Financial Accounting Chapter 4

If Cash is debited or credited in an entry, then one can conclude that it is ___________ not an adjusting entry either an accrual or deferral adjustment an accrual adjustment a deferral adjustment

not an adjusting entry

The Equipment account balance in a company's ledger equals its ____________ contra-account value depreciated cost higher fair market value original cost

original cost

Noodlecake previously purchased $800 of supplies and now only has $200 left. What is Supplies Expense equal on its income statement? 800 200 600 1,000

600

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected? Accumulated Depreciation and Depreciation Expense Accumulated Depreciation and Equipment Equipment and Depreciation Expense Revenue and Equipment

Accumulated Depreciation and Depreciation Expense

Adjusting Entry for Accrual Expense: Debit ________, Credit __________

Debit an expense (interest expense) Credit a liability (interest payable)

Which balance sheet line item reports the amount collected in advance for which the seller has not yet fulfilled of its obligations to the buyer? Accumulated Depreciation Deferred Revenue Service Revenue Accounts Receivable

Deferred Revenue

___________ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time they are used.

Depreciation

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

Expense Payable

True or False: The balance in the "Interest Expense" account and the balance in the "Interest Payable" account may be different after the adjustments are posted.

True

the adjusting entry for income taxes records income tax that is incurred and ___________ by the company.

accrued

The purpose of adjusting entries for income taxes is to record income taxes __________ the accounting period. accrued, but not yet paid, at the end of generated, but not yet collected, at the end of paid during refund expected to be received at the end of

accrued, but not yet paid, at the end of

Which of the following adjusting entries are recorded with a debit to an expense and a credit to a liability? Purchases of inventory on account adjusting supplies used during the period accruing for services received that have not been paid recording depreciation for the period

accruing for services received that have not been paid Accrued Expenses: Debit an expense Credit a liability ex: Salaries and Wages Expense $$ Salaries and Wages Payable $$

after the adjustments have been completed, the balance in the Rent Expense account represents the________ amount of rent owed at the end of the accounting period cost of rent for the accounting period amount of the future benefit remaining in the account

cost of rent for the accounting period an expense is the amount used up during the period

Adjusting Entry for Depreciation: Debit __________, Credit ___________

debit Depreciation Expense (expense), credit Accumulated Depreciation (asset)

The entry to record the payment of wages incurred in the prior accounting period is recorded with _______ (multiple) credit to Salaries and Wages Payable debit Salaries and Wages Expense debit Salaries and Wages Payable credit Salaries and Wages Expense credit Cash

debit Salaries and Wages Payable credit Cash

the entry to record income tax accrued, but unpaid, at the end of the accounting period includes both a ____________ and a _____________. (multiple) credit to income tax expense credit to income tax payable credit to cash debit to income tax payable debit to income tax expense

debit to income tax expense credit to income tax payable Accrued Expense: Debit an expense Credit a liability

The ___________ recognition principle requires an adjustment for salaries and wages expense incurred during the accounting period that will be paid in a future accounting period.

expense

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause____________ assets to decrease assets to increase liabilities to decrease liabilities to increase

liabilities to increase

Any account ending with "payable" is a ___________

liability

what is a good starting point for determining which accounts require adjustment? unadjusted trial balance balance sheet journal income statement

unadjusted trial balance

deferring a revenue or expense account in accounting means that the amount ___________ will not be reported in the accounting records will be reported as a revenue or an expense in a later period will be reported as a revenue or an expense in the current period was reported as a revenue or an expense in a prior period

will be reported as a revenue or an expense in a later period

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not yet paid at the end of the accounting period? Salaries and Wages Expense will be recorded as a credit for the amount of the unpaid salaries and wages Salaries and Wages Payable will be recorded as a debit for the amount of the unpaid salaries and wages Salaries and Wages Payable will decrease by the amount of the unpaid wages Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages. A debit is used to increase in an expense account

As of December 31, the unadjusted balance in Deferred 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 affect the adjustments at the end of the period? (multiple) Sales 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. No adjustment is necessary as the gift cards were credited to revenue at the time they were sold. Cash needs to be increased by the amount of gift cards redeemed during the month. Deferred 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. Deferred Revenue needs to be decreased by the amount of gift cards redeemed during the month.

Why is an adjustment necessary for interest accrued on a note payable at the end of the period if the interest will not be paid until the note is due? (multiple) Interest Revenue should be increased to reflect the amount of the interest generated during the current period The adjustment is needed to accurately portray the interest liability of the company, all amounts owed would be reported on the balance sheet Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period The accrued interest needs to be credited to the Note Payable account to accurately report the total amount due on the note.

