FA Chapter 4
The accrual adjustment recorded to adjust for revenues not yet collected will cause
assets to increase
The balance in the Dividends account represents a reduction to R.E under Stockholders' Equity. Therefore, dividends account has a normal ______ balance
debit
As of December 31 (end of the accounting period), ABC Company has a profit before tax of $12,000. The company's tax rate is 25%. The adjustment will include a(n) _______ of $________ to Income tax expense
debit 3000; 12000*25%
During the closing process the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account to be _____________.
debited
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
TO determine the adjusting entries required, a _______ is prepared
Unadjusted trial balance
A _________trial _________ is prepared immediately __________ the adjusting entries have been recorded and _________ the financial statement are prepared.
adjusted balance after before
Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided __________
but not yet collected
Place the steps in the adjustment process in order.
Analyze Record Summarize
Line items that are found on a statement of retained earnings
Net Income Dividends
Prepare a _________ - ________ trial balance is the last step in the accounting cycle
Post-Closing
After the adjustments have been completed, the adjusted balance in the Interest Expense account represents ________
Total interest that has been paid and/or accrued during the period
T or F: Dividends paid are not reported on the Income Statement because they are not classified expenses.
True
The adjusting entry to record wages incurred but not yet recorded includes a credit to _____________
Wages Payable
Interest Expense
accrued each period the notes payable is unpaid
The closing entry may include a
credit to Wages Expense
The closing entry to close Rent Expense required Rent Expense to be ________ and Retained Earnings to be ________
credited debited
A deferral adjusting entry that adjusts assets (such as prepaid insurance)
expenses the amount used during the period
Temporary accounts are found on ________
income statement
Closing entries move the balances from the _____ accounts into the retained earnings account
temporary
In the first year of business, Eel Electric purchased 1,000 of supplies on account. During the year, it paid 700 of the amount owed for supplies. At the end of the year, it had 200 of supplies remaining. What is the supplies expense on the income statement equal?
$800.
Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?
-Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a revenue -Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period
At the end of the accounting period, adjusting entries are required. In what order are the steps of the adjusting process?
1. Use the unadjusted trial balance to determine the accounts requiring adjusting / 2. Record and post adjusting entries /3. Prepare an adjusted trial balance to check the equality of debits and credits /4. Prepare Financial Statements /5. Record closing journal entries and post to the accounts /6. Prepare a post closing trial balance
The annual depreciation taken on a vehicle totals $3000. The vehicle has been in service for 3 whole years and the adjusting entries have been completed for the year. at the end of the 3rd year the financial statements will report depreciation expense of __________ and Accumulated Depreciation of ___________.
3000 9000
The adjusting entry to record revenue for services the seller has performed but not yet collected requires _________.
A debit to Accounts Receivable and credit to Service Revenue
Deferral adjustments include
A debit to a liability account and a credit to a revenue account OR a debit to an expense account and a credit to an asset account
Accrual adjustments include
A debit to an expense account and credit to a liability account OR a debit to an asset account and a credit to a revenue account
______ adjustments are used when cash has not been exchanged in a prior transaction, and ________ adjustments are used when cash has been exchanged in a prior transaction
Accrual Deferral
Which of the following adjusting entries are recorded with a debit to an expense and a credit to liability?
Accruing for services received that have not yet been paid
Without ______ entries, financial statements would present an incomplete and misleading picture of the company's financial position
Adjusting
If an adjusting entry decreased an asset on the balance sheet, then one can conclude that
An expense was increased on the income statement
The entry to record the payment of wages incurred in the prior accounting period is recorded with _______
Credit cash debit salaries and wages payable
The adjusting entry to record depreciation on equipment includes a ______________
Credit to Accumulated Depreciation Debit to Depreciation Expense
The adjusting entry to record the amount of interest earned but not yet received on investments include a
Credit to Interest Revenue Debit to Interest Receivable
The entry to record income tax accrued, but unpaid, at the end of the accounting period includes both _____ and _______.
Debit to Income Tax Expense Credit to Income Tax Payable
Balance sheet accounts, such as Supplies or Prepaid rent _________ as a result of deferral adjustments.
Decrease
The adjusting entry to record the supplies used during the period will result in a(n)
Decrease to Supplies and an increase to supplies equipment
Temporary accounts include: ____________, ____________, and ____________. These accounts only track current periods results.
Dividends, Expenses, and Revenues
The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to "Interest _______" and a credit to "Interest __________"
Expense Payable
T or F: The adjusting entry to record interest owed for the period will cause the balance in the note payable account to increase
False Accrued interest increases the Interest Payable account. The amount does not affect the Note Payable account. Only principal payments on the note will affect the balance in the Note Payable account.
T or F: Accumulated Depreciation is a contra-account to a long-lived asset account, such as equipment. This means that it increases the balance of the long-lived asset on the balance sheet
False; A contra-account is a negative account. So it would reduce the long-lived asset on the balance sheet
Which type of adjusting entry is recorded last because the amount is calculated after taking into account the effect on net income of all other adjustments recorded at the end of the period?
Income tax incurred
Gift cards are an example of a transaction in which a company receives payment in advance for fulfilling a sale or performing a service. This type of transaction will result in: 1) an increase to the account called cash, an asset AND 2) a _________ to the account called ________ ___________, a ____________
Increase Deferred Revenue Liability
Which of the following accounts found on the unadjusted balance typically requires adjusting entries?
