement are:

revenue expense

Under cash-basis accounting

revenues are recorded when cash is received. expenses are recorded when cash is paid.

Match the accounts with the correct terms. Temporary -> ? Permanent -> ?

revenues, expenses, dividends (Temporary) assets, liabilities, equity (Permanent)

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

temporary

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer. Reason: Deferred revenue represents the amount of sales or services that have been collected in advance of being earned. Accounts Receivable represents that amount of sales or services provided during the current period, but not yet collected.