The adjustment is needed to accurately portray the interest liability of the company, all amounts owed would be reported on the balance sheet Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period -Interest on a note payable is interest that will be paid. Therefore, it is an expense. Interest revenue results from notes receivable or investments that generate interest -Interest accrued needs to be credited to to Interest Payable, not Notes Payable. Notes Payable reports the amount of principal owed, not interest

place the steps in the adjustment process in order. summarize the adjusting entries in the accounts analyze the accounts to determine the amount of the adjustment record the adjusting entry in the journal

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

True or False: Adjustments ensure that assets on the balance sheet are reported at amounts that have been used up or expired during the period.

False; Adjustments ensure that assets report their economic benefit remaining, not the amount that has been used up or expired during the period. The related expense on the Income Statement is the amount used or expired during the accounting period

The Accounts Receivable account should be ____________ when adjusting at the end of the period for any revenues from fulfilling obligations to buyers which has not yet been collected or recorded.

Increased

Matching: Amount owed for supplies purchased on account: Amount remaining and reported on the balance sheet: Amount used and reported on the Income Statement: supplies expense supplies accounts payable

accounts payable supplies supplies expense

the accrual adjustment recorded to adjust for revenues not yet collected will cause __________ liabilities to increase assets to decrease liabilities to decrease assets to increase

assets to increase

Adjusting Entry for Deferred Expense: Debit ____________, Credit ___________

debit expense (insurance expense), credit asset (prepaid insurance) ex: prepaid rent, supplies, depreciation

Adjusting Entry for Deferred Revenue: Debit ____________, Credit ____________

debit liability (deferred revenue) credit revenue (service revenue ex: gift cards, plane tickets

the adjusting entry to record salaries and wages owed to employees at the end of the accounting period includes a debit to "salaries and wages ___________" and a credit to "salaries and wages _________"

expense, payable debits increase expense accounts the adjustment is recording wages owed to employees and liabilities are increased with credit entries

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

expense, revenue

Amortization is the concept that applies to the _________ recording of deferred revenue in the period cash is collected in advance of being recognized as revenue expensing of long term assets that lack physical substance over their useful lives recording of amounts collected in advance that have not yet been recognized depreciation of prepaids and supplies as they are used

expensing of long term assets that lack physical substance over their useful lives

The adjusting entry the debits Interest Receivable and credits Interest Revenue records interest _________ collected during the period generated but not yet collected incurred but not yet paid collected in advance of being generated paid in advance of being incurred

generated but not yet collected (think of a bank that loans money)

when should supplies be recorded as an expense? in the period the supplies are used, regardless of when they were purchased in the period the supplies are purchased, regardless of when cash is paid in the period cash is paid for the supplies, regardless of when the supplies were received in the period the supplies are sold, regardless of when they were received

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

Which type of adjusting entry is recorded last because the amount is calculated after taking into account the effect on net income of all other adjustments recorded at the end of the period? supplies used income tax incurred interest incurred revenue for which the seller has performed its obligation

income tax incurred

the adjustment for supplies used during the period will result in a(n) ___________ to the Supplies Expense account. decrease increase

increase

Noodlecake pays its rent in advance and records an asset called ____________. At the end of the accounting period, it records an adjusting entry to expense the amount used up during the period. This type of adjusting entry is called a(n) ____________. rent expense; accrual rent expense; deferral prepaid rent; deferral prepaid rent; accrual

prepaid rent; deferral

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.

revenue, expense

adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the _________ principle. contra-account revenue-recognition expense recognition (matching) cost

revenue-recognition

in a deferral adjustment for revenues collected in advance for which the company has now satisfied the performance obligation, _____________ the liability recorded when cash was received is decreased by the adjustment for the amount of the obligation that has been fulfilled the liability recorded when cash was received is increased by the adjustment for the amount of the obligation that has been fulfilled a liability is decreased because cash is being paid for an expense incurred at the time of adjustment. a liability is increased because cash will be paid for an expense in the future.

the liability recorded when cash was received is decreased by the adjustment for the amount of the obligation that has been fulfilled.

