chapter 4: adjustments, financial statements, and financial results

accounts receivable

After posting the adjusting entry to record revenues earned but not yet collected, which account will be increased?

-unearned revenue needs to be decreased by the amount of gift cards redeemed during the month -sales revenue needs to be increased by the amount of gift cards redeemed during the month

As of December 31, the unadjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions after the adjustments at the end of the period?

-taggert will debit insurance expense for $300 on sept 30 -taggert will credit prepaid insurance for $300 on sept 30 -taggert will debit prepaid insurance for $1,800 on sept 1

Taggert company paid $1,800 for a 6 month insurance premium on sept 1. What statements are correct regarding the accounting for this insurance over the six month period?

adjustments increase liabilities for the amount of any accrued and unpaid expense at the end of the period

What statement describes the effect that adjustments may have on liabilities?

-payments received in advance, and originally recorded as a liability, should be reduced for any portion earned during the current period -revenues earned at the end of the period, but not yet billed to accounts receivable, should be recorded as a revenue

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?

interest, expense

____ is defined as the "cost of borrowing money." Since the account represents a cost incurred on borrowed money, it is classified as a(n) _____ account under stockholders' equity

expense, revenue; revenue, expense

accrual adjustments include either a debit to a(n) _____ account and a credit to a liability account OR a debit to an asset account and a credit to a(n) _____ account. Deferral adjustments include a debit to a liability account and a credit to a(n) ______ account OR a debit to a(n) _____ account and a credit to an asset account

expenses

adjustment help to ensure that all ___ are recorded in the period in which they are incurred

owed

after the adjustments have been completed, the adjusted balance in income Tax Payable represents the amount _______ to the government at the end of the accounting period

paid

after the adjustments have been completed, the adjusted balance in the "salaries and wages payable" account represents wages earned by employees, but not yet ______ by the company

cost of rent for the accounting period

after the adjustments have been completed, the balance in the Rent Expense account represents the _______

amount of the prepayment that remains towards future rental periods

after the adjustments have been recorded, the adjusted balance in the prepaid rent account represents the ______

long-term assets that lack physical substance

amortization is the expensing of ___

credit, 3,000

as of December 31, ABC company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n)_______ of $ _______ to income tax payable

decrease ,contra

as the balance in the Accumulated Depreciation increases, total assets ______ because Accumulated Depreciation is a _____-account

1. use the unadjusted trial balance to determine the accounts requiring adjustment 2. record and post adjusting entries 3. prepare and adjusted trail balance to check the equality of the debits and credits 4. prepare financial statements 5. record closing journal entries and post to the accounts 6. prepare a post-closing trail balance

at the end of the accounting period, adjusting entries are required. Place the steps in the adjustment process in the correct order

decrease

balance sheet accounts, such as supplies or prepaid rent, _____ (increase, decrease) as a result of deferral adjustments

accrual adjustments can increase liabilities and increase expenses

how do accrual adjustments affect liabilities and expenses?

increased because cash will be paid in the future due to the expense incurred

in an accrual adjustment for expenses incurred but not paid; a liability is ______

only the balance sheet

permanent accounts are found on _____

asset

supplies are recorded as an ____ when purchased

revenues, expenses, dividends

temporary accounts include ____, ____, and ____. These accounts only track the current period's results

expense

the ____ recognition principle requires an adjustment for income tax expenses owed attributable to the net income during the current period

-debit to depreciation expense -credit to accumulated depreciation

the adjusting entry to record depreciation on equipment includes a:

expense, payable

the adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "interest _____" and credit to "Interest _____"

expense, payable

the adjusting entry to record salaries and wages to employees at the end of the accounting period include a debit to "sales and wages ____" and a credit to "salaries and Wages ____"

debit; credit

the adjusting entry to record the amount of prepaid rent used during the period requires a ____ to rent expense and a ____ to prepaid rent

decrease to supplies and an increase to supplies expense

the adjusting entry to record the supplies used during the period will result in a(n)______

supplies expense; supplies

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

1. analyze the accounts to determine the amount of the adjustment 2. record the adjusting entry in the journal 3. summarize the adjusting entries in the accounts

the steps in adjustment process in order

sales revenue, interest expense, rent expense

what accounts are found on an income statement?

prepaid rent, interest payable, supplies

what accounts are found on an unadjusted balance typically require adjusting entries?

debit accounts receivable and credits sales revenue

what entries records the adjustment for revenue earned, but not yet collected?

the account represents tax refunds due to the company

what is incorrect regarding the income tax payable account?

to ensure that total debits equal credits after the adjustments have been recorded

what is the purpose of preparing an adjusted trial balance?

depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company

what is the purpose of the depreciation adjustment for long-lived assets?

-wages incurred but not yet paid to employees as of the end of the accounting period -taxes incurred but not yet paid to the government as of the end of the accounting period

what transactions constitute an accrual adjustment involving an expense account

amortization expense, accumulated amortization

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