The Accounting Cycle: Accruals and Deferrals Quiz

On November 18, the company received $24,000 for services to be performed over the following three months. Cash was debited for $24,000 and Unearned Services Revenue was credited for $24,000. None of the services were provided in November. One-third of the services were completed by December 31. The adjusting entry for December 31 would include which of the following? A) a debit to Unearned Services Revenue of $8,000. B) a credit to Services Revenue of $16,000. C) a credit to Services Revenue of $8,000. D) a debit to Services Revenue of $16,000. This is the correct answer. E) A and C.

E- The adjusting entry would be: a debit to Unearned Services Revenue $8,000 (24,000 x 1/3) and a credit to Services Revenue for $8,000

When adjusting for revenue that has accrued but has not been recorded, which of the following will occur? A) A revenue account is increased and an asset account is decreased. B) A revenue account is increased and an expense account is increased. C) A revenue account is increased and a liability account is decreased. D) A revenue account is increased and a liability account is increased. This is the correct answer. E) None of the above will occur.

E- When adjusting for accrued revenue, such as interest earned, an appropriate asset account (Interest Receivable) is debited and an appropriate revenue account (Interest Earned) is credited

When adjusting a prepaid expense account, which of the following should occur? This is the correct answer. A) A portion of an asset is recognized as an expense. B) A portion of an asset is recognized as revenue. C) A portion of an asset is recognized as a liability. D) A portion of an asset is recognized as another asset. E) None of the above will occur.

A- When adjusting a prepaid expense, such as prepaid insurance, the required adjusting entry recognizes and transfers a portion of the prepaid expense to an appropriate expense account, reducing the balance of the prepaid expense account

When adjusting for an unpaid expense that has been incurred but not recorded, which of the following occur? This is the correct answer. A) An expense is increased and a liability is increased. B) An expense is increased and an asset is decreased. C) An expense is increased and a liability is decreased. D) An expense is increased and an asset is increased. E) None of the above will occur.

A- When adjusting for an unpaid expense, such as accrued wages, an appropriate expense account (Wages Expense) is debited and an appropriate liability account (Wages Payable) is recorded

Every adjusting entry involves the recognition of either revenue or expense. Which of the following is also true? A) There also must be a corresponding change in owners' equity. This is the correct answer. B) There also must be a corresponding change in either assets or liabilities. C) There also must be a corresponding change in the cash account. D) A and B E) None of the above

B- Every adjusting entry involves the recognition of either revenue or expense, and there must be a corresponding change in either assets or liabilities

When adjusting an unearned revenue account, which of the following should occur? A) A portion of a liability is recognized as an expense. This is the correct answer. B) A portion of a liability is recognized as revenue. C) A portion of a revenue account is recognized as a liability. D) A portion of a liability is recognized as another liability. E) None of the above will occur.

B- Feedback: When adjusting an unearned revenue account, such as unearned service fees, the required adjusting entry transfers the earned portion of the unearned revenue account to an appropriate revenue account, reducing the balance of the unearned revenue account (liability)

After the end-of-period adjusting entries are recorded and posted, the next step in the end-of-period procedures is which of the following? A) Recording business transactions of the subsequent period This is the correct answer. B) Preparing an adjusted trial balance C) Preparing financial statements D) Determining which adjusting entries to erase to reduce the income tax burden E) None of the above

B- The next step is the preparation of an adjusted trial balance to prove the equality of debits and credits before continuing with end-of-period procedures

True or False: Accruing uncollected revenue involves an adjustment to a liability account.

False- Accruing uncollected revenue involves adjusting a receivable account and a revenue account

True or False: For most companies, adjusting entries are made on a yearly basis.

False- For most companies, adjusting entries are made on a monthly basis. Monthly adjustments provide a more accurate presentation of interim (monthly) statements.

True or False: It is unacceptable to record as revenue a payment received by a customer for services to be performed in a subsequent accounting period.

False- It is acceptable if the unearned portion is transferred to an appropriate unearned revenue (liability) account at the end of the accounting period

True or False: Most adjusting entries involve the cash account.

False- Rarely, if ever, do adjusting entries involve cash

True or False: For every accrued expense there will be a corresponding change in accrued revenue.

False- Recording an accrued expense requires a corresponding change in an accrued liability. Recording accrued revenue requires a corresponding change in an asset account.

True or False: The accounting principle of realization is the authority for recording adjusting entries for accrued expenses.

False- The matching principle is the accounting principle of offsetting revenue with the expenses incurred in producing that revenue

True or False: To accrue expenses is to record the delay in the recognition of expenses until after they have been paid.

False- To accrue expenses is to record them in the time period in which they provided a benefit to the firm even though they will not be paid until a subsequent time period

True or False: Every adjusting entry for an accrual or a deferral will have an effect on either revenues or expenses of the time period.

True- Accruals involve recognizing revenues or expense before they are received or paid. Deferrals involve delaying the recognition of revenues or expenses even though they have been received or paid

True or False: A schedule indicating the balances in ledger accounts after end-of-period adjusting entries have been posted is called an adjusted trial balance.

True- An adjusted trial balance is a schedule indicating the balances in ledger accounts after end-of-period adjusting entries have been posted. The amounts shown in the adjusted trial balance are carried directly into financial statements

True or False: Adjusting entries may involve recording revenues before cash is received.

True- For example, accruing interest revenue on a note receivable will assign the interest to the current time period even though it will be collected in a subsequent time period

True or False: Adjusting entries may involve recording expenses before they are due to be paid.

True- For example, accruing unpaid wages at the end of the accounting period assigns the wages to current time period even though they will be paid in the subsequent time period.

True or False: To accrue means to grow or accumulate over time.

True- For example, interest expense being accrued (accumulated) over the term of a note payable through a periodic adjusting entry that debits Interest Expense and credits Interest Payable.

True or False: A prepaid expense is an asset account representing advance payment of an expense of future accounting periods.

True- Prepaid expenses are assets representing advance payment of the expenses of future accounting periods. As time passes, adjusting entries are made to transfer the related costs from the asset account to an expense account

True or False: The realization principle is the rationale for recording services paid in advance of performing the services as a liability (unearned revenue).

True- The realization principle requires that revenue be recognized in the period in which it is earned

True or False: The receipt of payment for services in advance of performing those services is treated as deferred revenue.

True- Unearned revenue (deferred revenue) is an obligation to deliver goods or render services in the future, stemming from the receipt of advance payment