Accounting CH 3/4 study cards

TRUE OR FALSE, Prior to adjustment for unearned revenues, liabilities are understated and revenues are overstated.

FALSE

The revenue recognition principle dictates that companies recognize revenue in the accounting period in which service is performed. The revenue recognition principle dictates that companies recognize revenue in the accounting period before the service is performed.

FALSE

Accumulated Depreciation is an asset account.

FALSE, it is an contra asset account

On the balance sheet, companies usually list current assets in the order of largest to smallest.

False

Generally, an accounting period less than one year is referred to as an interim period. Which of the following time periods would not be referred to as an interim period?

ANNUALY

A worksheet is a device that eliminates the need to prepare financial statements.

false

Companies journalize the adjustments after they complete the worksheet but before preparing the financial statements.

false

Correcting entries are only made at the end of an accounting period.

false

Going concern is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next.

false

Prior to adjustment for prepaid expenses, assets are understated and expenses are overstated.

false

The Owner's Drawings account is closed through the Income Summary account.

false

Current liabilities

are obligations that the company expects to pay within the coming year or the operating cycle, whichever is longer.

A reversing entry

is the exact opposite of an adjusting entry made in a previous period.

Correcting entries

may involve any combination of accounts in need of correction.

A post-closing trial balance will contain only

permanent accounts.

Which of the following steps in the accounting cycle may be performed more frequently than annually?

prepare a trial balance

Which one of the following is an optional step in the accounting cycle of a business enterprise?

prepare a work sheet

All of the following are required steps in the accounting cycle except

preparing a worksheet.

The purpose of the post-closing trial balance is to

prove the equality of the balance sheet account balances that are carried forward into the next accounting period.

If cash received for future services is initially recorded in revenue accounts and the company has not yet performed all of the required services at the end of the accounting period, then failure to make an adjusting entry will cause

revenues to be overstated.

Use of reversing entries

simplifies the recording of subsequent transactions.

All of the following are property, plant, and equipment except

supplies

Closing entries are necessary for

temporary accounts

The time period assumption states that

the economic life of a business can be divided into artificial time periods.

If a company initially records the purchase of supplies to the Supplies Expense account, the amount of the adjusting entry made at the end of an accounting period will be equal to

the supplies on hand at the end of the period.

A worksheet is not a journal, and it cannot be used as a basis for posting to the ledger accounts.

true

Companies can prepare financial statements directly from an adjusted trial balance.

true

Current liabilities are obligations that are reasonably expected to be paid from existing current assets or through the creation of other current liabilities.

true

In closing the books, all temporary accounts are closed.

true

The post-closing trial balance will contain only permanent accounts.

true

The use of alternative adjusting entries does not apply to accrued revenues and accrued expenses.

true

Use of reversing entries is not a required step in the accounting cycle.

true

The revenue recognition principle dictates that revenue is recognized when services are performed. The revenue recognition principle dictates that revenue should be recognized in the accounting records

when services are performed.

Which of the following errors will not cause a trial balance to be out of balance?

A credit to Accounts Receivable was posted as a credit to Cash.

The expense recognition principle states expenses incurred to generate revenue should be recorded in the period the revenue is generated. The expense recognition principle matches

Revenue with expense

A company must make adjusting entries every time it prepares financial statements

TRUE

Accountants divide the economic life of a business into artificial time periods because of the time period assumption.

TRUE

An adjusting entry for accrued expenses increases an expense and also increases a liability account.

TRUE

Cathy Cline, an employee of Merlin Company, will not receive her paycheck until April 2. Based on services performed from March 16 to March 31, her salary was $900. The adjusting entry for Merlin Company on March 31 includes

a debit to Salaries and Wages Expense for $900.

The adjusted trial balance is prepared

after the adjusting entries are prepared and posted to the ledger.

If a resource has been consumed but a bill has not been received at the end of the accounting period,

an adjusting entry should be made recognizing the expense.

An adjusting entry always affects

an income statement account and a balance sheet account.

On September 23, Reese Company received a $350 check from Mike Moluf for services to be performed in the future. The bookkeeper for Reese Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should

debit Accounts Receivable $350 and credit Unearned Service Revenue $350.