fin acc ch 4

on what financial statements would supplies appear?

balance sheet

The effect of journal entries on each account is summarized in the ______.

general ledger

on what financial statements would supplies expense appear?

income statement

what are the steps (in order) in the adjustment process at the end of the accounting period?

1. prepare an unadjusted trial balance to determine if dr=cr 2. record the adjusting entries in the journal 3. post the adjusting journal entries to the ledger 4. prepare the financial statements 5. record the closing entries in the journal 6. post the closing entries to the ledger

T/F: adjusting entries are req. in cash basis accounting only

F

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Miss Step, the bookkeeper, forgot to record the adjusting entry for some accrued expenses during the period. This will cause which of the following items on the statement of stockholders' equity to be in error? (Check all that apply.)

NI will be overstated, ending RE will be overstated

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period? (2)

Revenues earned at the end of the period, but not yet billed to Accounts Receivable, should be recorded as a revenue. Payments received in advance, and originally recorded as a liability, should be reduced for any portion earned during the current period.

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

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

Which of the following transactions constitute an accrual adjustment involving an expense account? (Check all that apply.) Wages incurred but not yet paid to employees as of the end of the accounting period Supplies that were used during the month Insurance expired during the month from a 3-month insurance policy that was purchased at the beginning of the month Taxes incurred but not yet paid to the government as of the end of the accounting period

Wages incurred but not yet paid to employees as of the end of the accounting period Taxes incurred but not yet paid to the government as of the end of the accounting period

on what financial statements would cash appear?

balance sheet

__________ revenues result in Accounts Receivable when revenue is earned prior to collection.

accrued

When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a $300 debit to ______ and a $300 credit to ______.

cash; unearned rev

During the closing process, the closing entries to individual expense accounts will be recorded with a ______ to reduce the account balance to zero.

credit Since expenses increase with debit entries and therefore, maintain normal debit balances, the accounts must be credited to reduce the balance to zero.

______ revenues and expenses result because the cash changed hands prior to the revenue being earned or the expense being incurred.

deferred

_________ expense result in an asset when cash is paid in advance

deferred

__________ revenues result in Unearned Revenue when cash is collected in advance of being earned.

deferred

type of adjustments for revenues earned but not yet collected + expenses incurred but not yet paid

deferred

Gift cards are an example of a transaction in which a company receives payment in advance of fulfilling a sale or performing a service. This type of transaction will result in an increase to an asset account and a(n) _____ to a(n) __________ account.

increase, liability

preparing an ____-______ trial balance is the last step in the accounting cycle

post-closing

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

True or false: 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. Supplies Expense reports the amount of supplies that have been used during the period.

Deferring a revenue or expense account in accounting means that the amount ______.

will be reported as a revenue or an expense in a later period

T/F (w/ rationale) The post-closing trial balance proves that all entries have been made correctly and accurately during the accounting period.

F; While a post-closing trial balance does show that debits equal credits, it does not verify that all entries were correct. It only verifies that amounts entered on the debit side of an account match those entered on the credit side. It does not detect when an entry is made to the wrong account or when an entry is omitted altogether.

True or false (give rationale): After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet.

False The amount on the balance sheet was taken from the statement of retained earnings. The statement of retained earnings had added net income and subtracted dividends to the beginning retained earnings balance. This calculation summarizes the effects of the closing entries on the retained earnings account.

Which of the following statements is correct? Financial statements are prepared before adjustments to ensure that debits equal credits before concluding the adjustment process. Financial statements are prepared before adjustments to ensure that debits equal credits before beginning the adjustment process. Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance. Financial statements are prepared before adjustments to ensure that all accounts have been brought to their correct balance.

Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.

As of December 31, the unadjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 worth of gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

Sales Revenue needs to be increased by the amount of gift cards redeemed during the month. Unearned Revenue needs to be decreased by the amount of gift cards redeemed during the month.

____________ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

Interest Receivable is a(n) ______.

asset that represents the right to collect interest

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

what does unearned revenue represent?

the amount of sales or services that have been collected in advance of being earned

on what financial statements would depreciation expense appear?

the income statement

In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? $1,000 of revenue should be recorded in May. $1,000 of revenue should be recorded in June. $500 of revenue should be recorded in May and $500 in June.

$1,000 of revenue should be recorded in June.

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. What should be recorded/when assuming accrual accounting?

$1,000 of revenue should be recorded in June. Revenue should be recorded in the period it is earned regardless of whether the cash has been collected. Thus $1,000 of revenue should be recorded in May.

why are the adjustments important to the preparation of the financial statements? (3)

- unadjusted financial statements could present a misleading + incomplete picture of the company's financial results - adjustments ensure that the revenues earned + expenses incurred during the period are reflected in the income statement - adjustments ensure that the balance sheet reports all of the economic resources the company owns + all of the obligations the company owes

On December 1, Lotsa Space Company received $24,000 from a tenant for 4 months' rent in advance. The entry on December 1, includes a ______.

