CH 3

interest

"cost of borrowing money."

referred to as "accruals?"

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

Which of the following financial statements typically is prepared last?

Statement of cash flows

Which of the following financial statements typically is prepared last? Multiple choice question.

Statement of cash flows

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

True

The adjusting entry for an accrued revenue always includes:

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

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

are zero

Supplies that are not used immediately are recorded as a(n) ______ when purchased.

asset

permanent accounts

assets, liabilities, stockholders equity

Prepaid rent appears in the ______.

balance sheet because it is an asset

Reporting revenues only when cash is received and expenses only when cash is paid is called the ______________ basis of accounting.

cash

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.)

credit to Prepaid Insurance debit to Insurance Expense

The adjusting entry for supplies used requires a

credit,

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

deferred

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

depreciation

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

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 adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Revenues and expenses are reported in the:

income statement

Deferred revenue is a(n)

liability

With respect to current assets, ___________ refers to how quickly an asset can be converted to cash.

liquidity

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

recording of adjusting entries

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

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

the cost of supplies remaining at the end of the accounting period

Adjusting entries:

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

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

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n)

asset

A classified balance sheet shows subtotals for current __________ and current_________

asset, liability

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

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

credit to Prepaid Insurance debit to Insurance Expense

An adjusting entry for accrued expenses involves:

credit to a liability, debit to an expense

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

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

decreased

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

expense

Under cash-basis accounting,

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

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 statements regarding the statement of cash flows are correct?

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

Consistent with the -----------basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

accrual

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

accrual

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. Multiple choice question.

amount of the prepayment that remains towards future rental periods

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 or debit

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

debit to Deferred Revenue, credit to Revenue

is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

depreciation

A classified balance sheet

groups asset and liabilities into current and long-term categories

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account.

increase

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies

remaining at the end of the accounting period

is the price earned from selling goods or services to customers.

revenue

The two major categories reported in the income statement are:

revenue and expenses

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 Rent expense of $2,000

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

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.

How do temporary accounts differ from permanent accounts?

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

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:

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

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

Rent paid in advance

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 for $1,800

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

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.)

Taggert will debit Insurance Expense for $300 on Dec. 31 Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31.

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created ---------------- by 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

Revenue in the income statement for the year ended December 31, 2018 equals the

amount earned by selling goods or services to customers during 2018

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

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

asset

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing enteries

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

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

credit a revenue account, debit a liability account

The post-closing trial balance checks that total _____ equals total __________

debits, credits

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

decreased; increased

The statement of stockholders' equity includes these amounts:

dividends for the period ending balance retained earnings net income

The information reported in the statement of cash flows is organized by these activities:

financing, operating, investing

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

has already been incurred

The adjusting entry for prepaid rent requires a(n) ____________ to Rent Expense and a(n) ______________ to Prepaid Rent.

increase or debit, decrease or credit

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

interest

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

paid

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

prepaid expense, liability

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

prepaid expense/ liability

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

temporary accounts

revenues, expenses, dividends

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

temporary

The post-closing trial balance helps to verify that:

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

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.

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