ACCT 2301 Exam II Study Guide
Gift cards are an example of a transaction in which a company receives payment in advance of fulfilling a sale or performing a service. This type of transaction will result in :1) an increase to the account called Cash, an asset, and 2) _____ a(n) to the account called _____ _____, a _____.
increase or credit ; Deferred or Unearned ; Revenue ; liability
On November 1, Lawn & Order, Inc. paid $24,000 for two years of rent in advance for rent beginning on November 1. How much should be expensed for the month of November? $1,000 $24,000 $23,000 $12,000
$1000
Which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance? Closing entries Unadjusted trial balance Adjusted trial balance Post-closing trial balance
Adjusted trial balance
_____ expense accumulates or accrues throughout the accounting period on Notes Payable.
Interest
Inventory is reported as a(n) ________ on the ________.
asset ; balance sheet
The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to ______.
Interest Expense and credit to Interest Payable
FAD Company uses a periodic inventory system and its inventory records for the period contain the following information: Beginning inventory (135 units @ $62/unit)$8,370 Purchases (210 units @ $62/unit)13,020 Ending inventory (185 units @ $62/unit)11,470 What is the amount of cost of goods available for sale? $21,390 $32,860 $9,920 $24,490
$21390
Accumulated Depreciation has a normal _______ balance which indicates that it _______ Total Assets.
credit ; decreases
Inventory cost consists of purchase price: plus freight-in. plus freight-out. less freight-in. less freight-out.
plus freight-in.
Salaries and Wages Payable is recorded for salaries and wages incurred, but not yet ____ to employees, at the end of the accounting period.
paid
Deposits in transit are ______ on a bank reconciliation. added to the bank balance subtracted from the bank balance added to the book balance subtracted from the book balance
added to the bank balance
A(n) _____ trial _____ is prepared immediately _____ the adjusting entries have been recorded and _____ the financial statement are prepared.
adjusted ; balance ; after ; before
Outstanding checks are ______ on a bank reconciliation. added to the book balance added to the bank balance deducted from the bank balance deducted from the book balance
deducted from the bank balance
The Equipment account balance in a company's ledger equals its ______. contra-account value original cost higher fair market value depreciated cost
original cost
Sales discounts should appear in the financial statements as a(n): addition to inventory. addition to sales. operating expense. deduction from sales.
deduction from sales.
Which line item will have a larger balance related to equipment that has been used over the past 3 years. Accumulated Depreciation Equipment Expense Depreciation Expense
Accumulated Depreciation
McQueen, Incorporated buys premium ice cream at a cost of $1.50 a gallon and sells it for $4.00 a gallon. Selling, general, and administrative expenses are $0.75 per gallon. Which of the following statements is correct? Gross profit per gallon is $2.50. Gross profit per gallon is $1.75. The difference between the selling price and the cost is recorded in the Net Profit account. The difference between the selling price and the cost is recorded in the gross profit account.
Gross profit per gallon is $2.50.
On June 30, Daily Kneads paid $12,000 in advance for one year of insurance coverage beginning July 1. Match each line item with the correct amount that would be reported in the following month, July, and on which July financial statement the line item would be reported. Insurance Expense Prepaid Insurance $1,000 on income statement; $11,000 on balance sheet
Insurance Expense - $1,000 Prepaid Insurance - $11,000
A bank _____ is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash.
reconciliation
After the adjustments have been recorded, Deferred Revenue on the balance sheet reports the amount of ______. the sales or services still owed to the customer revenues that have been fulfilled by the seller, but not collected during the period revenues the seller has fulfilled of its obligations during the current period
the sales or services still owed to the customer
Match each financial statement line item with the appropriate description. Supplies Expense Supplies Accounts Payable Amount owed for supplies purchased on account; Amount remaining and reported on the balance sheet; Amount used and reported on the income statement
Supplies Expense - Amount used and reported on the income statement Supplies - Amount remaining and reported on the balance sheet Accounts Payable - Amount owed for supplies purchased on account
Bristol, Inc. paid $800 for a 4-month insurance policy on August 1 of the current year. On August 31, Bristol, Inc. made an adjusting entry to account for the insurance that expired during the month of August. The adjusting entry contained a debit to Insurance Expense in the amount of $______ and a credit to Prepaid Insurance in the amount of $______. The remaining balance in the Prepaid Insurance account after the adjustment was $______.