Why are adjustments needed at the end of an accounting period? to ensure revenues and expense are reported in the proper period adjustments are not needed at the end of an accounting period to increase assets to their fair market values to reverse errors recorded during the period

to ensure revenues and expenses are reported in the proper period

Why is the Deferred Revenue account reduced during the adjustment process? As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a Revenue account As cash is received from the customer, Deferred Revenue is reduced. As cash is paid to the customer, Deferred Revenue is reduced As the seller performs its obligations, it is removed from Deferred Revenue and transferred into the Accounts Receivable account

As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a Revenue account

On June 30, Daily Kneads paid $12,000 in advance for one year of insurance coverage beginning July 1. Match the item with the correct amount that would be reported in the following month, July, and on which July financial statement the line item would be reported. Insurance Expense Prepaid Insurance $1000 on the Income Statement $11,000 on the Balance Sheet

Insurance Expense - 1,000 on Balance Sheet Prepaid Insurance- 11,000 on Income Statement

The adjusting entry to record Amortization causes ___________. (multiple) liabilities to increase SH Equity to increase assets to increase SH Equity to decrease liabilities to decrease assets to decrease

SH Equity to decrease assets to decrease Amortization Expense $$ Accumulated Amortization $$ Expense effects SH Equity, a debit to an expense decreases SH Equity. Accumulated Amortization is a contra-asset account, for EVERY adjusting entry to prepaid accounts we record a debit to an expense and a credit to an asset Amortization can be viewed as the same as Deprecation

Interest Payable is________ an expense on the income statement and reports the amount owed a liability on the balance sheet and will always equal the Interest Expense on the income statement a liability on the balance sheet and reports the amount owed a deferred liability on the balance sheet and reports the amount paid in advance

a liability on the balance sheet and reports the amount owed

after posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased? accounts receivable prepaid revenue accounts payable deferred revenue

accounts receivable

__________ adjustments involve adjusting entries where goods/services have been provided to customers or the expense has been incurred, and the cash will be collected or paid in the future.

accrual adjustments

Which of the following statements describes the effect that adjustments may have on liabilities? adjustments reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period adjustments do not have any effect on liabilities, since cash is not included in the adjusting entries

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

the adjusting entry to record the amount of prepaid rent used during the period requires a ______________ to Rent Expense and a _____________ to Prepaid Rent.

debit, credit

the adjusting entry to record for the amount of the obligation that has been fulfilled by the seller that was previously collected in advance will ___________ increase liabilities and increase revenues increase liabilities and decrease revenues decrease liabilities and decrease revenues decrease liabilities and increase revenues

decrease liabilities and increase revenues deferrals relate to transactions that involve the collection or payment in advance. The related expense or revenue is deferred (postponed) until the expense is incurred or the seller performs its obligation later. Later, when the expense is incurred or the seller performs its obligation, deferral adjustments are required. These adjustments involve decreasing assets and increasing the related expense or decreasing a liability and increasing revenue

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?(multiple) Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a Revenue. Deferred Revenue should be reduced for any portion the seller has fulfilled its obligations during the current period. Revenues need to adjusted so that revenues equals the amount of cash received during the current period.

Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a Revenue. Deferred Revenue should be reduced for any portion the seller has fulfilled its obligations during the current period.

Recognizing that Salaries and Wages Payable (resulting from adjustments at the end of the period) will be paid in a future period, what will be the effect on the accounts when the salaries and wages are paid? Salaries and Wages Expense will increase and Cash will decrease Salaries and Wages Expense will increase and Salaries and Wages Payable will decrease. Salaries and Wages Payable will decrease and Cash will decrease. Salaries and Wages Expense will decrease and Cash will decrease.

Salaries and Wages Payable will decrease and Cash will decrease. This would be a normal journal entry

Which of the following is true regarding depreciation of equipment? Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the Balance Sheet. Accumulated Depreciation is decreased as the equipment is used causing the carrying value to increase. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the Balance Sheet. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the Balance Sheet date. Depreciation directly decreases the Equipment account causing the carrying value to decrease.

Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the Balance Sheet. Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the Balance Sheet. Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the Balance Sheet date.

which of the following is true regarding depreciation of equipment? (multiple) depreciation directly decreases the equipment account causing the carrying value to decrease accumulated depreciation is decreased as the equipment is used causing the carrying value to increase accumulated depreciation is a contra-asset that reports the amount of usefulness used as of the balance sheet date accumulated depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet depreciation is reported in accumulated depreciation which is netted against the related equipment account on the balance sheet

the liability recorded when cash was received is decreased by the adjustment for the amount of the obligation that has been fulfilled. accumulated depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet depreciation is reported in accumulated depreciation which is netted against the related equipment account on the balance sheet