Accounting ch.4

hich of the accounts below would appear in the equity section of a classified balance sheet?

- Retained Earnings

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.

Which of the following lists contains only temporary accounts?

- Wages Expense; Income Summary; Dividends

A company had the following selected balances: Account Debit Credit Service Revenue. $4,000 Rental Revenue $2,000 Wages Expense $500 Utilities Expense $100 Dividends $80 The first closing journal entry would include which of the following?

- A credit to Income Summary for $6,000.

In preparing a post-closing trial balance, which of the following statements are correct? (Check all that apply.)

- All permanent accounts with a balance in the general ledger will be included. - The retained earnings account on the post-closing trial balance will include the net income or net loss for the period. - The total of all debit balances will equal the total of all credit balances

Choose the statement below that demonstrates the correct adjusting entry to recognize depreciation expense on a building.

- Debit Depreciation expense; credit Accumulated depreciation.

Review the following statements and determine which are correct regarding an adjusted trial balance and how it is used in preparing financial statements. (Check all that apply.)

- 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 ending Retained Earnings account balance on the Balance Sheet is taken from the Statement of Retained Earnings.

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

- Insurance expense would be debited for $400. - Prepaid insurance would be credited for $400.

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. (Check all that apply.)

- Liability accounts - Permanent accounts - Asset accounts

Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet by choosing the correct statements below.

- Net income is increased. - A revenue account is increased. - Total liabilities are reduced. - A liability (unearned revenue) will be reduced.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

- Permanent accounts will appear on a post-closing trial balance. - Temporary accounts are reported on the income statement. - Retained Earnings is a permanent account, but Dividends is a temporary account. - Permanent accounts are reported on the balance sheet. - Temporary accounts have a balance for one period only.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

- Prepaid rent - Office supplies - Accounts receivable - Cash

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

- Service revenue would be credited for $700. - Unearned revenue would be debited for $700.

Which of the following statements about the Accumulated depreciation account are correct? (Check all that apply.)

- The Accumulated depreciation account allows the original cost of the asset to remain in the plant asset account. - Accumulated depreciation is subtracted from its plant asset on the balance sheet. - Accumulated depreciation is a contra account. - Accumulated depreciation accumulates the total depreciation taken on an asset since its purchase.

Select the statement below that explains how to use the Income Summary account.

- The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

- 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.

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

- Trial balance, Adjusting journal entries, Post-closing trial balance.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.

- Unearned Revenues would be debited for $400

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

- Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

Accrual basis accounting is defined as: (Check all that apply.)

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

$200 of supplies were purchased at the beginning of the period and recorded as an asset. During the period, $90 of supplies were used. The adjustment to show the supplies used up would cause __________ to be reduced and __________ to be increased, so net income would decline.

- asset - expenses

When does the closing process take place?

- at the END of an accounting period (at the END of an accounting period, after the ADJUSTED trial balance is prepared and AFTER the financial statements are prepared.)

The journal entry to close all of a company's expense accounts would include a ____________ to each of the expense accounts and a corresponding ___________ to the Income ___________ account

- credit - debit - summary

Review and complete the following statement regarding the Income Summary account. The Income Summary account is ___________ for the sum of all revenue accounts and is ____________ for the sum of all expense accounts and its balance will be transferred to the ___________ account.

- credited - debited - retained earnings

The Fish Aquarium obtained funds from a bank and owes interest on a note at the end of the month. The required adjusting journal entry will

- debit interest expense and credit interest payable

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

- revenues - expenses - incurred

The revenue recognition principle states that revenue:

- should be recorded when goods or services are provided to customers at an amount expected to be received

Complete the following statement. The purpose of the closing process is to reset ____________ account balances to zero and to transfer the changes in all of these accounts to the Retained __________ account.

- temporary - Earnings

Complete the following statement. The purpose of the closing process is to reset ___________ account balances to zero and to transfer the changes in all of these accounts to the Retained ____________ account

- temporary - earnings

Explain your understanding of the closing process by choosing the correct statements below. (Check all that apply.)

- the closing process helps to summarize a period's revenues and expenses. - the closing process resets the balances in temporary accounts to zero.

If an adjusting entry for unearned revenue is not recorded, what is the effect on the financial statements?

- the revenues on the income statement will be understated

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

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

At year-end, ABC Company is completing its closing process. Use the following account balances to demonstrate the closing of the Dividends account. (Check all that apply.) Account Debit Credit Consulting Fees $5,000 Rental Revenue $2,000 Wages Expense $700 Rent Expense $1,900 Dividends $500

Debit Retained Earnings $500. Credit Dividends for $500.

A company had the following selected balances: Account. Debit Credit Service Revenue $4,000 Rental Revenue $2,000 Wages Expense $500 Utilities Expense $100 Dividends $80 Demonstrate the last closing journal entry to close the Dividends account by selecting the correct answer below.