$200; $200, $600
If the company's accountant mistakenly recorded an $85 deposit as $58, the error would be shown on the bank reconciliation as a(n): $27 deduction from the book balance. $85 deduction from the book balance. $27 addition to the book balance. $85 addition to the book balance.
$27 addition to the book balance.
Beauty and the Bistro, Inc. had $500 of Supplies on its balance at the end of its 1st year of business. It purchased $5,000 of supplies during the 2nd year. At the end of the 2nd year, it had $800 of supplies on hand. What is the amount of Supplies Expense on the income statement? $800 $4,700 $6,300 $1,300 $5,800
$4700
In its 1st month of business, Brewed Awakenings, Inc. purchased $1,000 of supplies of which it had paid $700 and owes the rest. At the end of the month, it had $400 of supplies available for use. What is the amount of Supplies Expense on the income statement? $200 $600 $400 $300
$600
Place the steps in the adjustment process in order. Analyze the accounts to determine the amount of adjustment Summarize the adjusting entries in the accounts Record the adjusting entry to the journal
1.) Analyze the accounts to determine the amount of adjustment 2.) Record the adjusting entry to the journal 3.) Summarize the adjusting entries in the accounts
Place the steps taken at the end of the accounting period to complete the financial statement preparation process in the correct order. Prepare the financial statements Prepare the adjusting entries Prepare an adjusted trial balance
1.) Prepare the adjusting entries 2.) Prepare an adjusted trial balance 3.) Prepare the financial statements
When goods are sold to a customer with credit terms of 2/15, n/30, the customer will receive a: 15% discount if they pay within 2 days. 2% discount if they pay 15% of the amount due within 30 days. 15% discount if they pay within 30 days. 2% discount if they pay within 15 days.
2% discount if they pay within 15 days.
Which of the following adjusting entries are recorded with a debit to an expense and a credit to a liability? Accruing for services received that have not yet been paid Adjusting supplies used during the period Purchases of inventory on account Recording depreciation for the period
Accruing for services received that have not yet been paid
Which of the following adjusting entries are recorded with a debit to an expense and a credit to a liability? Adjusting supplies used during the period Recording depreciation for the period Accruing for services received that have not yet been paid Purchases of inventory on account
Accruing for services received that have not yet been paid
How does the timing of adjusting entries differ from the accounting for daily transactions? Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient. Adjustments are made at the beginning of the accounting period to ensure accuracy is maintained during the cycle. Adjustments are made at the discretion of management and are not necessary for each accounting period. Adjustments are made throughout the accounting period as information becomes available.
Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.
Why are the adjustments important to the preparation of the financial statements? (Check all that apply.) Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Unadjusted financial statements will always show net income because the expense accounts have not been brought up to date. Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results.
Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Adjustments ensure the revenues the seller has performed of its obligation and expenses incurred are reflected in the income statement. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results.
Which of the following statements describes the effect that adjustments may have on liabilities? Adjustments reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period. Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period. Adjustments do not have any effect on liabilities, since cash is not included in the adjusting entries.
Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to _____ _____ and a credit to _____ _____.
Amortization ; Expense ; Accumulated ; Amortization
Which two accounts are used to record the adjusting entry for the amortization of long-term assets that lack physical substance? Deferred Revenue Amortization Expense Accumulated Amortization Accumulated Depreciation Depreciation Expense
Amortization Expense Accumulated Amortization
Sonic Gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ______ and a credit to ______. Accumulated Depreciation; Depreciation Expense Depreciation Expense; Accumulated Depreciation Accumulated Amortization; Amortization Expense Amortization Expense; Accumulated Amortization Software; Amortization Expense
Amortization Expense; Accumulated Amortization
Why is the Deferred Revenue account reduced during the adjustment process? As cash is paid to the customer, Deferred Revenue is reduced. As the seller performs its obligations, it is removed from Deferred Revenue and transferred into the Accounts Receivable account. As cash is received from the customer, Deferred Revenue is reduced. As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account.
