Accounting Chapter 3
record depreciation for the month on buildings.
accrued expense
The beginning and ending balances of retained earnings for the year were $30,000 and $41,000, respectively. If yearly dividends totaled $3,000, what was the net income or net loss for the year? a. $8,000 net loss b. $14,000 net income c. $2,000 net income d. $8,000 net income
$14,000 net income
Kelly Corporation received an advanced payment of $30,000 in 2018 from Rufus Company for consulting services. Kelly performed half of the consulting in 2018 and the remainder in 2019. Kelly reports using the accrual basis of accounting. How much revenue from this consulting project will Kelly report in 2018? a. $20,000 b. $10,000 c. $0 d. $15,000
$15,000
Tom Cole was reviewing his business activities at the end of the year (2022) and was analyzing his financial statements. At the beginning of the year his assets were $500,000 and liabilities were $150,000. During 2022 he made an additional investment into the company of $50,000. The net income for the year was $220,000 and dividends of $120,000 were paid. Determine the ending Stockholder's Equity as of December 31, 2022.
$500,000
The ending balance of the Accounts Receivable account was $7,800. Services billed to customers for the period were $21,500, and collections on account from customers were $23,600. What was the beginning balance of Accounts Receivable? a. $33,500 b. $14,100 c. $9,900 d. $33,100
$9,900
the retained earnings account is used to close the temporary revenue, expense and dividend account. it only occurs at the end of the accounting period and consist of 3 steps:
1. close the revenue accounts 2. close the expense accounts 3. close the dividends accounts
the selling company needs to apply what 5 steps to determine the proper revenue? 1. identify the __________ with a customer 2. identify the _____________ _________ in a contract 3. determine the _______ price 4. allocate the transaction price to the _________________ _________ in the contract 5. recognize revenue at the point the ____________ __________ have been satisfied.
1. identify the contract with a customer 2. identify the performance obligations in a contract 3. determine the transaction price 4. allocate the transaction price to the performance obligations in a contract 5. recognize revenue at the point the performance obligations have been satisfied
Rules of Adjusting Entries: 1. never use ___________ as an account title 2. one account will be from the income statement (revenue or expense) and the other account will be from the balance sheet (asset or liability)
1. never use cash as an account title 2. one account will be from the income statement and the other will be from the balance sheet
A company had the following transactions during September, the first month of its operations: · Issued 20,000 shares of common stock in exchange for $400,000. · Purchased equipment for $200,000, using a $100,000 cash down payment and signing a note payable for the balance. · Received $1,000 from a customer for services to be performed in November. · Made a $30,000 payment on the note payable from the purchase of the land. · Total monthly sales: Cash sales $50,000 Credit Sales (Acct. Receivable): $18,000 · Purchased supplies on credit for $23,000. · Collected $8,000 from customers on account. · Paid $2,500 for September employee wages. · Received a utility bill for $500 which will be paid next month. What is the balance in the Cash account at the end of September?
326,500
A company had the following transactions during September, the first month of its operations: · Issued 20,000 shares of common stock in exchange for $400,000. · Purchased equipment for $200,000, using a $100,000 cash down payment and signing a note payable for the balance. · Received $1,000 from a customer for services to be performed in November. · Made a $30,000 payment on the note payable from the purchase of the land. · Total monthly sales: Cash sales $50,000 Credit Sales (Acct. Receivable): $18,000 · Purchased supplies on credit for $23,000. · Collected $8,000 from customers on account. · Paid $2,500 for September employee wages. · Received a utility bill for $500 which will be paid next month. What is total stockholders' equity at the end of September?
465,000
A company had the following transactions during September, the first month of its operations: · Issued 20,000 shares of common stock in exchange for $400,000. · Purchased equipment for $200,000, using a $100,000 cash down payment and signing a note payable for the balance. · Received $1,000 from a customer for services to be performed in November. · Made a $30,000 payment on the note payable from the purchase of the land. · Total monthly sales: Cash sales $50,000 Credit Sales (Acct. Receivable): $18,000 · Purchased supplies on credit for $23,000. · Collected $8,000 from customers on account. · Paid $2,500 for September employee wages. · Received a utility bill for $500 which will be paid next month. What is net income for the month of September?
65,000
unadjusted trial balance
A trial balance prepared before adjusting entries are posted.
examples of accrued revenues
Accounts Receivable, Interest Receivable, Rent Receivable
What four different types of adjustments are frequently necessary at the close of an accounting period?
Allocating assets, allocating revenues, accruing expenses, and accruing revenues.
At the beginning of January, the first month of the accounting year, the Supplies account had a debit balance of $825. During January, purchases of $260 of supplies were debited to the account. Although only $530 of supplies was on hand at the end of January, the necessary adjusting entry was omitted. How will the omission affect (a) the income statement for January and (b) the balance sheet prepared as of January 31?
