Accounting 210 Chapter 4

What is an interest payable is:

A liability on the balance sheet and reports the amount owed

How do accrual adjustments affect liabilities and expenses?

Accrual adjustments can increase liabilities and increase expenses

When are adjusting entries recorded?

At the end of the accounting period, prior to the preparation of financial statements

Adjusting entries are recored:

Before the financial statements are recorded

Accural Adjustments are needed when a company has provided goods or services to customers or incurred an expense but (blank) has not been exchanged.

Cash

During the closing process, the closing entries to individual expense accounts will be recorded with a (blank) to reduce the account balance to zero.

Credit

The deferral adjustment to record the amount of service collected in advance for which the company has now satisfied the performance obligation includes a:

Debit to Deferred Revenue and Credit to Service Revenue

The adjusting entry to record depreciation on equipment includes a ...

Debit to depreciation expense and credit to accumulated depreciation

Prepaid expenses, such as Prepaid Rent, should be (blank) by the benefits that were used up during the accounting period?

Decreased

How do deferral adjustments for prepaid expenses - such as rent - that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?

Deferral adjustments decrease assets and increase expenses

To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate. True or False?

False; The income before (not after) tax is multiplied by the company's tax rate.

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?

Income tax incurred

Which of the following statements is correct regarding the adjustment 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.

What is defined as the "cost of borrowing money".

Interest/ becomes an expense account under stockholders' equity

Will a contra-account, such as Accumulated Depreciation, have a normal debit balance?

No, it is a negative asset. Therefore, it will have a normal credit balance since the true assets have a debit balance.

When will Accounts Receivable be involved in an adjusting entry?

Revenue is earned but not yet collected or recorded at the end of the period.

Closing entries move the balances from the (blank) accounts into the Retained Earnings account.

Temporary

Why are adjustments needed at the end of an accounting period?

To ensure revenues and expenses are reported in the proper period

What is the purpose of the closing entries?

To establish zero balances in the income statement and dividends accounts and to transfer net income and dividends into retained earnings

What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected?

Total assets will increase and total stockholders' equity will increase.

Purpose of adjusting entries for income taxes is to record income taxes (blank) the accounting period.

accrued, but not yet paid, at the end of

Closing entries are recorded:

after the financial statements have been prepared

In recording an accrual adjustment to account for revenues earned but not yet collected:

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

When closing revenues into Retained Earnings, Retained Earnings is (blank) causing it to (blank)

credited; increase

A closing entry includes a:

debit to sales revenue

The post-closing trial balance checks that total (blank) equal total (blank) at the end of the period.

debits and credits

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:

decrease liabilities and increase revenues

After the adjustments have been completed for the fiscal year, the adjusted balance in the Deprecation Expense account represents the:

depreciation for the current fiscal year

Deferred Revenue should be reduced and Revenue increased for the amount of revenue (blank) during the period

the seller performs of its obligations

After the adjustment have been completed, the adjustment balance in the Accumulated Depreciation account represents the:

total depreciation taken on the long-lived assets since their purchase

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

- Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date - Depreciation is reported in Accumulated Deprecation 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.

Which of the following types of transactions could be an accrual adjustment? - An increase to a liability account and an increase to a revenue account - An increase to a revenue account and an increase to an expense account - An increase to an asset account and an increase to a revenue account - An increase to an asset account and an increase to a liability account

An increase to an asset account and an increase to a revenue account

Adjusting entries never affect the asset account called:

cash

Deferred Revenue is credited when:

cash is collected in advance of the revenue

A closing entry may include a:

credit to wages expense

Deferring a revenue or expense account in accounting means that the amount:

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

The adjusted trial balance:

will be used to determine the asset and liability balances on the balance sheet

Which of the following types of transactions could be an accrual adjustment? - An increase to an asset account and an increase to a revenue account - An increase to an asset account and an increase to a liability account - An increase to a revenue account and an increase to an expense account - An increase to a liability account and an increase to a revenue account

- An increase to an asset account and an increase to a revenue account

What are the entries needed for the closing process?

- Credit Dividends and debit Retained Earnings - Debit each revenue, credit each expense, and record the difference in Retained Earnings

Which of the following statements is correct regarding Dividends? - Dividends are closed into retained earning by debiting Dividends - Dividends are closed into retained earnings by crediting Dividends - Dividends have a normal credit balance - Dividends have a normal debit balance - Dividends are closed into retained earnings by crediting Retained Earnings - Dividends are closed into retained earnings by debiting Retained Earnings

- Dividends are closed into retained earnings by crediting Dividends - Dividends have a normal debit balance - Dividends are closed into retained earnings by debiting Retained Earnings

How does the adjusting entry to record the supplies used during the period affect the financial statements? - Net income on the income statement will decrease - Supplies expense on the income statement will increase - Supplies on the balance sheet will decrease - Accounts payable on the balance sheet will decrease

- Net income on the income statement will decrease - Supplies expense on the income statement will increase - Supplies on the balance sheet will decrease

Which of the following statements are true about the closing process? - Retained Earning is a temporary account and is closed into stockholders' equity - Permanent accounts are not closed and are reported on the balance sheet - Permanent accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings - Permanent accounts are not closed and are reported on the income statement - Temporary accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings

- Permanent accounts are not closed and are reported on the balance sheet - Temporary accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings

Which of the following would be increased because of recording a required accrual adjustment? - Revenue - Accounts Receivable - Prepaid Rent - Supplies - Interest Receivable

- Revenue - Accounts Receivable - Interest Receivable

What is the effect of the December 31st adjusting entry to record $400 of revenue for which the seller has performed for its costumers but not yet collected?

Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400.

Which of the following adjusting entries are recored with a debit to an expense and a credit to a liability? - Accruing for services received that have not yet been paid - Purchases of inventory on account - Adjusting supplies used during the period - Recording depreciation for the period

Accruing for services received that have not yet been paid

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

Accumulated Amortization and Amortization Expense

Which line item will have a larger balance related to equipment that has been used over the past 3 years. - Depreciation Expense - Accumulated Depreciation - Equipment Expense

Accumulated Depreciation

The accrual adjustment recorded to adjust for revenues not yet collected will cause:

Assets to increase

What is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used?

Depreciation

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

Which of the following accounts found on an unadjusted balance typically require adjusting entries? - Cash - Supplies - Common Stock - Interest Payable - Prepaid Rent

Supplies Interest Payable Prepaid Rent

The adjusting entry to record the amount of interest from lending money to others that will be collected later is (blank) and will cause an increase in (blank)

accrual; an asset and revenue

Amortization is the concept that applies to the:

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

The adjusting entry that debits interest receivable and credits interest revenue records interest:

generated but not yet collected

The purpose of recording an adjustment entry for salaries and wages is to record wages:

incurred but not yet paid

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

not an adjusting entry

An adjusting entry affects:

one balance sheet account and one income statement account

After the adjustments have been completed, the adjusted balance in Income Tax Expense account represents

total income tax that has been paid for or accrued during the period.