MBA 8190 (Acct) - Ch 4

Why are adjustments made at the end of accounting periods?

(1) update amounts already recorded in the accounting records and (2) include events that had occurred but had not yet been recorded

Give 2 examples of Accrual Adjustments & what accounts are affected

1) Wages Payable liability: WP, expense: wage expense 2) Rent Receivable asset: RR, revenue: rent revenue

Give 2 examples of Deferral Adjustments & what accounts are affected

1: Prepaid Rent Asset: PPR / Expense: Rent Expense 2: Customers pre-paying for a subscription service Liability: Deferred Revenue / Revenue: Sales Revenue

Which of the following types of transactions represent accrual adjustments? Select all that apply: A) Decrease to Supplies and Increase to Supplies Expense B) Increase to Income Taxes Payable and Increase to Income Taxes Expense C) Increase to Interest Payable and Increase to Interest Expense

B & C

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

B) Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following statements (select one) is correct regarding the adjustment to record interest accrued on a note payable? A) Interest on the NP will not accumulate because it is paid at the end of each year. B) Interest on the NP is classified as an expense since it is a cost of borrowing. C) Interest on the NP is classified as a revenue since it is an amount that can be generated on investments. D) Interest on a NP should be credited to NP because it increases the amount of principal to be repaid at the maturity of the note.

B) Interest on the NP is classified as an expense since it is a cost of borrowing.

Which of the following accounts are found on a balance sheet? (Select all that apply) A) Sales Revenue B) Prepaid Rent C) Rent Expense D) Interest Payable E) Dividends F) Interest Expense

B) Prepaid Rent D) Interest Payable

Temporary accounts are found on ________. A) both the balance sheet and the income statement B) the income statement C) the balance sheet D) none of the financial statements

B) the income statement

The step in the accounting cycle where entries are recorded to updated retained earnings and zero out temporary accounts is referred to as the __________ ________.

Closing Process

The adjusting entry to record depreciation on equipment includes a debit to ______ and a credit to _______.

Debit to Depreciation Expense, Credit to Accumulated Depreciation

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?

Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.

Define 'Adjustments'

Entries necessary at the end of each accounting period to report revenues and expenses in the proper period and assets and liabilities at the appropriate amounts. Also called Adjusting Journal Entries.

True or False: The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

False! The adjusted trial balance includes the beginning balance for the Retained Earnings account; the balance sheet reports the ending balance of Retained Earnings. The ending balance of Retained Earnings comes from the statement of retained earnings.

True or False: Dividends are reported on the Income Statement.

False. Dividends are reported on the Statement of Retained Earnings because they are viewed as a return of capital.

is the post-closing trial balance an internal or external report?

Internal. It is not included as one of the financial statements.

If Cash is debited or credited in an entry, then one can conclude that it is _______________.

NOT an adjusting entry. Cash is never part of an accrual or deferral adjusting journal entry.

Is the Unadjusted Trial Balance made available to the public?

No

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

Owed.

Which line item on the adjusted trial balance reports its beginning balance, but on the balance sheet reports its ending balance?

Retained Earnings

What are considered "temporary accounts" that will be closed out at the end of the accounting period during the closing process?

Revenues, Expenses, and Dividends

What is the purpose of preparing an adjusted trial balance?

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

True or False: After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet.

True. The amount on the balance sheet was taken from the Statement of Retained Earnings.

How does depreciation differ from other deferral adjustments?

Use of a contra-account

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

Each Deferral Adjustment involves one _____ and one ______ account, OR one _______ and one _______ account.

asset + expense OR liability + revenue

Each accrual adjustment involves one _____ and one ______ account, or one ________ and one ______ account.

asset + revenue OR liability + expense

The post-closing trial balance checks that the total ________ equal total __________ at the end of the period, and ensures __________________________________.

debits / credits / all temporary accounts have been closed

Deferral Adjustments are used to _______ balance sheet accounts and _________ corresponding income statement accounts [note - choose either increase or decrease to fill blanks]

decrease / increase

Adjustments involve both ___________ and _______ accounts. (hint: 2 types of financial statements) Name the accounts involved in adjustments.

income statement and balance sheet Revenues Expenses Assets Liabilities

An adjusting entry affects __________.

one balance sheet account and one income statement account.