ACCT 201 SB3

Prepaid rent appears in the ______

balance sheet because it is an asset

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded

Deferred revenue is a(n) ____

liability

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

1. A company pays a 6-month insurance premium at the beginning of October 2. A company pays for 4 months of advertising in the Wall Street Journal on November 1

What are current assets?

Assets that provide benefits within the next year

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period

asset - assets represent the economic benefits that remain at the end of the period

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account

decrease; increase

Prepaid expenses should be ______ by the cost of the asset used during the accounting period

decreased

Adjusting entries are made at the _____ of the accounting period, while daily transactions are made throughout the accounting period

end

As the balance in the Accumulated Depreciation increases, total assets ____because Accumulated Depreciation is a(n) ____ account

increase; contra/negative

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

liquidity

when are transactions recorded under cash-basis accounting?

only at the time cash is paid or received

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses:

in the same period as related revenue

____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used

depreciation

Tagert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

1. Taggert will credit Prepaid Insurance for $300 on Dec. 31 2. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1 3. Taggert will debit Insurance Expense for $300 on Dec. 31

what is the order of asset categories on a balance sheet?

1. current assets 2. long-term investments 3. property, plant, and equipment 4. intangible assets

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

1. debit to insurance expense 2. credit to prepaid insurance

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 received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting?

December 31

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months

In an adjusting entry for expenses incurred but not yet paid

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

_____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned

accruals

Adjusting entries:

are needed before financial statement preparation, and update the accounts to their proper balances

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

An adjusting entry for accrued expenses involves

credit to liability, debit to expense

______ expense should be recorded to recognize the cost of using long-lived assets, such as equipment, during the accounting period

depreciation

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _____ in the period the benefit expires

expense - you are recognizing the expense that you need to pay

The adjusting entry for a prepaid expense includes a debit to a(n) _____ account and a credit to a(n) _____ account

expense; asset

Consistent with accrual-basis accounting, expenses should be recognized:

in the period when the related revenue is generated

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as _____ and are initially recorded as _____

prepaid expenses; assets

what does adjusting entries do?

remove the value of assets that have been used up or expired during the period, leaving a balance that represents the economic benefit remaining in the account

On November 1, 2022, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2022 equals ____

$22,000 - Prepaid rent started with $24,000 on November 1. After 2 months of use (November 1 through December 31), Prepaid rent only has 22 months left with a balance of $22,000 (or $24,000/24 months times 22 months)

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ____

1. revenues in the period when the revenue is earned, even though the cash has not yet been collected 2. expenses in the period incurred, even though cash has not yet been paid

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ____

amount of the prepayment that remains towards future rental periods

The adjusting entry for an accrued revenue always includes:

debit to an asset account, credit to a revenue account

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

debit to deferred revenue, credit to revenue

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer

what is the difference between accrual-basis accounting and cash-basis accounting?

the time of when revenues and expenses are recorded

There is a cause-and-effect relationship between revenues and expenses that dictates:

when revenues are recognized in the income statement, the revenue recognition principle dictates when revenues are recognized in the income statement

The statement of stockholders' equity includes these amounts:

1. ending balance retained earnings 2. dividends for the period 3. net income

Which of the following would be referred to as "accruals?"

1. expenses incurred, not yet paid 2. goods and services provided, not yet collected