Interest Payable, Prepaid Rent, and Supplies
Adjustment 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
What account balances will typically be increased as a result of adjusting entries
Interest payable supplies expense
What accounts are found on a balance sheet
Prepared Rent/Interest Payable
Which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance
Retained Earnings
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
In the 1st yr of business, Daily Grind Inc purchased $1000 of supplies of which it has only $300 left at the end of the period. What will be found in the year-end financial statements?
Supplies Expense on the Income Statement Supplies on the balance sheet of $300
How does the adjusting entry to record the supplies used during the period affect the financial statements??
Supplies Expense on the income statement will increase supplies on the balance sheet will decrease Net Income on the Income Statement will decrease
What transaction constitute an accrual adjustment involving an expense account?
Taxes incurred but not yet paid to the government as the end of the accounting period Wages Incurred but not yet paid to employees as the end of the accounting period
How does the adjustment for depreciation differ from the other deferral adjustments?
The depreciation adjustment uses a contra-account rather than reducing the asset accounts directly
How do accrual adjustments affect liabilities and expenses?
The increase liabilities and increase expenses.
In deferral adjustment for revenues collected in advance for which the company has now satisfied the performance obligation, _______.
The liability recorded when cash is received is decreased by the adjustment for the amount of the obligation that has been fulfilled.
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 account period that had previously been recorded as a liability
Total Liabilities will decrease and Stockholders' equity will increase
After the adjustments have been completed, the balance in the "Salaries and Wages Expense" account represents
Total Salaries and Wages, paid and unpaid, that have been incurred during the accounting period
Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects?
Total assets is decreased on the balance sheet The carrying value of the assets is decreased Total expenses on the income statement are increased
After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ____________
Total depreciation taken on the long-lived assets since their purchase
T or F: Supplies is an asset account because it contains the value of supplies that have NOT been used, but still remain an economic resource for the company
True
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
The adjusting entry for supplies used during the period required a _______ (debit or credit) to Supplies and a ______(debit or credit) to Supplies expense
credit; debit
The closing entry to close Rent Expense requires Rent Expense to be _______ and Retained Earnings to be _______.
credited debited
Salaries and wages payable is
debited when the wages that were previously recorded are paid
A prepayment is originally recorded as an asset. Later at the end of the accounting period, an adjustment is recorded causing in a _______ in the asset account and _________ in the expense account
decrease increase
Prepaid expenses, such as prepaid rent, should be _______ by the benefits that were used up during the accounting period
decreased
Adjusting entries are made at the _________ of the accounting period., while daily transactions are made throughout the accounting period
end
Adjustments made to expense accounts at the end of the accounting period adhere to the _____ recognition (matching) principle
expense
Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a ________ in the period the benefit expires
expense
The _____ recognition principle required that a portion of long-lived assets be transferred to an expense account during the accounting period the asset is being used to generate revenue
expense
The _______ recognition principle requires an adjustment for income tax expense owed attributable to the net income earned during the current period
expense
Net income (or loss) is recorded n the retained earnings account when ______ and _______ accounts are closed and transferred into retained earnings.
expense revenue
Amortization is the concept that applies to the
expensing of long-term assets that lack physical substance over their useful lives
Adjustments ensure that liabilities are reported as all amounts _____at the end of the accounting period
owed
Salaries and Wages Payable is recorded for salaries and wages incurred, but not yet _________ to employees, at the end of the accounting period
paid
If a company records a debit to salaries and wages payable and a credit to cash, what has ocurred? The company is
paying for salaries and wages that had been accrued earlier
In accrual accounting, to defer means to ________ recording the other side of the transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid
postpone
The balance in retained earnings prior to the closing process equals
the balance at the end of the previous accounting period
Deferring a revnue or expense account in accounting means that the amount
will be reported as a revenue or an expense in a later period
The adjusted trial balance ________
will be used to determine the asset and liability balance on the balance sheet
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
What two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance?
Amortization Expense Accumulated Amortization
Supplies Expense Supplies Account Payable
Amount used and reported on the income statement Amount remaining and reported on the balance sheet Amount owed for supplies purchased on account
Which of the following types of transactions could be an accrual adjustment
An Increase to an asset account and an increase to a revenue account
When are adjusting entries recorded
At the end of the accounting period, prior to the preparation of financial statements
The deferral adjustment to record the amount of service revenue collected in advance for which the company has not satisfied the performance obligation includes a ______
Credit to Service Revenue Debit to Deferred Revenue
Identify the entries needed for the closing process
Debit each revenue, credit each expense, and record the difference in R.E
______ Is defined as the "cost of borrowing money." Since the account represents a cost incurred on borrowed money, it is classified as a(n) _______account under stockholders' equity
Expense
What are the reports made available to the public?
Notes to the financial statements Income Statement Statement of R.E Statement of Cash Flows Balance Sheet
After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents _________
Total income tax that has been paid and accrued during the period
T or F: Interest expense that has accrued on a note payable will be recorded in the Interest Payable Account. When the interest is paid in a future period, the interest payable account will reduce
True
T or F: The balance in the "Interest Expense" account and the balance in the "Interest Payable" account may be different after the adjustments are posted.
True