Debit Retained Earnings $80; Credit Dividends $80

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

Which of the lists below contains only permanent accounts?

Retained Earnings; Accounts Payable; Accumulated Depreciation

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

Which of the statements below describe(s) a temporary account? (Check all that apply.)

- A temporary account has a balance for only one period. - A temporary account is closed at the end of an accounting period

What are current liabilities? (Check all that apply.)

- Current liabilities are obligations due to be paid within one year. - Current liabilities are reported in the order of those to be settled first.

Which of the following statements describes the expense recognition (matching) principle?

- Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. - Matching of expenses with revenues is a major part of the adjusting process.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

- Insurance expense would be debited for $300. - Prepaid insurance would be credited for $300.

Define what the book value of an asset is by choosing the correct statements below. (Check all that apply.)

- It is the original cost of an asset minus its accumulated depreciation. - It is sometimes referred to as the net amount of an asset. - The formula is cost less accumulated depreciation.

Identify which of the following steps in the accounting cycle is optional.

- Reversing journal entries

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

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

Which of the statements below describe(s) a permanent account? (Check all that apply.)

- A permanent account's balance is carried forward to the next accounting period. - A permanent account is reported on the balance sheet.

When does the closing process take place?

- At the end of an accounting period

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Check all that apply.)

- credit services revenue - debit accounts receivable

The closing process takes place at the _________ of an accounting period, after the ___________ trial balance is prepared and ___________ the financial statements are prepared.

- end - adjusted - end

Demonstrate your knowledge of a depreciation adjusting entry by completing the following sentence. A depreciation adjustment would include a debit to depreciation _________ and _________ to accumulated ___________

- expense - credit - depreciation

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 _________ account and __________ the Interest __________

- expense - credit - payable

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries ___________ account and ___________ the Salaries ___________ account.

- expense - credit - payable

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

1. Journalize transactions into the journal 2. Journalize and post the adjusting entries 3. Prepare the adjusted trial balance 4. Prepare the financial statements 5. Journalize and post closing entries 6. Prepare post-closing trial balance

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

- A temporary account will not appear on a post-closing trial balance.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.)

- Accounts payable - Unearned rent - Taxes payable - Notes payable (due in three months)

Define an adjusting journal entry.

- An adjusting journal entry is made at the end of an accounting period to reflect a transaction or event that is not yet recorded.

Choose the statement below which is true regarding adjusting journal entries.

- At least one income statement account and one balance sheet account are ALWAYS involved. - (cash is NEVER Involved)

What is the book value of an asset?

- Book value is the original cost of an asset minus its accumulated depreciation.

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense accounts. (Check all that apply.) Account Debit Credit Service Fees $10,000 Consulting Revenue $2,000 Supplies Expense $700 Insurance Expense $900 Dividends $120

- Credit Insurance Expense for $900. - A debit to Income Summary for $1,600. - Credit to Supplies Expense for $700.

A classified balance sheet has several categories for assets and liabilities including:

- Current assets. - Noncurrent (long-term) liabilities. - Long-term investments. - Plant assets.

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. Demonstrate the required adjusting entry by choosing the correct statement below.

- Debit Interest expense for $30.

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

- Debit accounts receivable and credit services revenue

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. Account. Debit. Credit Service Fees $15,000 Consulting Revenue $12,000 Supplies Expense $900 Rent Expense $600 Dividends $80

- Debit to Consulting Revenue for $12,000. - A credit to Income Summary for $27,000. - Debit Service Fees for $15,000.

Able Company owes interest on a note for a loan. The note is dated December 1 and is due on February 1. On December 31, interest expense should be accrued for the following period:

- December 1 to December 31

$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s). (Check all that apply.)

- It would reduce assets, so total assets would be lower. - It would increase expenses, so net income would be reduced.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

- Salaries Expense would be debited for $500

What is the purpose of the Accumulated Depreciation account?

- The account allows both the original cost of plant assets and the total depreciation taken to be shown simultaneously.

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries _________ account and _______ the Salaries ________

- expense - credit - payable

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

- organizes assets and liabilities into important subgroups. - lists current assets in the order of how quickly they can be converted to cash. - What are current liabilities? (Check all that apply.)is more useful to decision makers.

Accounting Cycle

1. Analyze transactions - analyze transactions to prepare for journalizing 2. Journalize - record accounts, including debits and credits, in a journal 3. Post - transfer debits and credits from the journal to the ledger 4. Prepare unadjusted trial balance - Summarize unadjusted ledger accounts and amounts 5. Adjust and Post - record adjustments to bring account balances up to date; then journalize and post 6. Prepare adjusted trial balance - summarize adjusted ledger accounts and amounts 7. Prepare financial statements - use adjusted trial balance to prepare financial statements 8. Close accounts - Journalize and post entries to close temporary accounts 9. Prepare post-closing trial balance - Test clerical accuracy of the closing procedures 10. Optional: Reverse and Post - Reverse certain adjustment in the next period