Accounting Chapter 3 Smartbook

Closing means to transfer account balances from _____ accounts so that they will start with a _____ balance at the beginning of the next period.

Blank 1: temporary Blank 2: zero or 0

Which of the following statements describes why accrual accounting better reflects a business's performance? (Check all that apply.)

Expenses are always recognized in the period in which they are incurred. Revenues are always recorded in the period in which they are earned. Comparability of financial statements is improved.

Trial balance

A list of accounts and their balances at a point in time.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

Adjustments involve increasing both an expense and a liability account. They are reported on an income statement. Examples of accrued expenses are wages expense and interest expense. They refer to costs that are incurred in a period, but are both unpaid and unrecorded.

Work sheet

An internal accounting aid which helps in preparing financial statements.

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the ________ account and ___________ the __________account.

Blank 1: interest receivable Blank 2: credit Blank 3: interest revenue

A post-closing trial balance is a list of ____ accounts and their balances _____ all ____ entries have been journalized and posted.

Blank 1: permanent Blank 2: after Blank 3: closing

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue

A calendar year-end reporting period is defined as a 12-month period which ends on ________

December

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Which of the following statements correctly defines a profit margin? (Check all that apply.)

Profit margin is also called return on sales. Profit margin is the ratio of a business's net income to its net sales.

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

Reason: $15,000 / $9,000 = 1.67

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is:

Reason: $9,000 / $6,000 = 1.5

Balance sheet

Reports a business's assets, liabilities and equity on a specific date.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

All of the following subtotals and totals are shown on an unclassified balance sheet: (Check all that apply.)

Total liabilities Total assets

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

When does the closing process take place?

At the end of an accounting period

What is a work sheet?

It can help with adjusting and closing accounts and with preparing financial statements.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Which of the accounts below would appear in the equity section of a classified balance sheet?

Retained Earnings

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300. Supplies expenses would be debited for $300.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest _______ account and _______ the Interest__________

Blank 1: expense or expenses Blank 2: credit or credits Blank 3: payable

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

Debit Prepaid insurance $800.

On December 31, AB Consulting recorded two days' wages of $100 in an adjusting entry which included a debit to Salaries Expense and a credit to Salaries Payable. On January 1, the accountant prepared a reversing entry which included which of the following?

Debit Salaries Payable $100; credit Salaries Expense $100.

Which of the following statements describes the expense recognition (matching) principle? (Check all that apply.)

Expenses should be matched in the same accounting period as the revenues that are recognized as a result of those expenses. Matching of expenses with revenues is a major part of the adjusting process.

A plant asset can be defined by which of the following statements? (Check all that apply.)

It is a tangible long-term asset. It is reported on the balance sheet. Its original cost is expensed over its useful life. It has a life within the business more than one year.

Income statement

Reports a business's revenues and expenses for a period of time.

Statement of cash flows

Reports the inflows and outflows of cash during a period of time.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Retained Earnings is a permanent account, but Dividends is a temporary account. Permanent accounts will appear on a post-closing trial balance. Temporary accounts have a balance for one period only. Permanent accounts are reported on the balance sheet. Temporary accounts are reported on the income statement.

A reversing entry can be described as a(n): (Check all that apply.)

entry that is the exact opposite of an accrual adjusting entry. entry that is used for adjusting entries involving accrued revenues and accrued expenses. optional entry. entry whose purpose is to simplify a company's record keeping.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

he expense recognition (matching) principle aims to record _________ in the same accounting period as the ___________ that are earned as a result of those costs. This principle is a major part of the _________ process.

Blank 1: expenses Blank 2: revenues Blank 3: adjusting

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?

Debit Salaries expense for $500.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.

Debit Unearned revenues for $400.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items are on a worksheet. (Check all that apply.)

Income Statement columns Adjusted Trial Balance columns Adjustment columns Balance Sheet columns Unadjusted Trial Balance columns

A classified balance sheet has several categories for assets and liabilities including:

Long-term investments. Plant assets. Current assets. Noncurrent (long-term) liabilities.

Which of the following accounts is considered a prepaid expense?

Supplies

Place the steps in the adjusting process in the correct order in which they would be performed.

1. Determine what the current account balance is 2. Determine what the correct account balance should be 3. Record an adjusting entry

Explain the required steps to complete a work sheet by placing the following steps in the correct order. (Put the first step at the top.)

1. Enter unadjusted trial balance 2. Enter adjustments 3. Prepare adjusted trial balance 4. Sort adjusted trial balance amounts to financial statements 5. Total financial statement columns, compute income or loss and balance columns

The closing process takes place at the _________ of an accounting period, after the ________ trial balance is prepared and ______ the financial statements are prepared.

Blank 1: end Blank 2: adjusted Blank 3: after

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Supplies Prepaid rent Prepaid insurance

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance is used to prepare financial statements. The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance.

Which of the statements below are correct regarding the accounting cycle? (Check all that apply.)

The cycle contains steps for adjusting and closing accounts. The accounting cycle refers to steps followed by a company to prepare its financial statements. The accounting cycle contains 10 steps (including an optional step). The accounting cycle is a series of steps repeated each reporting period.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are a liability. They are reported on a balance sheet. They are also called deferred revenues. They refer to cash received in advance of performing a service or product.

Which of the following describes accrued revenue? (Check all that apply.)

They refer to earnings which have been earned but not yet billed. The adjustment causes an increase in an asset account and an increase in a revenue account. Accounts receivable is usually increased when accruing revenues. They refer to revenues that are earned in a period, but have not been received and are unrecorded.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Unearned revenue would be debited for $700. Service revenue would be credited for $700.

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Check all that apply.)

credit services revenue debit accounts receivable

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies.

Any unused prepaids existing at end of period are transferred to asset accounts. Record all prepaid expenses with debits to expense accounts.

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries ________account and

Blank 1: expense or expenses Blank 2: credit Blank 3: payable

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the _______ account as well as any debit balance in the ____ account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the income statement.

Blank 1: retained earnings Blank 2: dividends

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that total debits equal total credit for permanent accounts. One purpose is to verify that all temporary accounts have zero balances.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Cash Office supplies Accounts receivable Prepaid rent

Determine which of the following transactions may require adjustments.

a 24-month insurance policy was prepaid Supplies were purchased at the beginning of the year, but not all were used. Six months of rent were paid in advance. An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Equipment was purchased in the middle of the year.

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

organizes assets and liabilities into important subgroups. lists current assets in the order of how quickly they can be converted to cash. is more useful to decision makers.