Both supplies and SHE are overstated by $555 on the January 31 Balance sheet.
Mike's Bikes prepaid one year of its $500 per month building rent. At the end of one month: Debit ___________, Credit __________
Debit Rent expense for $500, credit prepaid rent for $500
Mike's Bikes determined the end of the year merchandise inventory to be $500. This means that amount of the $3000 purchase that has not been used up, to generate December sales. Debit ___________ for ________, Credit __________ for _____.
Debit cost of goods sold for $2500, credit
Record $400 of revenue earned that was previously recorded as unearned revenue due to an advance payment from a customer . Debit _________ in the amount of _________, Credit _______
Debit unearned revenue for $400, credit service revenue for $400
Financial Affects if NOT adjusted: If a prepaid expense is not adjusted, on the balance sheet, the asset will be ___________ and the equity will be _____________. On the income statement, the ____________ will be _____________.
If a prepaid expense is not adjusted, on the balance sheet, the asset will be overstated and the equity will be overstated. On the income statement, the expense will be understated.
Financial Affects if NOT adjusted: If Accrued Expenses are not adjusted, on the balance sheet the __________ will be ___________ and the ____________ will be ____________. On the income statement, the ____________ will be ____________.
If accrued expenses are not adjusted, on the balance sheet the liability will be understated and equity will be overstated. On the income statement the expense will be understated
Why is the adjusting step of the accounting cycle necessary?
Many of the transactions in the accounting records through the first 2 steps of the accounting cycle affect the net income of more than 1 period. Therefore, adjustments to the account balances are ordinarily necessary at the end of each accounting period to record the proper amount of revenue and to match expenses with revenue. This process is also intended to achieve a more accurate picture of a company's financial position by adjusting balance sheet amounts to show unexpired costs, up to date amounts of obligations, and so on.
The adjusted trial balance is prepared after all end of period adjustments have been recorded in the general journal and posted to the general ledger. The sum of _______ balance must be equal to the sum of _______ balances
The adjusted trial balance is prepared after all end of period adjustments have been recorded in the general journal and posted to the general ledger.
The income statement presents a company's __________ and __________ and shows whether the company ________ at a profit or a _________.
The income statement presents a company's revenues and expenses and shows whether the company operated at a profit or a loss.
What is a contra account? What contra account is used in reporting the book value of a depreciable asset?
a contra account is an account that is related to, and deducted from, another account when financial statements are prepared or when books are computed. Accumulated depreciation is deducted from the cost of a depreciable asset in computing and portraying the asset's book value.
a deferral will ___________ a balance sheet account and ________ an income statement account
a deferral will decrease a balance sheet account and increase an income statement account
Define permanent account.
a permanent account is an account that is presented in the balance sheet. It's distinguishing feature is that any balance in the account at the end of an accounting period is carried forward to the next period.
earnings quality: a phrase used to characterize the degree to which a company's _________ ________ reflect its true financial_____________ and ____________.
a phrase used to characterize the degree to which a company's financial statements reflect its true financial condition and performance.
What is the purpose of a post-closing trial balance?
a post closing trial balance ensures that the equality of debits and credits has been maintained throughout the adjusting and closing procedures, and that the general ledger is in balance to start the next accounting period.
A post-closing trial balance is prepared only once
a post-closing trial balance is prepared only once the temporary accounts have been closed to retained earnings
define temporary accounts (AKA nominal accounts)
a temporary account is an account used to accumulate information for a specific accounting period. at the end of the period, the account's balance is transferred to a permanent stockholder's equity account. all revenue, expense, and dividend accounts are temporary accounts.
accrued expenses and accrued revenues are called
accruals
The publisher of International View, a monthly magazine, received two-year subscriptions totaling $12,240 on January 1. (a) What entry should be made to record the receipt of the $12,240? (b) What entry should be made at the end of January before financial statements are prepared for the month?
a) debit cash, credit prepaid subscriptions b) debit prepaid subscriptions, credit subscriptions revenue
Which group of accounts is closed at the end of the accounting year? Why?
accounts closed at year end. they consist of the income statement accounts, income summary accounts, and dividend accounts. closing of the temporary accounts to a zero balance allows to be ready to start accumulating data for the next accounting period
permanent accounts
accounts consisting of the accounts presented on the balance sheet including assets, liabilities, and stockholders' equity accounts
accrued expenses and accrued revenues are known as
accruals
an accrued revenue is also referred to as
accrued asset
recorded depreciation for the month on buildings is considered an _______________ accounting adjustment.
accrued expenses
an accrued expense is also referred to as
accrued liability
record rental income for the month on equipment rented on a long term rental agreement. payment will be received next month.
accrued revenues
recorded rental income for the month on equipment rented on a long-term rental agreement. payment will be received next month. this is considered a ________________ accounting adjustment.