As the seller performs its obligations, it is removed from Deferred Revenue and transferred into a revenue account.
Elm Corporation is a merchandising company. The year began with inventory of $16,000, Purchases for the year were $41,000, and the Ending Inventory was $3,000. What is the Cost of Goods Sold that would be reported on the income statement?
Beginning Inventory ($16000) + Purchases ($41,000) - Ending Inventory ($3000) = Cost of Goods Sold ($54,000)
First Corporation had Retained Earnings at the end of December 31, 2022 of $459,000. During 2023, the company had net income of $179,000 and declared dividends of $20,900. The amount of Retained Earnings reported on the balance sheet as of December 31, 2023 will be: $617,100. $638,000. $438,100. $658,900.
Beginning retained earnings ($459,000) + Net Income ($179,000) - Dividends ($20,900) = Ending Retained Earnings ($617,100)
In which of the following ways does a periodic system differ from a perpetual system? (Check all that apply.) Cost of Goods Sold is not updated until the end of the accounting period in a periodic system. Inventory is not updated until the end of the accounting period in a periodic system. Accounts receivable is not updated until the end of the accounting period in a periodic system. Cost of Goods Sold will be debited at the time of the sale in a periodic system.
Cost of Goods Sold is not updated until the end of the accounting period in a periodic system. Inventory is not updated until the end of the accounting period in a periodic system.
The book value of equipment is equal to which of the following? Cost of equipment plus the related accumulated depreciation. Accumulated depreciation less the related depreciation expense. Cost of equipment less the related accumulated depreciation. Accumulated depreciation plus the related depreciation expense.
Cost of equipment less the related accumulated depreciation.
Identify the entries needed for the closing process. (Select all that apply.) Credit Dividends and debit Retained Earnings. Debit each revenue, credit each expense, and record the difference in Retained Earnings. Credit each revenue, debit each expense, and record the difference in Retained Earnings. Debit Dividends and credit Retained Earnings.
Credit Dividends and debit Retained Earnings. Debit each revenue, credit each expense, and record the difference in Retained Earnings.
On December 31, 2022, interest of $700 is owed on a bank loan that will not be paid until June 30, 2023. What is the necessary adjusting journal entry on December 31, 2022? Debit Interest Expense and credit Cash for $700. Debit Interest Expense and credit Interest Payable for $700. Debit Interest Payable and credit Interest Expense for $700. Debit Interest Receivable and credit Interest Revenue for $700.
Debit Interest Expense and credit Interest Payable for $700.
Which balance sheet line item reports the amount collected in advance for which the seller has not yet fulfilled of its obligations to the buyer? Service Revenue Deferred Revenue Accounts Receivable Accumulated Depreciation
Deferred Revenue
Which of the following account balances will typically be reduced as a result of adjusting entries? (Select all that apply.) Deferred Revenue Prepaid Rent Cash Supplies Interest Payable
Deferred Revenue Prepaid Rent Supplies
As of December 31, the unadjusted balance in Deferred Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period? Sales Revenue needs to be decreased by the amount of gift cards redeemed during the month. Deferred Revenue needs to be decreased by the amount of gift cards redeemed during the month. Cash needs to be increased by the amount of gift cards redeemed during the month. No adjustment is necessary as the gift cards were credited to revenue at the time they were sold. Sales Revenue needs to be increased by the amount of gift cards redeemed during the month.
Deferred Revenue needs to be decreased by the amount of gift cards redeemed during the month. Sales Revenue needs to be increased by the amount of gift cards redeemed during the month.
Why is it necessary to make adjustments to revenue accounts at the end of the accounting period? Revenues need to be adjusted so that revenues equals the amount of cash received during the current period. Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period. Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a revenue.
Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period. Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a revenue.
What would cause a bank statement not to agree with the cash balance in the accounting records? (Check all that apply.) The company wrote checks that have cleared the bank. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company.
Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company.
To recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period, __________ Expense should be recorded. Depreciation Supplies Accumulated Depreciation Interest
Depreciation
What is the purpose of the depreciation adjustment for long-lived assets? Depreciation represents maintenance costs incurred to keep an asset in good working condition. Depreciation represents the cash paid each year for the purchase of an asset. Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.
Depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company.
Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account? The balances in the two accounts should be the same amount. The Accumulated Depreciation account contains the value of the long-lived asset as well as the depreciation. The adjusting entry contains a different amount for Depreciation Expense and Accumulated Depreciation. Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.
Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.
Urban Bloom, Incorporated's books show an ending cash balance of $18,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $4,600, deposits in transit of $3,600, NSF check of $260, and interest earned on the bank account of $170, the company's up-to-date ending cash balance equals: $17,910. $13,310. $16,910. $18,430.
Ending cash balance per books ($18,000) + Interest earned by bank ($170) - NSF checks ($260) = Up-to-date ending cash balance ($17,910)
Why is an adjustment necessary for interest accrued on a note payable at the end of the period if the interest will not be paid until the note is due? (Check all that apply.) The accrued interest needs to be credited to the Note Payable account to accurately report the total amount due on the note. Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period. The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet. Interest Revenue should be increased to reflect the amount of the interest generated during the current period.
Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period. The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet.
As of December 31, the end of the accounting period, $700 of salaries and wages owed to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, Salaries and Wages _____ will be debited and Salaries and Wages _____ will be credited by $700.
Expense ; Payable
The adjusting entry to record salaries and wages owed to employees at the end of the accounting period includes a debit to "Salaries and Wages _____" and a credit to "Salaries and Wages _____ ."
Expense ; Payable
Accumulated Depreciation is a contra-account to a long-lived asset account, such as Equipment. This means that it increases the balance of the long-lived asset on the balance sheet. T or F?
False
Adjustments ensure that assets on the balance sheet are reported at amounts that have been used up or expired during the period. T or F?
False
Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records. T or F?
False
True or false: A contra-account, such as Accumulated Depreciation, will have a normal debit balance. T or F?
False
The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies. T or F?
False An adequate internal control system does not guarantee that losses will not occur.
Which of the following statements is correct? Financial statements are prepared before adjustments to ensure that debits equal credits before concluding the adjustment process. Financial statements are prepared before adjustments to ensure that all accounts have been brought to their correct balance. Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance. Financial statements are prepared before adjustments to ensure that debits equal credits before beginning the adjustment process.
Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.
Which of the following would be considered inventory? Goods held for sale in the normal course of business. Office supplies that a company plans to use in the next few months. Equipment used to manufacture products which will be sold later. A vehicle used to deliver goods to a customer.
Goods held for sale in the normal course of business.
Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.) Net Sales Net Income Cost of Goods Sold Gross Profit Income from Operations
Gross Profit Income from Operations
Which one of the statements appearing below is incorrect regarding bank reconciliations? A bank reconciliation is an internal report prepared to compare the company's cash records with the bank's cash balance. If a company's records show a different cash balance from that shown on the company's bank statement, either the company or the bank has made an error. After preparing a bank reconciliation, no journal entries need to be made for outstanding checks or deposits in transit. The up-to-date ending cash balance on the bank statement side will equal the up-to-date ending cash balance on the book side.
If a company's records show a different cash balance from that shown on the company's bank statement, either the company or the bank has made an error.
Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.) Net Income Cost of Goods Sold Net Sales Income from Operations Gross Profit
Income from Operations Gross Profit
On June 30, Planet of the Crepes paid $12,000 in advance for insurance coverage beginning July 1 through December 31. Which of the following are correct regarding the July financial statements? (Select all that are correct.) Insurance Expense of $12,000 is on the income statement Insurance Expense of $2,000 is on the income statement Insurance Expense is $0 and thus not on the July financial statements Prepaid Insurance of $2,000 is on the balance sheet Prepaid Insurance is $0 and thus not on the July financial statements Prepaid Insurance of $10,000 is on the balance sheet
Insurance Expense of $2,000 is on the income statement Prepaid Insurance of $10,000 is on the balance sheet
A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation? It would be added to the book balance. It would be deducted from the book balance. It does not belong on the bank reconciliation. It would be added to the bank balance. It would be deducted from the bank balance.