2400 dr to cash 2400 cr to unearned rent revenue

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

Which of the following accounts would be listed above Property and equipment (net of accumulated depreciation) on a classified balance sheet? (Check all that apply.) RE, unearned rev, AR, cash, AP

AR, cash

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated? (Check all that apply.) Dividends declared Contributed capital (Common stock and Additional paid-in capital) Ending retained earnings Total stockholders' equity Net income Beginning retained earnings

Ending retained earnings Total stockholders' equity Net income

T/F (w/ rationale) The post-closing trial balance is a report prepared before the adjustments and the financial statements to prove that debits equal credits.

F The report described in this option is an unadjusted trial balance. The post-closing trial balance is prepared after adjustments and closing entries are recorded.

T/F (w/ rationale) The post-closing trial balance will be distributed to investors and other stakeholders along with the financial statements.

F; The post-closing trial balance is an internal report. It is not included as one of the financial statements.

On July 1, Squid Roe, Inc., collected cash in advance from a customer in July for services to be performed in July, August and September and recorded a debit to Cash and credit to Unearned Revenue for $3,000. Which of the following is the proper treatment of this event assuming monthly financial statements are prepared?

On July 31, an adjusting entry should be recorded that debits Unearned Revenue and credits Service Revenue for $1,000.

T/F: adjusting entries update the accounts to their proper balances

T

____________ expense result in a liability when an expense is incurred prior to being paid.

accrued

type of adjustments for revenues earned that were collected in advance + expenses incurred that were previously recorded as assets

accrued

deferred revenues - description of the adjusting entry required

adjusted for amounts earned that were collected in advance

accrued revenues - description of the adjusting entry required

adjusted for amounts earned, but not yet collected

The adjusting entry to record the amount of revenue earned that had been collected in advance requires a(n) (debit/credit) to Unearned Revenue and a(n) (debit/credit) to Sales Revenue.

debit, credit

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be _______

debited

The adjusting entry to record the amount earned that previously had been collected in advance will ______.

decrease liabilities and increase revenues

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

end

Which of the following depreciate over time and require an adjusting entry at the end of the accounting period? equipment, supplies, land, buildings

equipment + buildings

wages payable is adjusted for wages earned, but not yet _____ to employees, at the end of the accounting period

paid

Accounts Receivable should be increased for ______.

revenues earned during the period, but not yet collected

on what financial statements would dividends appear?

statement of SE

on what financial statements would RE appear?

statement of SE + balance sheet

what does account receivable represent?

that amount of sales or services that have been earned, but not yet collected

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

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.

accrued expenses - description of the adjusting entry required

adjusted for amounts incurred, but not yet paid

deferred expenses - description of the adjusting entry required

adjusted for amounts used that were paid for in advance

Adjusting entries for ______ revenues and expenses are necessary when the cash was collected or paid in advance. Adjusting entries for ______ revenues and expenses are necessary when the earning of revenues and incurring of expenses occurred prior to the cash changing hands.

deferred; accrued

Why is the Unearned Revenue account reduced during the adjustment process?

As the revenue is earned, it is removed from the Unearned Revenue account and transferred into a revenue account.

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.

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following on the balance sheet? (Check all that apply.) Net income will be understated. Retained earnings will be overstated. Current liabilities will be overstated. Supplies will be overstated. Current assets will be overstated.

Retained earnings will be overstated. Supplies will be overstated. Current assets will be overstated.

Chipotle had $10 of supplies at the beginning of the period and purchased $80 of supplies during the period. At the end of the period, it had $5 of supplies on hand. After the adjusting entry has been recorded at the end of this period, the financial statements will reported how?

Supplies expense of $85 on the income statement Supplies of $5 on the balance sheet

T/F The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

T

T/F: adjusting entries are needed in order to measure the period's net income or loss

T

Why is an adjustment necessary for interest accrued on a note payable at the end of the period if the interest will not be paid until the note is due? (Check all that apply.) The accrued interest needs to be credited to the Note Payable account to accurately report the total amount due on the note. The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet. Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period. Interest Revenue should be increased to reflect the amount of the interest earned during the current period.

The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet. Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period.

__________ adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.

accrual

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

amounts earned that were collected in advance

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

If the adjusting entry to record supplies used during the period is not recorded, then ______.

assets and stockholders' equity will be overstated

on what financial statements would accumulated depreciation appear?

balance sheet + statement of cash flows

Accrual adjustments are needed when a company has earned revenue but ______ has not yet been collected.

cash

A closing entry may include a ______. credit to Wages Expense debit to Unearned Revenue debit to Prepaid Insurance credit to Interest Revenue

credit to Wages Expense

The adjusting entry to record the amounts earned during the accounting period results in a(n) ______ to the Unearned Revenue account.

debit

post-closing trial balance checks that total _____ equal total _____ at the end of the period

debits, credits

on what financial statements would NI appear?

income statement + statement of SE

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

the effects of _______ _______ are copied from the _________ ________ to the _______ _________

journal entries, general journal, general ledger

Property and equipment, net is reported on the balance sheet at the ______.

net book value

accrual adjustments to record amounts earned but not yet collected include a dr to an asset account and a credit to a(n) _________ account

revenue