accrued revenues
An adjusting entry to record utilities used during a month for which no bill has yet been received is an example of a. Allocating assets to expense b. Allocating revenues received in advance to revenue c. Accruing expenses d. Accruing revenues
accruing expenses
step 3 of the accounting cycle
adjust, journalize adjusting entries and prepare adjusting trial balance
adjusting entries affects one or more ______________ ______ accounts (an asset or liability account) and one or more _________ _________accounts (a revenue or expense account)
adjusting entries affects one or more balance sheet accounts (an asset or liability account) and one or more income statement accounts (a revenue or expense account)
after closing entries are recorded in the _________ ________ and posted to the general __________, all _________ accounts have a balance of zero. this is when the post closing trial balance is prepared.
after closing entries are recorded in the general journal and posted to the general ledger, all temporary accounts have a balance of zero. this is when the post closing trial balance is prepared.
prepaid expenses
allocating previously recorded assets to expenses
prepaid expenses
allocating previously recorded assets to expenses, to reflect the proper expenses incurred during that period
unearned revenue
allocating previously recorded unearned revenue to earned revenue
unearned revenues
allocating previously recorded unearned revenue to revenue
Steps in the Accounting Cycle Listed below, out of order, are the steps in an accounting cycle. List them in the correct order. 1. Prepare the unadjusted trial balance. 2. Post journal entries to general ledger accounts. 3. Analyze transactions from source documents. 4. Journalize and post adjusting entries. 5. Prepare the financial statements. 6. Record transactions in a journal. 7. Prepare the post-closing trial balance. 8. Prepare the adjusted trial balance. 9. Journalize and post closing entries.
analyze transactions from source documents, record transactions in a journal, post journal entries to the general ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries, prepare adjusted trial balance, prepare financial statements, journalize and post closing entries, prepare post closing trial balance
step 1 of the accounting cycle
analyze, analyze transactions from source documents
the distinguishing feature of a permanent account is that
any balance at the end at the end of the accounting period is carried forward to the following accounting period
what are the financial effects if not adjusted for a prepaid expense:
asset overstated, equity overstated, expense understated
what are the financial effects if not adjusted for accrued revenues:
asset understated, equity understated, revenue understated
permanent accounts include
assets, liabilities, common stock, retained earnings
The adjusted trial balance section of Menlo Company's worksheet shows a $1,500 debit balance in utility expense. At the end of the accounting period the accounting manager accrues an additional $300 of utility expense for the last week of the period. This will result in the following amounts appearing on Menlo's worksheet for utilities expense: a. $300 debit adjustment; $1,800 debit adjusted trial balance; $1,800 debit balance sheet b. $300 debit adjustment; $1,800 debit adjusted trial balance; $1,800 debit income statement c. $300 credit adjustment; $1,200 debit adjusted trial balance; $1,800 debit income statement d. $300 credit adjustment; $1,800 debit adjusted trial balance; $1,800 debit income statement
b. $300 debit adjustment; $1,800 debit adjusted trial balance; $1,800 debit income statement
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: Accounts Payable
balance sheet
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: Cash
balance sheet
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: retained earnings
balance sheet
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: unearned revenue
balance sheet
expenses incurred to generate revenues are required to be recognized in the same period. thus, _____________________ ____________ are recognized with ___________ ___________so that they are reported on the same income statement.
business expenses are recognized with sales revenue so that they are reported on the same income statement.
give examples of permanent accounts
cash, accounts receivable, notes payable, and accounts payable
Which of the following is NOT an example of a closing entry? a. Close each revenue account to the Retained Earnings account b. Close each expense account to the Retained Earnings account c. Close the Dividends account to the Retained Earnings account d. Close Unearned Revenue to Retained Earnings
close unearned revenue to retained earnings
the process of transferring the balances in temporary accounts to retained earnings is referred to as the
closing process or closing procedures
what are examples of deferrals that are prepaid expenses?
expiration of prepaid rent, insurance, advertising, depreciation of buildings and equipments
Which of the following transactions does not affect total assets, total liabilities, or total stockholders' equity on the balance sheet? a. Purchasing $500 supplies on account b. Paying a $3,000 note payable c. Collecting $4,000 from customers on account d. Payment of an $800 dividend
collecting $4,000 from customers on account
the permanent stockholder's equity accounts in a corporation are
common stock and retained earnings
accumulated depreciation is considered a _________-______ account
contra-asset
straight-line depreciation
cost of the asset / useful life in years
Close the expense accounts. ____________ each expense account for an amount equal to its current debit balance, and __________ the Retained Earnings account for the total amount of expenses.
credit each expense account, debit the retained earnings account
to close the expense accounts we
credit each of those accounts and debit the sum of those accounts to retained earnings
the balance in prepaid rent represents the amount paid on january 1, for a 2 year lease on the studio. how do we adjust this account?
