Accounting Ch 4

Post-closing trial balance

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Income Summary

A temporary account used in closing revenue and expense accounts.

Closing entries and a post-closing trial balance are steps in the accounting cycle that occur A monthly. B daily. C quarterly. D annually.

D annually.

Accrued revenues

Revenues for services performed but not yet received in cash or recorded.

Adjustments for unearned revenues: decrease liabilities and increase revenues. increase liabilities and increase revenues. increase assets and increase revenues. decrease revenues and decrease assets.

decrease liabilities and increase revenues.

Each of the following is a major type (or category) of adjusting entry except: prepaid expenses. accrued revenues. accrued expenses. unearned expenses.

unearned expenses.

At December 31, 2022, before any year-end adjustments, Pharoah Company Prepaid Insurance account had a balance of $7190. It was determined that $3220 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be: $3220. $7190. $3970. $3470.

$3220.

Salaries and Wages Expense should have been accrued on December 31st, but the entry was not made. The result of this oversight is that A liabilities are understated. B net income is understated. C assets are understated. D stockholder's equity is understated.

A liabilities are understated.

Which of the following statements about accrual-basis accounting is true? A Accrual-basis accounting recognizes expenses when they are incurred. B Accrual-basis accounting is optional under generally accepted accounting principles. C Accrual-basis accounting follows the fiscal year assumption. D Accrual-basis accounting recognizes revenues when they are received in cash.

A Accrual-basis accounting recognizes expenses when they are incurred.

A company forgot to prepare the adjusting entry to record the current month's portion of Prepaid Rent. What is the resulting impact on the financial statements? A Assets will be overstated and net income will be overstated. B Assets will be overstated and liabilities will be overstated. C Assets will be understated and expenses will be overstated. D Liabilities will be understated and expenses will be understated.

A Assets will be overstated and net income will be overstated.

Which of the following is an example of an accrual? A Record Revenues that will be received in cash in a subsequent period. B Record Revenues that were received in cash in an earlier period. C Record Wage Expense that is incurred and paid in the same period. D Record Rent Expense that was prepaid.

A Record Revenues that will be received in cash in a subsequent period.

Which of the following is true about unearned revenues? A They are received and recorded as liabilities before they are earned. B They are earned but not yet received or recorded. C They are earned and recorded as liabilities before they are received. D They are earned and already received and recorded.

A They are received and recorded as liabilities before they are earned.

Which of the following explains the process of depreciation? A allocating the cost of an asset to expense over its useful life in a rational and systematic manner B valuing an asset at its fair value C increasing the value of an asset over its useful life to reflect its book value D writing down an asset to its fair value each accounting period

A allocating the cost of an asset to expense over its useful life in a rational and systematic manner

An adjusted trial balance is created after A preparing all adjusting entries. B resolving all errors in the unadjusted trial balance. C preparing all accrual entries. D preparing all deferral entries.

A preparing all adjusting entries.

Adjusted trial balance

A list of accounts and their balances after all adjustments have been made.

Worksheet

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Cash-basis accounting

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.

Accrual-basis accounting

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.

Adjusting entries are made to ensure that: expenses are recognized in the period in which they are incurred. revenues are recorded in the period in which the performance obligation is satisfied. balance sheet and income statement accounts have correct balances at the end of an accounting period. All of the above.

All of the above.

Contra asset account

An account that is offset against an asset account on the balance sheet.

Fiscal year

An accounting period that is one year long.

Periodicity assumption

An assumption that the economic life of a business can be divided into artificial time periods.

Reversing entry

An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.

Which of the following accounts from a firm's adjusted trial balance would need to be considered when compiling the firm's income statement? A Accounts Payable B Service Revenue C Retained Earnings D Accounts Receivable

B Service Revenue

In late August, a company provided one of its customers with services worth $500; however, the company did not send the customer a bill for those services until early September. What journal entry should the company make in August to denote this delivery of services? A The company should credit both Accounts Receivable and Service Revenue for $500. B The company should debit Accounts Receivable for $500 and credit Service Revenue for $500. C The company should debit both Accounts Receivable and Service Revenue for $500. D The company should credit Accounts Receivable for $500 and debit Service Revenue for $500.

B The company should debit Accounts Receivable for $500 and credit Service Revenue for $500.

Which of the following has an asset-expense relationship? A accrued expense adjusting entries B prepaid expense adjusting entries C liability accounts D revenue accounts

B prepaid expense adjusting entries

Permanent accounts

Balance sheet accounts whose balances are carried forward to the next accounting period.

