accounting 101 chapter 3

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

American Airlines collects cash on June 12 from the sale of a ticket to a customer. The flight occurs on August 16.

August 16

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

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

allocated to future accounting periods based on the cost of the asset used during the period

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

permanent accounts

assets, liabilities, equity

Prepaid rent appears in the

balance sheet because it is an asset

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

Depreciation is an allocation of the ____of buildings, vehicles, and equipment to expense over time as they are used.

cost

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

credit to Revenue debit to Deferred Revenue

An adjusting entry for accrued expenses involves:

credit to a liability debit to an expense

Deferred revenue is a(n) ______.

liability

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)

liability prepaid expense

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 statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

A customer purchases sunglasses from Eddie Bauer on January 27 on account. Eddie Bauer receives payment from the customer on February 2.

January 27

Which of the following statements regarding the statement of cash flows are correct?

Reports cash receipts Reports cash disbursements The final financial statement that is typically prepared

A customer pays in advance for a three-month subscription to Sports Illustrated on July 1. Issues are scheduled for delivery each week from July 1 through September 30.

Revenue would be recognized as each magazine is delivered.

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting.

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.)

debit a liability account credit a revenue account

The post-closing trial balance checks that total __ equal total _at the end of the period.

debits,credits

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease; increase

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

____ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

deferred

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation.

The statement of stockholders' equity includes these amounts: (Select all that apply.)

dividends for the period ending balance retained earnings net incomes

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Under cash-basis accounting

expenses are recorded when cash is paid. revenues are recorded when cash is received.

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

accrual basis accounting

helps measure and report revenues and expenses in a way that clearly represents the net income of the company

The adjusting entry for a deferred revenue includes a debit to a(n) decrease___account and a credit to a(n) __

liabilty, revenue

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

temporary accounts

revenues, expenses, dividends

Adjusting entries:

update the accounts to their proper balances and are needed before financial statement preparation.

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

The post-closing trial balance helps to verify that:

we prepared and posted closing entries correctly the accounts are ready for next period's transaction