debit
to increase an expense
debit
The Bayou Company earns interest amounting to $425 per month on its investments. The company receives the interest every six months, on December 31 and June 30. Monthly financial statements are prepared. What adjusting entry should be made on January 31?
debit $425 to interest receivable, credit $425 to interest income
WebWork entered into a contract with a local company on December 2 that requires a December 31 adjusting entry to accrue revenue. Under the one-year contract, WebWork agreed to maintain that company's website in exchange for a monthly fee of $150, payable at the end of every three months. By December 31, WebWork has earned one month of fee revenue, and the following adjusting entry is made: Debit __________ in the amount of ______, and credit __________ in the amount of _________
debit accounts receivable for $150, credit revenue for $150
Sawyer Enterprises sells $600 worth of merchandise to Apollo Inc. with terms of Cash due in 30 days. Debit ____________, Credit _________
debit accounts receivable for $600, credit sales revenue
Safeway purchases large quantities of krispy kreme donuts for resale in its grocery stores and agrees to pay 30 days after the donuts are received. Even though krispy kreme has not received payment for the delivered donuts, the company has satisfied their performance obligation, and consequently krispy kreme will recognize the sales revenue prior to cash collection. Debit ____________, Credit _________
debit accounts receivable, credit revenue
to close, you ____________ all of the revenue accounts and ___________ all of the expense accounts to close to income summary
debit all of the revenue accounts and credit all expenses
how do you adjust accrued revenue?
debit asset, credit revenue
Apollo Enterprises prepays Sawyer Enterprises $700 for merchandise that will be delivered in 30 days. Debit ___________, Credit __________
debit cash for $700, credit unearned revenue for $700
when cash is collected after performing services on account, debit ________________, credit ____________
debit cash, credit accounts receivable
Krispy Kreme receives cash for selling donuts. Debit ____________, credit ________
debit cash, credit sales revenue
Assume that albertsons prepays for its donut purchases by giving Krispy Kreme a cash payment prior to receiving any donuts. Even though krispy kreme has received cash, it has not delivered the donuts and thus will defer the recognition of sales revenue until it does. Debit ______________, credit _________-
debit cash, credit unearned revenue
On December 5, WebWork signed a four-month contract to perform work for $750 per month, with the entire contract price of $3,000 received in advance. The first journal entry for the month of December is Debit _______________, Credit ___________
debit cash, credit unearned revenue
Mike's Bikes purchased equipment for $15,000. The equipment is expected to have a useful life of 5 years, at which time it will be completely worthless. Monthly depreciation expense is computed as 150000/60 months. For the month of December: Debit ________ for the amount of _________, Credit _________ for the amount of _________.
debit depreciation expense for $250, credit accumulated depreciation for $250.
Record a depreciation expense adjustment of $700 on the company's buildings. Debit __________ in the amount of _______, Credit ____________ in the amount of __________
debit depreciation expense for $700, credit accumulated depreciation for $700
the equipment purchased on january 1 has an estimated life of 10 years. how do we adjust this account?
debit depreciation expense, credit accumulated depreciation
Adjusting Entry for Depreciation: Cowley Company just completed its first year of operations. The December 31 equipment account has a balance of $20,000. There is no balance in the Accumulated Depreciation—Equipment account or in the Depreciation Expense account. The accountant estimates the yearly equipment depreciation to be $5,000. Prepare the required adjusting entry to record the yearly depreciation for equipment. Debit ____________, Credit ___________
debit depreciation expense, credit accumulated depreciation for supplies
Close the revenue accounts. ________ each revenue account for an amount equal to its current credit balance, and _________ the Retained Earnings account for the total amount of revenues.
debit each revenue account, credit the retained earnings account
how do you adjust an accrued expense?
debit expense, credit liability
photography services of 1250 have been rendered, but customers have not yet been billed. the firm uses the account fees receivable to reflect amounts due but not yet billed. how do we adjust this account?
debit fees receivable, credit photography fees earned
On January 1, Prepaid Insurance was debited with the cost of a two-year premium in the amount of $3,744. What adjusting entry should be made on January 31 before the January financial statements are prepared?
debit insurance expense by $156, credit prepaid insurance by $156
Record $500 of accrued interest expense that applies to the company's bank loan. The $500 is part of the company's annual cash interest payment that is due next period. Debit __________ in the amount of __________, credit _________ in the amount of ________.
debit interest expense for $500, credit interest payable for $500th
Prepare adjusting journal entries for Sparky Electronics for the following items: Interest expense of $1,400 for an outstanding note.