It would be added to the bank balance.
Which of the following is not a proper segregation of duties for cash received in person? Members of the accounting department are responsible for the collection of cash and depositing the cash in the bank. A supervisor is responsible for collecting the cash at the end of each cashier's shift and depositing it in the bank. Cashiers are responsible for the collection of cash and issuing a receipt at the point of sale. Members of the accounting department are responsible for ensuring that the receipts from cash sales are properly recorded in the accounting system
Members of the accounting department are responsible for the collection of cash and depositing the cash in the bank.
Which of these are cash equivalents? (Check all that apply.) Notes receivable that mature in 5 months Money market funds Investments within 3 months to maturity US Treasury bonds that mature in 1 year
Money market funds Investments within 3 months to maturity
Gross profit equals: Net sales minus cost of goods sold. Revenues minus expenses. Revenues minus inventory. Beginning inventory plus purchases minus ending inventory.
Net sales minus cost of goods sold.
How do temporary accounts differ from permanent accounts? Only temporary accounts are used in the adjustments at the end of the accounting period. Only permanent accounts are found on the financial statements. Only temporary accounts are closed at the end of the accounting period. Only permanent accounts are transferred to Retained Earnings during the closing process.
Only temporary accounts are closed at the end of the accounting period. Permanent accounts are accounts that track financial results from year to year by carrying their ending balances into the next year. Temporary accounts are accounts that track financial results for a limited period of time by having their balances zeroed out at the end of each accounting year.
On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags? (Select all that apply.) Outstanding checks Deposits in transit Bounced checks Electronic funds transfers
Outstanding checks Deposits in transit
Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance? Income Taxes Payable Deferred Revenue Sales Revenue Prepaid Rent
Prepaid Rent
Which account will need an adjusting entry to adjust for the amounts used during the period that were paid for in advance? Prepaid Rent Income Taxes Payable Deferred Revenue Sales Revenue
Prepaid Rent
Which of the following responsibilities should not be given to the accounting department? (Select all that apply.) Recording the journal entry Preparing the purchase requisition Preparing the receiving report Preparing the purchase order
Preparing the purchase requisition Preparing the receiving report Preparing the purchase order
Boston Enterprises declared and paid a dividend of $10,400 this year. The entry to close the Dividend at the end of the year will include a debit to: Dividends and a credit to Cash for $10,400. Retained Earnings and a credit to Dividends for $10,400. Dividends and a credit to Retained Earnings for $10,400. Dividends and a credit to Dividends Payable for $10,400.
Retained Earnings and a credit to Dividends for $10,400.
When will Accounts Receivable be involved in an adjusting entry? Recognizing revenue from cash collected earlier in the period. Cash is collected in advance of the revenue at the end of the period. Accounts Receivable will never be used in an adjusting entry. It is only used in daily transactions. Revenue is earned but not yet collected or recorded at the end of the period.
Revenue is earned but not yet collected or recorded at the end of the period.
Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period? Salaries and Wages Expense will be recorded as a credit for the amount of the unpaid salaries and wages. Salaries and Wages Payable will be recorded as a debit for the amount of the unpaid salaries and wages. Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages. Salaries and Wages Payable will decrease by the amount of the unpaid wages.
Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.
What will be the effect on the accounts when the salaries and wages that were incurred and recorded in the prior accounting period are finally paid? Salaries and Wages Payable will decrease and Cash will decrease. Salaries and Wages Expense will decrease and Cash will decrease. Salaries and Wages Expense will increase and Salaries and Wages Payable will decrease. Salaries and Wages Expense will increase and Cash will decrease.
Salaries and Wages Payable will decrease and Cash will decrease.
