Chapter 4

Beauty and the Bistro, Inc. had $500 of Supplies on its balance at the end of its 1st year of business. It purchased $5,000 of supplies during the 2nd year. At the end of the 2nd year, it had $800 of supplies on hand. What is the amount of Supplies Expense on the income statement?

$4,700

Which two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance?

Accumulated Amortization Amortization Expense

Which line item will have a larger balance related to equipment that has been used over the past 3 years.

Accumulated Depreciation

How does the timing of adjusting entries differ from the accounting for daily transactions?

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance?

Prepaid Rent

Which of the following account balances will typically be reduced as a result of adjusting entries? (Select all that apply.)

Supplies Deferred Revenue Prepaid Rent

Why are adjustments needed at the end of an accounting period?

To ensure that all assets and liabilities are reported at appropriate amounts

If a company recorded an adjusting entry by debiting Interest Expense for $500 and Interest Payable for $50 in error, then the ______.

adjusted trial balance's debits will not equal its credits

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

allocated to future accounting periods based on the value of the benefit used during the period

The adjusting entry to record amortization causes ______. (Select all that apply.)

assets to decrease stockholders' equity to decrease

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______.

depreciation for the current fiscal year

Adjusting entries are made at the of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______.

used during the accounting period

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

Which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

Adjusted trial balance

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 accounts found on an unadjusted balance typically require adjusting entries? (Select all that apply.)

Interest Payable Prepaid Rent Supplies

How does the adjusting entry to record the supplies used during the period affect the financial statements? (Select all that apply.)

Net Income on the income statement will decrease Supplies on the balance sheet will decrease Supplies Expense on the income statement will increase

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

The adjusting entry to record depreciation on equipment includes a ______. (Select all that apply.)

debit to Depreciation Expense credit to Accumulated Depreciation

In its 1st month of business, Brewed Awakenings, Inc. purchased $1,000 of supplies of which it had paid $700 and owes the rest. At the end of the month, it had $400 of supplies available for use. What is the amount of Supplies Expense on the income statement?

$600

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

Supplies Expense; Supplies

What is a good starting point for determining which accounts require adjustment?

Unadjusted trial balance

The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the ______.

value of the insurance prepayment that remains to benefit future periods