debit interest expense, credit interest payable
Webwork signed a note payable for a $36,000 loan with a 10% annual interest rate. For this month's accounting period, Debit ___________, Credit _________
debit interest expense, credit interest payable
Another example of accrued revenue involves a company that has loaned money to another entity on which interest has been earned but that has not yet been collected at the end of the accounting period. Assume WebWork loaned $2,000 to James Corporation on November 1, 2022, with annual interest at the rate of 6 percent. The loan balance, along with interest, is to be repaid one year later. On December 31, 2022, WebWork would make the following adjusting entry: Debit ___________ in the amount of __________, and Credit __________ in the amount of ____________.
debit interest receivable for $20, credit interest income/revenue for $20
Sawyer Enterprises purchases and receives inventory of $400 from its supplier Adamo Co. The terms are cash due in 45 days. Debit __________, Credit __________
debit inventory, credit accounts payable
how do you adjust unearned revenues?
debit liability, credit revenue
to close the income summary to the retained earnings account, you must ___________ the net income
debit net income
Webwork paid 6 months rent in advance for a total of 10,800 dollars. At the end of the month of December, Debit __________ for ___________, Credit __________ for __________.
debit rent expense for $1,800, credit prepaid rent for $1,800
Record $1500 for rent expense. The company previously recorded a $2000 advance payment to the landlord. Debit ___________, Credit __________.
debit rent expense for $1500, credit prepaid asset for $1500
Mike's bikes prepaid one year of its $500 a month building rent. at the end of the accounting period, we will debit ____________ and credit _____________.
debit rent expense, credit prepaid rent
Close the temporary account balances: The Morgan Company has $5,000 worth of dividends. Debit _____________, Credit __________
debit retained earnings, credit dividends
to close the dividends account when making closing entries, what entry must we make?
debit retained earnings, credit dividends
to close the expense accounts when making closing entries, what entry must we make?
debit retained earnings, credit expense accounts
to zero out an expense account, Debit _________, credit __________
debit retained earnings, credit expenses
Close the temporary account balances: The Morgan Company has $22,000 worth of rent expense as of December 31. Debit ___________, Credit __________
debit retained earnings, credit rent expenses
to close the temporary revenue accounts, we
debit revenue and credit the amount to retained earnings
to close the revenue account when making closing entries, what entry must we make?
debit revenue, credit retained earnings
Prepare adjusting journal entries for Sparky Electronics for the following items: a. Salaries for employees in the amount of $2,750 have not been paid. Debit __________ for 2750, Credit __________ for 2750
debit salary expense, credit salary payable
Close the temporary account balances: The Morgan Company has $79,000 worth of sales revenue as of December 31st. Debit _____________, Credit ____________
debit sales revenue, credit retained earnings
to zero out a revenue account, Debit ______________, Credit __________
debit sales revenue, credit retained earnings
Kreme example, assume the company pays $50 cash to acquire baking supplies for its donuts. A cash purchase is not considered to be an expense until Krispy kreme sells the donuts it produces. Thus, we Debit __________ and Credit ________
debit supplies, credit cash
when adjusting a prepaid expense (which is a deferral), how do you debit/credit?
debit the expense, credit the asset
Close the Dividends account. ________ the Retained Earnings account and _________ the Dividends account for an amount equal to the balance in the Dividends account.
debit the retained earnings account and credit the dividends account
once the service or product is provided, revenue is recognized and the required adjusting entry is to debit _________________ _______ and credit ____________ ___________.
debit unearned revenue, credit earned revenue
On December 5, WebWork signed a four-month contract to perform work for $750 per month, with the entire contract price of $3,000 received in advance. At the end of the month when one month revenue is performed, the journal entry is: debit ____________, credit _________
debit unearned revenue, credit fee revenue
once Krispy kreme delivers donuts that were paid for on account, Debit ___________, Credit __________
debit unearned revenue, credit sales revenue
utilities expense for december is estimated to be $750, but the bill will not arrive until january of next year (after the end accounting period). how do we adjust this account?
debit utilities expense, credit utilities payable
WebWork's employee is paid every two weeks at the rate of $810 per week. The employee was paid $1,620 on Friday, December 20. At the close of business on Friday, December 27, the employee has worked one week during December for which wages will not be paid until January. Because the employee's wages are $810 per week, an additional wage expense of $810 must be reflected in WebWork's income statement for December. Debit ___________, Credit
debit wage expense for $810, credit wages payable for $810
Webwork had previously recorded accrued wages for an employee who did not get paid until a later date. They debited wages expense and credited wages payable. To adjust this, Debit _____________, Debit ___________,credit ___________
debit wage expense, debit wages payable, credit cash
Globe Travel Agency pays an employee $600 in wages each Friday for a five-day work week ending on that day. The last Friday of January falls on January 27. What adjusting entry should be made on January 31, the fiscal year-end?
debit wages expense by $240, credit wages payable by $240.
when cash is received before it is earned, the liability account unearned revenue is credited. When the revenue is ultimately earned, the unearned revenue account is ____________and the earned revenue account is ____________.
