ACCT Chapter 3

rue 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.

Adjustments remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account. False

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

Deferred

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

GAAP requires accrual accounting, but the correct term is "accrual-basis accounting.

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

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

Which of the following statements is true?

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

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

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

Reason: Adjustments, which are journal entries, ensure that all expenses are recorded in the period incurred.

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 to be reported for 2019 = (24,000/24 months) * 2 months remaining in 2019 = 1,000 * 2 months = 2,000 Balance in prepaid rent account at the end of 2019 = 24,000 - 2,000 = 22,000 Therefore the answer would be Rent expense of $2,000 Prepaid rent of $22,000

A classified balance sheet shows subtotals for current _______ and current ______)

assets and liabilities

An adjusting entry for accrued expenses involves: (Select all that apply.)

credit to a liability debit to an expense

Under cash-basis accounting

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

A classified balance sheet

group assets and liabilities into current and long-term categories

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as

interest expense

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

owed

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

The recording of adjusting entries is supported by the

recording of adjusting entries

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 $1800

Which of the following financial statements typically is prepared last?

statement of cash flows

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 stockholder's equity

The post-closing trial balance helps to verify that: (Select all that apply.)

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

Adjusting entries:

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