SmartBook Ch.3

The steps involved in adjusting entries are:

1. Prepare an unadjusted trial balance 2. Journalize and post adjusting entries 3. Prepare an adjusted trial balance 4. Prepare finanaicla statements

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the interest (expense/payable/receivable) _____________ account and (debit/credit) _____________ the interest (expense/payable/receivable) account.

Blank 1: expense or expenses Blank 2: credit Blank 3: payable

Accrual basis accounting recognizes _____ when earned and records _____ when _____ in order to adhere to the matching principle.

Blank 1: revenues Blank 2: expenses Blank 3: incurred

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. The debit interest expense would be?

Debit Interest expense for $30.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment.

Insurance expense would be debited for $300.

A plant asset can be defined by?

It is a tangible long-term asset. Its original cost (minus any salvage value) is expensed over its useful life. It has a life within the business greater than one year or the current operating cycle, whichever is longer. It is reported on the balance sheet.

What describes the Salaries payable account?

It is reported on the balance sheet. It is a liability account. It is increased with a credit. It reports amounts owed to employees.

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry.

Supplies expense would be debited for $300. Supplies would be credited for $300.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

What is the difference between an adjusted trial balance and an unadjusted trial balance?

The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance is used to prepare financial statements.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Explain your understanding of what an accrued expense is:

They are reported on an income statement. Examples of accrued expenses are wages expense and interest expense. Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period, but are both unpaid and unrecorded.

Temporary accounts:

Wages Expense; Income Summary; Dividends

Accrual basis accounting is defined as:

an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system that uses the matching principle to determine when to recognize revenues and expenses. an accounting system which is consistent with generally accepted accounting principles.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

The salaries payable account reports amounts owed to

employees and is a liability.

The accounting cycle is repeated each reporting period and refers to

the steps taken in preparing financial statements.

Closing means to transfer account balances from ______ (asset/liability/permanent/temporary) accounts so that they will start with a _______ (contra/larger/zero) balance at the beginning of the next period.

Blank 1: temporary Blank 2: zero

What is the adjusted trial balance and how it is used in preparing financial statements?

Financial statements are easier to prepare using the adjusted trial balance than the general ledger. The income statement is the first financial statement prepared after preparing the adjusted trial balance. The adjusted trial balance includes all accounts and balances appearing in financial statements. The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings.

Closing means to

bring an account balance to zero.

Accrual basis accounting recognizes __________ (equity/revenues/expenses) when earned and records __________ (revenues/expenses/liabilities) when ____________ (incurred/paid) in order to adhere to the matching principle.

Revenues Expenses Incurred

Which of the statements below is (are) correct regarding the accounting cycle?

The cycle contains steps for adjusting and closing accounts. The accounting cycle refers to steps followed by a company to prepare its financial statements. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle contains 10 steps.

What contains only temporary accounts?

Wages Expense; Income Summary; Dividends

Which accounts are considered accrued expenses?

Wages expense, Interest expense