In its 1st year of business, Daily Grind, Inc. purchased $1,000 of supplies of which it only has $300 left at the end of the period. Which of the following will be found in the year-end financial statements? (Select all that apply.) Supplies Expense on the income statement of $700 Supplies on the balance sheet of $300 Supplies Expense on the income statement of $1,300 Supplies on the balance sheet of $700
Supplies Expense on the income statement of $700 Supplies on the balance sheet of $300
The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account. Supplies Expense; Supplies Inventory; Cost of Goods Sold Cost of Goods Sold; Revenue Supplies; Supplies Expense
Supplies Expense; Supplies
Supplies is an asset account because it contains the value of supplies that have not been used, but still remain an economic resource for the company. T or F?
T
On September 1, Taggert Company paid $1,800 for a 6-month insurance premium beginning September 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Check all that apply.) Taggert will debit Insurance Expense for $1,800 on Sept. 1. Taggert will credit Prepaid Insurance for $300 on Sept. 30. Taggert will debit Insurance Expense for $300 on Sept. 30. Taggert will debit Prepaid Insurance for $1,800 on Sept. 1. Taggert will debit Prepaid Insurance for $1,500 on Sept. 30.
Taggert will credit Prepaid Insurance for $300 on Sept. 30. Taggert will debit Insurance Expense for $300 on Sept. 30. Taggert will debit Prepaid Insurance for $1,800 on Sept. 1.
Which of the following is incorrect regarding the Income Tax Payable account? This is a liability account. The account represents income tax incurred, but not yet paid by the company. The adjusting entry involving this account also requires an entry to Income Tax Expense. The account represents tax refunds due to the company.
The account represents tax refunds due to the company.
When existing assets are used up in the ordinary course of business: an expense is increased. deferred revenue is increased. an accrual is recorded. a prepaid expense is increased.
an expense is increased.
Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.
asset
Adjusting entries are typically prepared: at the beginning of the accounting period. at the end of the accounting period. on a daily basis. on a weekly basis.
at the end of the accounting period.
The adjusted trial balance should be prepared ______ the financial statements are prepared to prove the ______ of the debits and credits. before; equality after; closing after; equality after; accuracy before; accuracy before; closing
before; equality
Which of the following adjusting entries will cause assets and stockholders' equity to increase? Adjusting for services provided ______. and collected but not yet collected that were collected in advance
but not yet collected
Deferred Revenue is credited when ______. the adjusting entry is recorded at the end of the accounting period a company purchases an intangible asset the revenue is recorded from delivering goods or services cash is collected in advance of the revenue
cash is collected in advance of the revenue
Closing entries: are prepared before financial statements are prepared. reduce the number of permanent accounts. cause the revenue and expense accounts to have zero balances. summarize the activity in every account.
cause the revenue and expense accounts to have zero balances.
The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the _____ process.
closing
The Accumulated Depreciation account is a(n): expense account. liability account. asset account. contra-asset account.
contra-asset account. Accumulated Depreciation is like a negative asset account that is subtracted from the Equipment account in the assets section of the balance sheet.
The adjusting entry to record depreciation on equipment includes a ______. (Select all that apply.) credit to Accumulated Depreciation credit to Cash credit to Equipment credit to Depreciation Expense debit to Accumulated Depreciation debit to Depreciation Expense
credit to Accumulated Depreciation debit to Depreciation Expense
The journal entry to record taking a discount when paying for goods previously purchased on account and recorded using the gross method includes a ______. (Check all that apply.) credit to two asset accounts debit to a liability account debit to an asset account credit to a liability account
credit to two asset accounts debit to a liability account
The adjusting entry to record the amount of prepaid rent used during the period requires a ______ to Rent Expense and a _____ to Prepaid Rent.
debit ; credit
The seller's adjusting entry to record the revenue earned by fulfilling its obligation to its buyers which had been collected in advance requires a _____ (debit/credit) to Deferred Revenue and a _____ (debit/credit) to Sales Revenue.
debit ; credit
The entry to record the payment of wages incurred in the prior accounting period is recorded with ______. (Select all that apply.) credit Salaries and Wages Payable debit Salaries and Wages Payable credit Salaries and Wages Expense credit Cash debit Salaries and Wages Expense
debit Salaries and Wages Payable credit Cash
During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in a(n): decrease in an asset and an equal decrease in expenses. increase in an asset and an equal increase in expenses. decrease in an asset and an equal increase in expenses. increase in an asset and a decrease in expenses.
decrease in an asset and an equal increase in expenses.
