ACC 210 Ch3 Practice Questions

Steps in the Adjustment Process

1. Using the unadjusted trial balance, determine the accounts requiring adjustment 2. Record the adjusting entries in the journal 3. Post the adjusting journal entries to the T-accounts 4. Prepare an adjusted trial balance to check the quality of the debits and credits

Paid

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

Expenses

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.

October

At the end of October, Pizza Company sold pumpkin spice pizzas for Halloween parties on account. The customers have 30 days to pay for the pizzas. In which month should Pizza Company record the revenue under accrual accounting?

Statement of Stockholders' Equity Equation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

the most liquid asset

Cash typically is the first current asset reported on the balance sheet because it is:

Prepaid Expenses, Assets

Costs of assets acquired in one period that will be recorded as expenses in a future period are referred to as ________ and are initially recorded as _______.

Dividends

Credit matches with what account as part of the closing process?

Retained Earnings

Debit matches with what account as part of the closing process?

Liability

Deferred revenue is a(n) what?

Cost

Depreciation is an allocation of the _______ of buildings, vehicles, and equipment to expense over time as they are used.

Current Liabilities

Liabilities that will be due within the next year

May

Morris Les, Inc. received and paid a %500 electric bill in June for services received in May. In what month should Morris Lest record the expense?

$10,000

On December 30, Superior Strategies, Inc. collected $10,000 from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal:

Accrual-basis

Out of Accrual and Cash based accounting, which is/are permitted under current U.S. GAAP?

Long-term

Property, plant, and equipment and intangible assets are typically classified as ______ assets.

Cash

Reporting revenues only when cash is recieved and expenses only when cash is paid is called the _____-basis of accounting.

Accrual

Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as _______-basis accounting

Asset

Supplies that are not used immediately are recorded as a(n) ________ when purchased.

Accrual Basis Accounting

The accounting basis that helps measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners

Balance sheets, statement of stockholders' equity, and income statement

The adjusted trial balance typically is used to prepare what financial statements?

when costs are recognized as expenses in the income statement

The matching principle dictates

Adjusting

To complete the measurement process, companies need to update balances of assets, liabilities, revenues, and expenses for _________ entries.

Collecting cash from customers, paying cash to suppliers, and selling goods & services

What activities are part of the operating cycle?

any liabilities due within a year

What liability account would appear first on a company's balance sheet?

Deferred Revenue

Which current liability does not involve the future payment of cash?

Cash Basis Accounting

not part of generally accepting accounting principle; records revenues when collected and expenses when paid; violates both the revenue recognition and matching principles

Revenue

price earned from selling goods or services to customers

Revenue Recognition Principle

revenue is recorded in the period in which goods and services are provided to customers

Primary Components of Net Income

revenues and expenses

The Order these Accounts appear on a Balance Sheet

1. cash 2. acounts recieveable 3. prepaid expenseS: supplies/prepaid rent 4. long term assets

Assets and Liabilities

A classified balance sheet shows subtotals for current _________ and current _________.

the company's operationg cycle is longer than one year

A company may properly classify an asset that provides benefits for 15 months as a current asset if:

Income Statement

A financial statement that reports a company's revenues and expenses; resulting net income or net loss for a specific period of time. (reports revenue minus expenses)

Balance Sheet

A financial statement that reports assets, liabilities, and owner's/stockholders' equity on a specific date.

Current Liabilities

Accounts payable, deferred revenue, and salaries payable

General Ledger

Adjusting entries are posted to ________ _________accounts to update their balances

Credit to a liability, and debit to an expense

An adjusting entry for accrued expenses involves:

if current assets are large enough to pay current liabilities

An advantage of a classified balance sheet is that it is easy to see what?

Liquidity

An asset that can be quickly be turned into cash has the characteristic of:

Goods or services are provided to customers

Consistant with the revenue recognition principle, revenue should be recognized when?

In the period when the related revenue is recognized

Consistent with accrual-basis accounting, expenses should be recognized when?

December 31

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was recieved on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

Accrual adjustments can increase liabilities and increase expenses

How do accrual adjustments affect liabilities and expenses?

(1) for transactions that do not involve revenue or expense activities and (2) for transactions that result in revenues or expenses being recorded at the same time as the cash flow.

Identify all transactions that do not require adjusting entries

Debit a Liability Account, and Credit a Revenue Account

If Andy records an adjusting entry for deferred revenue, what should he do?

The company has $1,400 in supplies remaining at the end of the period.

If a company determines that it has $1,400 of supplies on hand at the end of the period, what statement can be made?

expense

If an adjusting entry's credit is to a liability account, then the debit must be to ________.

Prepaid expense or liability

If an adjusting entry's debit is to an expense account, then the credit must be to what?

$1,000 of revenue should be recorded in May

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 is true assuming accrual accounting?

a liability is increasing since cash will be paid in the future due to the expense incurred

In an accrual adjustment for expenses incurred but not yet paid ________.

Liability, Revenue

The adjusting entry for a deferred revenue includes a debit to a(n) ______ account and a credit to a(n) _______ account.

Expenses incurred, not yet paid; as well as goods and services provided, not yet collected

What adjustments would be refered to as "accruals"?

Net income, Revenues, and Expenses

What appears as line items in an income statement?

Sales revenue and Salaries expense

What items appear in an income statement?

Interest

the cost of borrowing money