debited, credited
How would the following transaction affect the accounting equation? Perform services for a customer who had paid in a previous accounting period.
decrease liabilities and increase SHE
adjustments in the first 2 categories, prepaid expenses and unearned revenues, are referred to as
deferrals
prepaid expenses and unearned revenues are known as
deferrals
Deferrals- the company has received or paid cash, but the revenue or expense will be ___________ or ____________ in a _________ accounting period.
deferrals- the company has received or paid cash, but the revenue or expense will be earned or used up in a future accounting period.
prepaid expenses are also known as
deferred expenses
prepaid rent and prepaid insurance are examples of
deferred expenses
gift cards and subscriptions are examples of
deferred revenue
unearned revenue is also called
deferred revenue
Which of the following accounts should not appear in the post-closing trial balance: Cash, Unearned Revenue, Dividends, Depreciation Expense, Utilities Pay- able, Supplies Expense, Retained Earnings?
dividends, depreciation expense, and supplies expense. they are temporary accounts that should have been closed and should not appear in the post closing trial balance.
each adjustment into the general journal affects at least one ___________ ________ account, and at least one ____________ account
each adjustment into the general journal affects at least one balance sheet account and at least one income statement account
what are examples of accrued revenue?
earned but not yet received amounts for service, sales, and interest revenues
every accounting transaction affects at least....
every accounting transaction affects at least 2 accounts
examples of accrued expenses include: incurred but not yet ___________ amounts for wages, interest, and tax expenses
examples of accrued expenses include incurred but not yet paid amounts for wages, interest and tax expenses
examples of accrued revenues include: earned but not yet _____________ amounts for service, sales, and interest revenues
examples of accrued revenues include earned but not yet received amounts for service, sales and interest revenue
examples of prepaid expenses include: ______________ of prepaid rent, insurance, and advertising, depreciation of ______________
examples of prepaid rent include expiration of prepaid rent, insurance and advertising, depreciation of buildings and equipment
examples of unearned revenues include: _____________ of prepayments on customer orders, gift cards, and subscriptions
examples of unearned revenues include recognition of prepayments on customer orders, gift cards, and subscriptions
accrued expenses
expenses incurred but not yet paid in cash or recorded
Answer the following true/false questions, then select the corresponding multiple-choice answer: _____ Every accounting transaction affects both the balance sheet and the income statement. _____ The equality of debits and credits in a trial balance ensures that all journal entries were correctly posted to the accounts.
false, false
how do we find the balance in the retained earnings account?
first find net income, next add the beginning retained earnings, plus net income, less dividends
for a deferral, cash comes ___________.
for a deferral, cash comes first
for accruals, we record revenue or expense when earned or used up, and cash will be received or paid for in a future accounting period.
for accruals, we record revenue or expense when earned or used up, and cash will be received or paid for in a future accounting period.
for an accrual, cash comes ___________.
for an accrual, cash comes later
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: interest income
income statement
Financial Affects if NOT adjusted: If accrued revenues are not adjusted, on the balance sheet the __________ will be ___________ and the __________ will be ___________. On the income statement, the ____________ will be understated.
if accrued revenues are not adjusted, on the balance sheet the assets will be understated and the equity will be understated. On the income statement, the revenue will be understated.
if adjusting entries in the general journal are not properly recorded, revenues and expenses will be
if adjusting entries in the general journal are not properly recorded, revenues and expenses will be understated
Financial Affects if NOT adjusted: if an unearned revenue is not adjusted, on the balance sheet the liability will be ___________ and the and the equity will be __________. On the income statement, the ______________ will be ___________.
if an unearned revenue is not adjusted on the balance sheet the liability will be overstated and the equity will be understated. On the income statement the revenue will be understated.
Identify Financial Statements from Adjusted Trial Balance Accounts Trownel Corp reports the following accounts in its adjusted trial balance. Identify which financial statement each account would appear on: sales
income statement
an accrual adjusting entry ____________ both the balance sheet account and an income statement account
increases
what are examples of accrued expenses?
