CH: 3-4
A retailer sells prepaid gift cards under its own brand to customers, which are popular during the Holidays. If a company sells $200 worth of gift cards to a customer before Xmas but the same are not used to purchased goods until after the New Year's, how should the retailer record this transaction?
Debit cash and credit Unearned Revenue.
At the end of the accounting period, all balance sheet accounts are closed out.
False
The accrued interest for a three month note payable of $10,000 dated December 1, 2017 at an interest rate of 6% is $150 on December 31, 2017.
False
The adjusting entry for accrued salaries requires a debit to Salaries and Wages Payable.
False
The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.
False
The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.
False
The cash-basis of accounting is in accordance with generally accepted accounting principles.
False
The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received.
False
Depreciation is the process of:
allocating the cost of an asset to the periods in which it is used.
An adjusting entry:
affects a balance sheet account and an income statement account.
Requires that accounting standards be followed for all items of significant size.
materiality
On January 1, 2016, Leardon Inc. purchased equipment for $25000. The company is depreciating the equipment at the rate of $1000 per month. At January 31, 2017, the balance in Accumulated Depreciation is:
$13000 credit.
An adjusting entry always involves two balance sheet accounts.
False
Which account will have a zero balance after closing entries have been journalized and posted?
Service revenue.
Which of the following would not result in unearned revenue?
Services performed on account.
The expense recognition principle is frequently referred to as the matching principle.
True
If a company fails to adjust for accrued revenues:
assets will be understated and revenues will be understated.
The difference between the balance of a plant asset account and the related accumulated depreciation account is termed:
book value.
Greese Company purchased office supplies costing $7000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
debit Supplies Expense, $4500; credit Supplies, $4500.
Indicates that personal and business recordkeeping should be separately maintained.
economic entity assumption
Requires recognition of expenses in the same period as related revenues.
expense recognition principle
If a company fails to make an adjusting entry to record supplies expense, then:
expense will be understated.
Ensures that all relevant financial information is reported.
full disclosure principle
Is the rationale for why plant assets are not reported at liquidation value. (Do not use the historical cost principle.)
going concern assumption
Indicates that fair value changes subsequent to purchase are not recorded in the accounts.
historical cost principle
Assumes that the dollar is the "measuring stick" used to report on financial performance.
monetery unit assumption
The preparation of adjusting entries is:
needed to ensure that the expense recognition principle is followed.
Prepaid expenses are:
paid and recorded in an asset account before they are used or consumed.
Separates financial information into time periods for reporting purposes.
periodicity assumption
Accrued revenues are:
recognized but not yet received or recorded.
If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit:
unearned rent revenue.
Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies:
used.