The adjusting entry to record the supplies used during the period will result in a(n) ______. decrease to Supplies and an increase to Supplies Expense decrease to Supplies and a decrease to Supplies Expense increase to Supplies and a decrease to Supplies Expense increase to Supplies and an increase to Supplies Expense
decrease to Supplies and an increase to Supplies Expense
A prepayment is originally recorded as an asset. Later at the end of the accounting period, an adjustment is recorded causing in a(n) ______ in the asset account and a(n) ______ in the expense account.
decrease; increase
Outstanding checks have already been ______. added to your cash balance per your books and not to the bank balance added to the bank balance and not to your cash balance per your books deducted from the bank balance but not the cash per your books deducted from your cash balance per your books but not the bank balance
deducted from your cash balance per your books but not the bank balance
After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______. total depreciation that has accrued on the long-lived assets since their purchase decline in the market value of the long-lived assets cash paid for the long-lived assets in the fiscal year depreciation for the current fiscal year
depreciation for the current fiscal year
The process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used is called: accumulated allocation. deferred revenue. depreciation. prepaid expense.
depreciation.
When using a perpetual inventory system, the Cost of Goods Sold is recorded: each time a sale is made. at the end of each month. at the end of the accounting period. at the end of each day.
each time a sale is made.
Collusion occurs when: employees work together to get around internal controls. an outside party completes an independent verification. a company assigns sequential numbers to their documents. passcodes are required to open cash registers.
employees work together to get around internal controls.
Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting
end, closing, or close
The adjusting entry to record salaries and wages owed to employees at the end of the accounting period includes a debit to "Salaries and Wages _____ " and a credit to "Salaries and Wages _____."
expense ; payable
The effect of accrual adjustments involve debiting a(n) ______. asset and crediting a liability asset and crediting an expense expense and crediting a payable expense and crediting an asset
expense and crediting a payable
The effect of accrual adjustments involve debiting a(n) ______. expense and crediting an asset asset and crediting an expense asset and crediting a liability expense and crediting a payable
expense and crediting a payable
Adjustments help to ensure that all ______ are recorded in the period in which they are incurred. expenses journal entries cash transactions closing entries
expenses
A contra-account ______. (Select all that apply.) example is Depreciation Expense because it has a normal debit balance has a normal balance opposite of the account it offsets example is Accounts Payable because it has a normal balance opposite of Accounts Receivable example is Accumulated Depreciation because it has a normal credit balance
has a normal balance opposite of the account it offsets example is Accumulated Depreciation because it has a normal credit balance
The Accounts Receivable account should be _____ when adjusting at the end of the period for any revenues from fulfilling obligations to buyers which has not yet been collected or recorded.
increase
In an accrual adjustment for expenses incurred but not yet paid, a liability is ______. decreased because cash is paid for the expense incurred increased because cash was paid in advance of when the expense is incurred increased because cash will be paid in the future due to the expense incurred decreased because cash is received as the expense is incurred
increased because cash will be paid in the future due to the expense incurred
The purpose of recording an adjusting entry for salaries and wages is to record wages ______. paid in the prior accounting period incurred but not yet paid paid during the accounting period to be incurred in the next accounting period
incurred but not yet paid
In a perpetual system, the _____ account is debited when a company purchases merchandise on account.
inventory
Under the periodic inventory system: inventory records are updated immediately after each purchase. inventory must be counted at the end of each accounting period. inventory does not have to be counted. (It can be taken from the accounting records.) inventory levels must be counted every day.
inventory must be counted at the end of each accounting period.