incurred but not yet paid amounts for wages, interest and tax expenses
Examples of deferred revenue
insurance collected in advance, subscriptions collected in advance, gift certificates
examples of accrued revenues include
interest receivable, rent receivable
examples of accrued expenses
interest, taxes, utilities, salaries
adjusting entries
journal entries to record accounting adjustments
step 5 of accounting cycle: CLOSE
journalize closing entries and prepare adjusted trial balance
what are the financial effects if not adjusted for an unearned revenue:
liability overstated, equity understated, revenue understated
what are the financial effects if not adjusted for accrued expenses:
liability understated, equity overstated, expense understated
adjusted trial balance
lists all the general ledger account balances after the end-of-period adjustments have been posted
an accrued asset creates a
receivable
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. for depreciation
net income overstated, assets overstated
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. for prepaid rent
net income overstated, assets overstated
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. for accrued interest
net income overstated, liabilities understated
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. for accrued wages
net income overstated, liabilities understated
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. For supplies used during october
net income overstated, total assets overstated
determine if the effect on net income and total assets/liabilities if the adjustment is NOT recorded. for unearned revenue now earned
net income understated, liabilities overstated
only _________________ accounts appear on the post closing trial balance
only permanent accounts appear on the post closing trial balance
an accrued expense creates a
payable
permanent or temporary account: cash
permanent
permanent or temporary account: common stock
permanent
permanent or temporary account: inventory
permanent
permanent or temporary account: notes payable
permanent
permanent or temporary account: prepaid expense
permanent
permanent accounts are accounts whose balances _____________ _______ from one accounting period to the next
permanent accounts are accounts whose balances carry over from one accounting period to the next
deferred expense is a
prepaid expense
Record insurance expense at the end of the month for an annual policy that was previously purchased. considered a ________________ accounting adjustment.
prepaid expenses
record insurance expense at the end of the month for an annual policy that was previously purchased.
prepaid expenses
what are the 4 different types of adjustments?
prepaid expenses, unearned revenue, accrued expenses, accrued revenue
what are the 4 types of adjustments?
prepaid expenses, unearned revenue, accrued expenses, accrued revenues
Examples of deferred expenses
prepaid insurance, prepaid rent, supplies
how do you find the amount of accrued interest owed? principal amount of note times the ________________ interest _______ times the time as a fraction of a ________
principal amount of note times the annual interest rate times the time as a fraction of a year
an accrued asset, AKA an accrued revenue, creates a
receivable
what are examples of unearned revenues (which is a deferral)
recognition of prepayments on customer orders, gift cards, and subscriptions
step 2 of the accounting cycle
record, journalize transactions and prepare unadjusted trial balance
the distinguishing characteristic of a deferral is that the adjustment deals with an amount that has previously been ________, or deferred, in a __________ ________ account.
recorded, balance sheet account
accruing revenues is one of the 4 different types of adjustments frequently necessary. provide an example of accruing revenues. (Accruing revenues to reflect revenues earned during the period that are not yet received or recorded)
recording commissions earned by debiting commissions receivable and crediting commissions earned
Which of the following is an example of an adjusting entry? a. Recording the purchase of supplies on account b. Recording depreciation expense on a truck c. Recording the billing of customers for services rendered d. Recording the payment of wages to employees
recording depreciation expense on a truck
accrued expenses
recording operating expenses that have not yet been paid or recorded
accrued revenues
recording revenue that has been earned, but not yet been received or recorded
accrued revenues
recording revenues that have not yet been received
allocating revenues is one of the 4 different types of adjustments frequently necessary. provide an example of allocating revenues. (Allocating revenues received in advance to revenue to reflect revenues earned during the period)
recording service fees earned by debiting unearned service fees and crediting service fees earned.
allocating assets is one of the 4 different types of adjustments frequently necessary. provide an example of allocating an asset. (Allocating an asset to expense to reflect expenses incurred during the period)
recording supplies used by debiting supplies expense and crediting supplies
accruing expenses is one of the 4 different types of adjustments frequently necessary. provide an example of accruing expenses. (Accruing expenses to reflect expenses incurred during the period that are not yet paid for)
recording unpaid wages by debiting wages expense and crediting wages payable.
The Decade Company's adjusted trial balance contains the following balances as of December 31: Retained Earnings $8,500; Dividends $2,000; Sales $22,000; Cost of Goods Sold $8,000; Selling and Administrative Expenses $3,000; Interest Expense $1,500. Prepare an income statement for the year.
remaining net income is 9500
MacKenzie Enterprises includes the following accounts in its general ledger. Explain why each of these accounts may need to be adjusted. a. Rent Payable b. Unearned Revenue c. Prepaid Subscriptions d. Depreciation Expense
rent payable- accrued rent expense that remains unpaid, unearned revenue- revenue is earned and should be transferred to revenue account prepaid subscriptions- subscriptions are satisfied and prepaid amount should be transferred to expense depreciation expense- periodic depreciation should be recorded
step 4 of the accounting cycle
report and prepare financial statements
at the end of the accounting period, temporary account balances are transferred to ____________ __________, which is a permanent stockholders' equity account.
retained earnings
accrued revenue
revenue earned in one fiscal period but not received until a later fiscal period
temporary accounts include
revenue, expense, and dividends
when making closing entries, we must close which accounts?
revenue, expenses, and dividends
Evan Corporation provided consulting services for Kensington Company in 2022. Evan incurred costs of $60,000 associated with the consulting and billed Kensington $130,000. Evan paid $40,000 of its costs in 2022 and the remaining $20,000 in 2023. Evan received $45,000 of its billing in 2022. Kensington paid the remaining $85,000 in 2023. Evan reports on the accrual basis of accounting. How much is Evan's 2022 and 2023 profit related to the Kensington consulting? *HINT... revenue recognition principle*
revenues of 130,000 in 2022, expenses of 60,000 in 2022, profit of 70,000 in 2022.