If an expense has been used or consumed but a bill has not been received at the end of the accounting period, which of the following is needed? A An expense should be recorded when the bill is received. B An expense should be recorded when the cash is paid out. C An adjusting entry should be made recognizing the expense. D It is optional whether to record the expense before the bill is received.

C An adjusting entry should be made recognizing the expense.

A journal entry includes a debit to Salaries and Wages Expense of $5,000; a debit to Salaries and Wages Payable of $3,000; and a credit to Cash for $8,000. Which explains this entry? A The entry reflects total wage and salary expense this period of $8,000. B The entry is an accrual of $3,000 in Wage and Salary Expense. C The entry reflects $5,000 payment of wages and salaries for the current period and $3,000 for wages and salaries accrued previously. D The entry is an accrual of $3,000 and deferral of $5,000.

C The entry reflects $5,000 payment of wages and salaries for the current period and $3,000 for wages and salaries accrued previously.

Which of the following is an example of a deferral? A recording revenues that have been earned on account B expensing wages and salaries that will not be paid until the next period C expensing a part of the cost of a building D recording an expense in the same period in which it was paid

C expensing a part of the cost of a building

If a company spends $12 million dollars for a warehouse, when should the cost be written off? A when the $12 million is expended in cash B all in the first year C over the useful life of the warehouse D after $12 million in revenue is earned

C over the useful life of the warehouse

From an accounting standpoint, the acquisition of a long-lived asset such as a building can be thought of as a long-term A accrual of unearned revenue. B accrual of revenue. C prepayment for the use of the asset. D accrual of expense.

C prepayment for the use of the asset.

Suppose that a company did not make an adjusting entry to record revenue earned but not yet billed to customers. The result of this error would be to A overstate net income and understate assets. B overstate liabilities and understate stockholders' equity. C understate assets, net income, and stockholders' equity. D overstate assets and net income.

C understate assets, net income, and stockholders' equity.

Unearned revenues

Cash received and a liability recorded before services are performed.

Which one of these statements about the accrual basis of accounting is false? Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged. Companies recognize revenue in the period in which the performance obligation is satisfied. This basis is in accordance with generally accepted accounting principles. Companies record revenue only when they receive cash and record expense only when they pay out cash.

Companies record revenue only when they receive cash and record expense only when they pay out cash.

David just finished compiling his firm's retained earnings statement for the month ended May 31. What should he do with the figure he calculates at the bottom of this statement? A He should include this amount in his calculation of expenses on the firm's income statement. B He should include this amount in his calculation of revenues on the firm's income statement. C He should include this amount in his calculation of assets on the firm's balance sheet. D He should include this amount in his calculation of stockholders' equity on the firm's balance sheet.

D He should include this amount in his calculation of stockholders' equity on the firm's balance sheet.

What does the periodicity assumption state? A A transaction can only affect one period of time. B Adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. C Estimates should not be made if a transaction affects more than one time period. D The economic life of a business can be divided into artificial time periods.

D The economic life of a business can be divided into artificial time periods.

Lorna just finished compiling her company's income statement for the month ended March 31. Her next step in preparing the company's financial statements should be to A subtract the company's net income for March from the company's retained earnings as of March 1. B subtract the company's net income for March from the company's retained earnings as of March 31. C add the company's net income for March to the company's retained earnings as of March 31. D add the company's net income for March to the company's retained earnings as of March 1.

D add the company's net income for March to the company's retained earnings as of March 1.

Pina Colada Corp. employs a 5-day workweek and a September 30 year-end. Normal weekly wages amount to $39600. If September 30 ends on a Wednesday, what is the appropriate journal entry at fiscal year-end? Dr Salaries and Expense $7920Cr Salaries and Wages Payable $7920 Dr Salaries and Wages Expense $23760Cr Cash $23760 Dr Salaries and Wages Expense $39600Cr Salaries andWages Payable $39600 Dr Salaries and Wages Expense $23760Cr Salaries and Wages Payable $23760

Dr Salaries and Wages Expense $23760Cr Salaries and Wages Payable $23760

Closing entries

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings.

Adjusting entries

Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed.

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? Expense recognition principle. Historical cost principle. Periodicity principle. Revenue recognition principle.

Expense recognition principle.

Accrued expenses

Expenses incurred but not yet paid in cash or recorded.

Prepaid expenses (prepayments)

Expenses paid in cash before they are used or consumed.

