BAD 1- Chapter3

expenses summary

-increase with debits

A company must recognize revenue:

1. when the company transfers promised goods or services to customers 2. in the amount it expects to be entitled to receive (receivables)

On December 1, ABC Apartment Company received $4,800 in advance from a tenant for 3 months' rent, December through February. It credited Unearned Rent Revenue for the full amount. After the adjusting entry is recorded, the Unearned revenue balance at December 31 equals $

3200

Miss Take, the bookkeeper, forgot to record the adjusting entry for revenues earned during the period, but not yet collected. What is the effect of this error on the accounting equation? (Check all that apply.)

Assets are understated. Stockholders' equity is understated.

Which of the following entries records the adjustment for interest earned on an investment, but not yet collected?

Debit Interest Receivable and credit Investment Income

Identify which companies would report deferred revenues that would need to be adjusted at the end of the accounting period.

Identify which companies would report deferred revenues that would need to be adjusted at the end of the accounting period.

Expense Recognition Principle

Match expenses with revenues in the period when the company makes efforts to generate those revenues a company must recognize when goods or services are used -prepaid rent, insurance, advertising (asset account) -we paid cash and have not used the services yet -record the expense when you use it -generate a payable when you pay later etc.

Cash Basis Accounting

Reporting income when the cash is received and expenses when the cash is paid. revenue- when you receive cash expense- when you pay cash

What are the effects on the financial condition of the business from the adjustment for revenues earned, but not yet collected, during the accounting period?

What are the effects on the financial condition of the business from the adjustment for revenues earned, but not yet collected, during the accounting period?

If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

amounts earned from its investments but not yet collected

expenditure

an expense; the amount needed to be paid out

The 3 variables needed to calculate interest are the ______.

annual interest rate time period covered in the interest calculation principal

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

Interest Receivable is a(n) ______.

asset that represents the right to collect interest

Accumulated Depreciation has a normal ----balance which indicates that it ----Total Assets. (Enter one word per blank.)

credit, decrease

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______. (Check all that apply.)

debit to Accounts Receivable credit to Service Revenue

revenues summary

increase net income and stockholders equity -increase with credits -accounts have credit balances

Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?

interest receivable

Net Profit Margin Ratio

net income/net sales

operating expenses

outflows. using up assets or increases in liabilities from ongoing operations incurred to generate revenues during the period

examples of operating expenses

payroll, rent, utility bills, delivery charges, and bank fees, depreciation expense

Accrual Basis Accounting

reporting income when it is earned and expenses when they are incurred revenue-when it is earned expense- when they are incurred

Revenue Recognition Principle

requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied

Accrual adjustments to record amounts earned but not yet collected include a credit to a(n)

revenue account

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

revenue recorded in may

Miss Hap, the company's accountant, forgot to make the adjusting entry to record the amount of prepaid expenses used during the period. As a result ______. (Select all that apply.)

stockholders equity will be overstated assets will be overstated

In a deferral adjustment for revenues collected in advance that are now earned

the liability recorded when cash was received is decreased by the adjustment for the revenue being earned