CH4: Adjustments, Financial Statements and Financial Results

____ ensure that the revenues recognized and expenses incurred during the period are reflected in the income statement

adjusting entries

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected?

assets will increase stockholders' equity will increase

Which of the following account balances will typically be reduced as a result of adjusting entries?

deferred revenue prepaid rent supplies

Select the following statements that are correct regarding Dividends?

Dividends are closed into retained earnings by crediting Dividends. Dividends have a normal debit balance. Dividends are closed into retained earnings by debiting Retained Earnings.

If a company recorded an adjusting entry by debiting Interest Expense for $500 and Interest Payable for $50 in error, then the ______.

adjusted trial balance's debits will not equal its credits

How does the timing of adjusting entries differ from the accounting for daily transactions?

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

Which of the following entries records the adjustment for income tax accrued, but not yet paid?

Debit Income Tax Expense and credit Income Tax Payable.

The adjusting entry to record the amount of prepaid rent used during the period requires a ________ to Rent Expense and a ______ to Prepaid Rent.

Debit to rent expense; credit to prepaid rent

The closing entry for dividends involves a debit to ______ and a credit to ______.

Debit to retained earnings Credit to dividends

True or false: The term "defer" means "in advance."

False - Defer means to "postpone until later"

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages _________ will be debited and Salaries and Wages ________ will be credited by $700.

Salaries and Wages expense will be debited salaries and wages payable will be credited

Which of the following is incorrect regarding the Income Tax Payable account?

The account represents tax refunds due to the company.

Why are adjustments needed at the end of an accounting period?

To ensure that all assets and liabilities are reported at appropriate amounts

What are the effects on the accounting equation from the adjustment for income tax expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase; total stockholders equity will decrease

Adjusting entry to record revenue for services the seller has performed but not yet collected:

account receivable debit service revenue credit

After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased?

accounts receivable

Closing journal entries are recorded ______.

after the financial statements have been prepared

A prepayment that is originally recorded as an asset will be ______.

allocated to future accounting periods based on the value of the benefit used during the period

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 balances

The adjusted trial balance should be prepared ______ the financial statements are prepared to prove the ______ of the debits and credits.

before; equality

The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the ______ process

closing

Accumulated Depreciation has a __________ normal balance which indicates that it _________Total Assets.

credit normal balance, decreases total assets

The adjusting entry to record depreciation on equipment includes a ______.

credit to Accumulated Depreciation debit to Depreciation Expense

The adjusting entry to record the revenue earned by the seller fulfilling its obligation results in a(n) _______________ to the Deferred Revenue account.

debit

Which of the following entries records the adjustment to revenue for which the seller has performed its obligations but has not yet been collected or billed?

debit accounts receivable credit sales revenue

what to do in closing entry for retained earnings and dividends

debit retained earnings credit dividends

The entry to record income tax accrued, but unpaid, at the end of the accounting period includes both a ______ and a ______.

debit to Income Tax Expense credit to Income Tax Payable

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends.The debit to Retained Earnings causes a(n) ________ in the balance of the account.

decrease

Prepaid expenses, such as Prepaid Rent, should be ______ by the benefits that were used up during the accounting period.

decreased

Which of the following is closed into Retained Earnings by debiting Retained Earnings?

dividends

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

owed

the adjusting entry for income taxes records income tax that is incurred and _______ by the company

owed

In accrual accounting, to defer means to _________ recording the other side of the cash transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid.

postpone

Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance?

prepaid rent

The adjusting entry to record wages incurred, but not yet recorded includes a credit to:

wages expense debit wages payable credit

what does the ending balance in RE match in the closing balance trial?

year-end amount on the statement of retained earnings and balance sheet

The balance in the Dividends account represents a reduction to Retained Earnings under stockholders' equity. Therefore, the Dividends account has a _______ normal balance

debit

The adjusting entry to record depreciation, includes a debit to ____________ and credit to ___________.

debit to depreciation expense credit to accumulated depreciation

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

debit to supplies expense credit to supplies

The Accounts Receivable account should be _______ when adjusting at the end of the period for any revenues from fulfilling obligations to buyers which has not yet been collected or recorded.

debited

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

end

Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided ______.

provided but not yet collected

Adjusting entries are important because ______

adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes without them, the financial statements would be misleading.

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?

Interest Expense should be increased, because the cost of interest relates to the current period.

Which of the following accounts found on an unadjusted balance typically require adjusting entries?

Interest Payable Supplies Prepaid Rent

Which of the following transactions constitutes an accrual adjustment involving a revenue account?

Interest Revenue on a note receivable

What are the effects on the accounting equation from the adjustment for which the seller has satisfied the performance obligation to its buyers during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.

increase

Interest incurred, but not yet paid during an accounting period, should be recorded as an expense and a(n) ______.

liability (interest payable)

Which of the following is true about the adjusting entry to record the revenue for which the seller has performed its obligations but not yet collected?

stockholders' equity will increase assets will increase