Chapter 3: The Accounting Cycle: End of the Period

Under cash-basis accounting,

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

accrued expense

when a company has incurred an expense but hasn't paid cash or recorded an obligation to pay

accrued revenue

when a company provides products or services to customers but hasn't yet received cash

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

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

On Jan 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 pay for the extermination service on Jan 29, and Bug Zappers sprays for bugs on Feb . According to the matching principle, on which date should Papa's pizza record the extermination expense?

February 7 ( date of extermination service)

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

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

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will debit Insurance Expense for $300 on Dec. 31. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

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

accruals

permanent accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

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

credit a revenue account; debit a liability account

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

debit; credit

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

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

prepaid expense; liability

matching principle

recognize expenses in the same period as the revenues they help to generate

revenue recognition principle

record revenue in the period in which we provide goods and services to customers

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents?

the cost of supplies remaining at the end of the accounting period

prepaid expenses

the costs of assets acquired in one period that will be expensed ina future period

depreciation

the process of allocating the cost of an asset to expense over its useful life

temporary accounts

All revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the Retained Earnings account at the end of the period.

Accrual Basis Accounting

Record revenues when goods and services are provided to customers, and record expenses with related revenues

cash basis accounting

record revenues at the time cash is received and expenses at the time cash is paid

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.

22,000;Prepaid Rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid Rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months).

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

Which of the following describes the purpose(s) of closing entries?

Adjust the balances of asset and liability accounts for unrecorded activity during the period. Transfer the balances of temporary accounts(revenues,expenses and dividends) to retained earnings

______________ 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.

Deferred revenues

Refer to the info in SSQ #2 Using cash basis accounting, on which date should Papa's Pizza record the extermination expense?

January 29 (date of cash payment)

Refer to the info in SSQ #1 Using cash basis accounting, on which date should Johnson record service revenue?

May 10 (date of cash receipt)

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle on which date should Johnson record service revenue?

May 7 (date of service)

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.

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

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

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

Salaries Expense

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

Accumulated Depreciation

The sum of all the depreciation expense recorded to date for a depreciable asset.

adjusted trial balance

a list of all accounts and their balances after we have updated account balances for adjusting entries

post-closing trial balance

a list of all accounts and their balances at a particular date after we have updated account balances for closing entries

contra account

an account with a balance that is opposite or "contra" to that of its related accounts

book value

an asset's original cost less accumulated depreciation

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

an increase

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

The adjusting entry for supplies used requires a__________ to Supplies and a ______________ to Supplies Expense.

credit;debit

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue;credit to Revenue

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

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

closing entries

entries that transfer the balances of all temporary accounts (revenues,expenses and dividends) to the balance of the retained earnings account

adjusting entries

entries used to record events that occur during the period but that have not yet been recorded by the end of the period

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

expense

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense;asset

deferred revenues

when a company receives cash in advance from a customer for products or services to be provided in the future

the adjusting entry for a deferred revenue account includes a debit to a(n) ___________ account and a credit to a(n) ___________ account

liability;revenue