ACCT 3-4 notes

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue (credit) for $1,800

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

decreased increased

Revenues and expenses are reported in the:

income statement

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

prepaid expense liability

Which of the following transactions would normally be recorded as an asset when cash is paid?

rent paid in advance

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

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Deferred revenue is a(n) ______.

liability

The adjusting entry for a deferred revenue includes a debit to a(n) __________ account and a credit to a(n) ________ account.

liability revenue

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

Adjusting entries:

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

_______-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

Accrual

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

False

Which of the following would be referred to as "accruals?"

Goods and services provided, not yet collected Expenses incurred, not yet paid

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.

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

The post-closing trial balance helps to verify that:

We prepared and posted closing entries correctly The accounts are ready for next period's transactions

The adjusting entry for an accrued revenue always includes:

a debit to an asset account a credit to a revenue account

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.

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for ____________ entries.

adjusting

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

At the beginning of the accounting period, the balances of temporary accounts

are zero

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

asset

Prepaid insurance is a(n) ______.

asset in the balance sheet

A classified balance sheet shows subtotals for current ____________ and current _________.

assets, liabilities

Prepaid rent appears in the ______.

balance sheet because it is an asset

Which of the following financial statements typically is prepared last?

cash flows

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

Andy records an adjusting entry for deferred revenue. Andy should:

debit a liability account credit a revenue account

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue credit to Revenue

The post-closing trial balance checks that total assets _________equal total __________ at the end of the period.

debit, credit

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

Adjusting entries are made at the ___________ of the accounting period, while daily transactions are made throughout the accounting period.

end

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

expense

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _____________ in the period the benefit expires.

expense

The statement of stockholders' equity includes these amounts:

net income dividends for the period ending balance retained earnings

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

paid

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

recording of adjusting entries

The two major categories reported in the income statement are:

revenue expense

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

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

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.

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:

Rent expense of $2,000 Prepaid rent of $22,000

Under cash-basis accounting, (Select all that apply.)

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

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

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

depreciation

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

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

has already been incurred

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______.

$22,000

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

$35,910 17840+21750

_________occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

Accruals

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.

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

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

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders' equity

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) _________when an insurance policy is purchased and will later be expensed in the period used.

asset

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.