Which of the following describes an accrued expense? Incurred but not yet paid or recorded. Paid and recorded in an asset account before they are used or consumed. Incurred and already paid or recorded. Paid and recorded in an asset account after they are used or consumed.

Incurred but not yet paid or recorded.

Quality of earnings

Indicates the level of full and transparent information that a company provides to users of its financial statements.

If a company fails to adjust an Unearned Rent Revenue account for revenue that should be recognized, what effect will this have on that month's financial statements? Liabilities will be understated and revenues will be understated. Liabilities will be overstated and revenues will be understated. Assets will be overstated and revenues will be understated. Assets will be understated and revenues will be understated.

Liabilities will be overstated and revenues will be understated.

Which types of accounts will appear in the post-closing trial balance? Permanent accounts. Temporary accounts. Expense accounts. None of the above.

Permanent accounts.

Temporary accounts

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

Which account will have a zero balance after a company has journalized and posted closing entries? Service Revenue. Supplies. Prepaid Insurance. Accumulated Depreciation.

Service Revenue.

Which statement is incorrect concerning the adjusted trial balance? An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. The adjusted trial balance provides the primary basis for the preparation of financial statements. The adjusted trial balance does not list temporary accounts. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

The adjusted trial balance does not list temporary accounts.

Book value

The difference between the cost of a depreciable asset and its related accumulated depreciation.

What is the periodicity assumption? Companies should recognize revenue in the accounting period in which services are performed. Companies should match expenses with revenues. The economic life of a business can be divided into artificial time periods. The fiscal year should correspond with the calendar year.

The economic life of a business can be divided into artificial time periods.

What are the first step and the final step in the revenue recognition process? The first step is identify the contract with customers, and the final step is allocate the transaction price to the separate performance obligations. The first step is identify the separate performance obligations in the contract, and the final step is determine the transaction price. The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied. The first step is determine the transaction price, and the final step is identify the separate performance obligations in the contract.

The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.

Useful life

The length of service of a productive asset.

Earnings management

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.

Revenue recognition principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Expense recognition principle

The principle that dictates that efforts (expenses) be recognized with results (revenues) in the period when the company makes efforts to generate those revenues.

Depreciation

The process of allocating the cost of an asset to expense over its useful life.

An adjusting entry: is always a compound entry. affects two income statement accounts. affects a balance sheet account and an income statement account. affects two balance sheet accounts.

affects a balance sheet account and an income statement account.

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause: net income to be understated. an overstatement of expenses and an overstatement of liabilities. an understatement of expenses and an understatement of liabilities. an overstatement of assets and an overstatement of liabilities.

an understatement of expenses and an understatement of liabilities.

On July 1 the Pharoah Company paid $29760 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Pharoah Company is: debit Rent Expense, $29760; credit Prepaid Rent, $24800. debit Rent Expense, $29760; credit Prepaid Rent, $4960. debit Prepaid Rent, $4960; credit Rent Expense, $4960. debit Rent Expense, $4960; credit Prepaid Rent, $4960

debit Rent Expense, $4960; credit Prepaid Rent, $4960

The Wildhorse Co. purchased $9180 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1620 on hand. The adjusting entry that should be made by the company on June 30 is:

debit Supplies Expense, $7560; credit Supplies, $7560.

Adjustments for prepaid expenses: decrease assets and increase revenues. decrease expenses and increase assets. decrease assets and increase expenses. decrease revenues and increase assets.

decrease assets and increase expenses.

Adjustments for unearned revenue: decrease liabilities and increase revenues. increase assets and increase revenues. decrease revenues and decrease assets. increase liabilities and increase revenues.

decrease liabilities and increase revenues.

Adjustments for accrued revenues: increase assets and increase liabilities. increase assets and increase revenues. decrease assets and decrease revenues. decrease liabilities and increase revenues.

increase assets and increase revenues.

Marigold Corp. purchased a one-year insurance policy in February 2021 for $32760. The insurance policy is in effect from March 2021 through February 2022. If the company neglects to make the proper year-end adjustment for the expired insurance: net income and assets will be understated by $5460. net income and assets will be understated by $27300. net income and assets will be overstated by $27300. net income and assets will be overstated by $5460.

net income and assets will be overstated by $27300.

All of the following are required steps in the accounting cycle except: journalizing and posting closing entries. preparing an adjusted trial balance. preparing a post-closing trial balance. prepare financial statements from the unadjusted trial balance.

prepare financial statements from the unadjusted trial balance.