LS 4: Adjustments, Financial Statements, and Financial Results

deferral adjustments are necessary when cash is paid or collected _____

before the expense is incurred or revenue is recognized from providing goods or services

as the balance in the Accumulated Depreciation increases, total assets _____ because Accumulated Depreciation is a _____-account

decrease; contra

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

which of the following is true regarding depreciation of equipment? - Accumulated Depreciation is decreased as the equipment is used causing the carrying value to increase - Depreciation directly decreases the Equipment account causing the carrying value to decrease - Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date - Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet - Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet

- Accumulated Depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date - Accumulated Depreciation is increased as the equipment is used causing the carrying value to decrease on the balance sheet - Depreciation is reported in Accumulated Depreciation which is netted against the related Equipment account on the balance sheet

the adjusting entry to record amortization causes _____

- assets to decrease - SE to decrease

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

- credit to Income Tax Payable - debit to Income Tax Expense

ID the entries needed for the closing process

- debit each revenue, credit each expense, and record the difference in Retained Earnings - Credit Dividends and debit Retained Earnings

the adjusting entry to record depreciation on equipment includes a _____

- debit to Depreciation Expense - credit to Accumulated Depreciation

after all closing process, which accounts will have zero balances?

- expenses - revenues - dividends - all temporary accounts

which of the following types of transactions represent accrual adjustments? - decrease to Supplies and increase to Supplies Expense - increase to Interest Payable and increase to Interest Expense - increase to Income Taxes Payable and increase to Income Taxes Expense

- increase to IP and increase to IE - increase to ITP and increase to ITE

on June 30, Daily Kneads paid $12,000 in advance for one year of insurance coverage beginning July 1. match each line item with the correct amount that would be reported in the following month, July, and on which July financial statement the line would be reported - insurance expense - prepaid insurance

- insurance expense: $1,000 in the income statement - prepaid insurance: $11,000 on the balance sheet

which of the following line items are found on a statement of retained earnings? - net income - interest payable - dividends - rent expense - sales revenue

- net income - dividends

adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects?

- total assets is decreased on the balance sheet - total expenses on the income statement are increased - the carrying value of the assets are decreased

which of the following may require an accrual adjusting entry that is recorded with a debit to an expense and a credit to a liability? - revenue for which the seller has performed its obligation but not yet collected - utilities to be paid in later accounting period - rent paid in advance - interest owed on notes payable - depreciation of equipment - supplies used during the period

- utilities to be paid in later accounting period - interested owed on notes payable

_____ 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 SE

interest; expense

the adjusting entry for supplies used during the period requires a _____ to Supplies and a _____ to Supplies Expense

credit; debit

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

adjustments made to expense accounts at the end of the accounting period adhere to the _____ recognition (matching) principle

expense

when making deferral adjustments to record the amount used during the period for items such as Prepaid Insurance or Supplies, the debit will _____ a(n) _____ account

increase; expense

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; credit

during the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account to be _____

debited

balance sheet accounts, such as Supplies or Prepaid rent, _____ as a result of deferral adjustments

decrease

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

decrease

what is the purpose of the depreciation adjustment for long-lived assets?

depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company

adjusting entries are made at the _____ of the accounting period, while daily transactions are made throughout the accounting period

end

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

increased

on November 30, a company borrowed $1,000 by issuing a 1-year note with interest and principal due at the end of the 1-year period. the interest on the note should be expensed _____

over the months the note is unpaid

net income (or loss) is recorded in the retained earnings account when _____ and _____ accounts are closed and transferred into retained earnings

revenue; expense

closing entries move the balances from the _____ accounts into the Retained Earnings account

temporary

which of the following statements most accurately describes the purposes of the closing entries?

to establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

after the adjustments have been completed, the adjusted balance in Income Tax Expense account represents _____

total income tax that has been paid and accrued during the period

what are the effects on the accounting equation from the adjustment for salaries and wages incurred, but not yet paid, during the accounting period?

total liabilities will increase and stockholders' equity will decrease

why is it necessary to make adjustments to revenue accounts at the end of the accounting period?

- Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period - Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a revenue

what is the effect of the December 31 adjusting entry to record $400 of revenue for which the seller has performed for its customers but not yet collected?

Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400

which of the following account balances will typically be increased as a result of adjusting entries? - cash - supplies - deferred revenue - interest payable - prepaid rent - supplies expense

- interest payable - supplies expense

match each financial statement line item with the appropriate description - supplies expense - supplies - accounts payable

- supplies expense: amount used and reported on the income statement - supplies: amount remaining and reported on the balance sheet - AP: amount owed for supplies purchased on account

at the end of the accounting period, adjusting entries are required. place the steps in the adjustment process in the correct order. - prepare financial statements - prepare a post-closing trial balance - record closing journal entries and post to the accounts - prepare an adjusted trial balance to check the equality of the debits and credits - use the unadjusted trial balance to determine the accounts requiring adjustment - record and post adjusting entries

1. use the unadjusted trial balance to determine the accounts requiring adjustment 2. record and post adjusting entries 3. prepare an adjusted trial balance to check the equality of the debits and credits 4. prepare financial statements 5. record closing journal entries and post to the accounts 6. prepare a post-closing trial balance

which of the following adjusting entries are recorded with a debit to an expense and a credit to a liability?

accruing for services received that have not yet been paid

why is the Deferred Revenue account reduced during the adjustment process?

as the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account

the seller's adjusting entry to record the revenue earned by fulfilling its obligation to its buyers which had been collected in advance requires a _____ to Deferred Revenue and a _____ to Sales Revenue

debit; credit

when should supplies be recorded as an expense?

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

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

after the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the _____

amount of the prepayment that remains towards future rental periods

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

the adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to _____

Interest Expense and credit to Interest Payable

Sonic Gateway purchased $1,000 of app software that is estimated to have 4 years of usefulness. the adjusting entry to record the amortization includes a debit to _____ and a credit to _____

Amortization Expense; Accumulated Amortization

which of the following transactions constitute an accrual adjustment involving an expense account? - wages incurred but not yet paid to employees as of the end of the accounting period - 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 - supplies that were used during the month

- 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

place the steps in the adjustment process in order - record the adjusting entry in the journal - analyze the accounts to determine the amount of the adjustment - summarize the adjusting entries in the accounts

1. analyze the accounts to determine the amount of the adjustment 2. record the adjusting entry in the journal 3. summarize the adjusting entries in the accounts

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

if an asset account such as Equipment has a normal debit balance, the associated contra-account should have a normal _____ balance

credit

as of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not yet 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.

Expense; Payable

the adjusting entry to record the amount of interest from lending money to others that will be collected later is a(n) _____ adjustment and will cause an increase in _____

accrual; an asset and revenue

the adjusted trial balance _____

will be used to determine the asset and liability balances on the balance sheet