after closing entries are made, what accounts will have a balance of zero?
revenues, expenses, dividends
what are the 3 temporary accounts
revenues, expenses, dividends
Under the accural basis of accounting, sales revenue is recognized as the amount the seller expects to be ....
sales revenue is recognized as the amount the seller expects to be paid for the transfer of promised goods and services
all revenue, expense, and dividend accounts are __________ accounts
temporary
permanent or temporary account: dividends
temporary
permanent or temporary account: sales revenue
temporary
permanent or temporary account: wage expense
temporary
professional fees earned accounts and and advertising expense accounts are examples of PERMANENT OR TEMPORARY accounts?
temporary
The adjusted trial balance lists all the ____________ ________ account balances after the end-of-period adjustments have been posted.
the adjusted trial balance lists all of the general ledger account balances after the end of period adjustments have been posted
the adjusting entry of a deferral decreases the _______ ________ account and increases the income statement account.
the adjusting entry of a deferral decreases the balance sheet account and increases the an income statement account
the adjusting entry of an accrual _________ the balance sheet account and ________ the income statement account
the adjusting entry of an accrual increases the balance sheet account and increases the income statement account
the balance sheet reports
the balance sheet reports a company's assets, liabilities, and stockholders' equity
the balances in temporary accounts are transferred to a permanent account, __________ ___________.
the balances in temporary accounts are transferred to retained earnings
an adjusted trial balance is to ensure
the general ledger is in balance before the end of the period adjusting process begins
the more conservative a company's estimates are judged to be, the ___________ their earnings quality is often assumed to be.
the more conservative a company's estimates are judged to be, the higher their earnings quality is often assumed to be.
earnings quality
the phrase used to characterize the degree to which a company's financial reflect its true financial condition and performance.
depreciation
the process of allocating the cost of buildings and equipment to the periods benefitting from their usest
closing process/closing procedures
the process of transferring the balances in temporary accounts to retained earnings
the recognition of expense is always matched to the recognition of __________ in the same _________.
the recognition of expense is always matched to the recognition of revenue in the same period
the statement of cash flows reports information regarding a company's cash __________ and cash _______.
the statement of cash flows reports information regarding a company's cash inflows and cash outflows
the statement of stockholders equity reports the transactions and events causing a company's ___________ __________ to increase or decrease during an accounting period.
the statement of stockholders equity reports the transactions and events causing a company's stockholders equity to increase or decrease during an accounting period.
the unique characteristic of an accrual adjusting entry is that the adjustment deals with an amount that has not yet been previously ____________.
the unique characteristic of an accrual adjusting entry is that the adjustment deals with an amount that has not yet been previously recorded.
to close the dividends account, you should ___________ the retained earnings account and _________ the dividends account for an amount equal to the balance in the dividends account.
to close the dividends account, you should debit the retained earnings account and credit the dividends account for an amount equal to the balance in the dividends account
to close the expense account, you should ______________ each expense account for an amount equal to its current debit balance, and ___________ the retained earnings account for the total amount of revenues.
to close the expense account, you should credit each expense account for an amount equal to its current debit balance, and debit the retained earnings account for the total amount of expenses.
to close the revenue account, you should ___________ each revenue account for an amount equal to its current credit balance. Then, ____________ the retained earnings account for the total amount of revenues.
to close the revenue account, you should debit each revenue account for an amount equal to its current credit balance. Then, credit the retained earnings account for the total amount of revenues.
like the recognition of revenue, recognition of expenses can occur prior to, simultaneously with, or after the payment of cash. true or false
true
only balance sheet accounts appear in a post closing trial balance. true or false
true
any balance in a permanent account (assets, liabilities, stockholders equity) is carried over into the next accounting period. true or false
true. any balance in a permanent account is carried over into the next accounting period
every accounting transaction affects the balance sheet. true or false
true. every accounting transaction affects the balance sheet
deferred revenue is a
unearned revenue
record rental income at month-end on amounts that had been received last month.
unearned revenue
Record rental income at month-end on amounts that had been received last month. this is considered a __________________ accounting adjustment
unearned revenues
unique characteristic of an accrual is it deals with an amount that has not yet been
unique characteristic of an accrual is that it deals with an amount that has not yet been previously recorded
temporary accounts
used to gather information for a particular accounting period
examples of accrued expenses include
wages payable, interest payable
when recording depreciation expense, the asset account is not reduced directly. instead, the reduction is recorded in a __________ account called ____________ _____________.
when recording depreciation expense, the asset account is not reduced directly. instead, the reduction is recorded in a contra account called accumulated depreciation