Internal control procedures surrounding payment of bills includes ______. (Select all that apply.) making payments only when a purchase is supported by complete voucher documentation using prenumbered checks marking the voucher "paid" to avoid duplication of payments having the purchaser make the payment and record it in the accounting records to avoid paying for items not ordered by the purchaser.
making payments only when a purchase is supported by complete voucher documentation using prenumbered checks marking the voucher "paid" to avoid duplication of payments
The _______ recognition principle requires that a portion of long-lived assets be transferred to an expense account during the accounting period the asset is being used to generate revenues.
matching or expense
All of the following are goals of internal control except: reducing the risk of fraud. producing reliable and timely accounting information for use by people internal and external to the organization. minimizing the amount of income taxes that must be paid. adhering to laws and regulations.
minimizing the amount of income taxes that must be paid.
A _____ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.
multistep
Internal control for cash is important because ______. (Check all that apply.) it is the largest asset of all companies of the high risk of theft cash is portable and is "owned" by whomever possesses it the risk of cash-handling errors is significant of the large volume of cash transactions
of the high risk of theft cash is portable and is "owned" by whomever possesses it the risk of cash-handling errors is significant of the large volume of cash transactions
The carrying value of Supplies represents the cost of supplies ______. used during the accounting period on hand at the end of the accounting period purchased during the accounting period purchased, but not yet paid for, at the end of the accounting period
on hand at the end of the accounting period
The Equipment account balance in a company's ledger equals its ______. original cost contra-account value depreciated cost higher fair market value
original cost
The adjusting entry for income taxes records income tax that is incurred and _____ by the company.
owed
After the adjustments have been completed, the adjusted balance in the "Salaries and Wages Payable" account represents wages incurred, but not yet _____ by the company.
paid
If a company records a debit to Salaries and Wage Payable and a credit to Cash, what has occurred? The company is ______. adjusting for salaries and wages owed for work performed by its employees paying its employees in advance for work to be performed in the future paying for salaries and wages that had been accrued earlier violating the expense recognition principle
paying for salaries and wages that had been accrued earlier
The services provided by a bank help business control cash by ______.
restricting access and providing documentation and independent verification
The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as: duplication of responsibility. mandatory vacations. segregation of duties. rotation of duties.
segregation of duties. Segregation of duties refers to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it.
A multistep income statement is useful to financial statement users because it ______. (Select all that apply.) separates cost of goods sold from other operating expenses, which allows the calculation of gross profit provides the amount of resources available to use in the future separates income statement items into meaningful components
separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components
Which of the following is true about the adjusting entry to record the revenue for which the seller has performed of its obligations but not yet collected? (Select all that apply.) stockholders' equity will decrease stockholders' equity will increase assets will increase liabilities will increase liabilities will decrease assets will decrease
stockholders' equity will increase assets will increase
Closing entries move the balances from the ______ accounts into the Retained Earnings account. permanent balance sheet temporary
temporary
To determine the adjusting entries required, a(n) ______ is prepared. ledger unadjusted trial balance accrual adjustment journal deferral adjustment
unadjusted trial balance
After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______. purchased, but not yet paid for, at the end of the accounting period purchased during the accounting period used during the accounting period on hand at the end of the accounting period
used during the accounting period
The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the ______. cost of the insurance expired during the period value of the insurance prepayment that remains to benefit future periods amount owed for insurance at the end of the accounting period
value of the insurance prepayment that remains to benefit future periods
A(n) ______ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.
voucher
To accrue a revenue or an expense in accounting means that the amount: will not be reported in the accounting records. will be reported as a revenue or an expense in the current period. will be reported as a revenue or an expense in a later period. was reported as a revenue or an expense in a prior period.
will be reported as a revenue or an expense in the current period. Deferring means the revenue or expense will be recorded in a later period, whereas accruing means the revenue or expense will be recorded in the current period.
Adjusting entries are important because ______. (Select all that apply.) without them, Net Income would be zero without them, the financial statements would be misleading. adjustments ensure that the assets and liabilities are properly reflected in the income statement adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes
without them, the financial statements would be misleading. ; adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes
Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.) Debit Rent Expense Debit Prepaid Rent Debit Cash Credit Cash
Debit Rent Expense
Which of the following would be added to the ending cash balance per bank when performing a bank reconciliation? Electronic fund transfers Service charges NSF checks Deposits in transit
Deposits in transit
Supplies are recorded as a(n) ______ when purchased. expense liability asset revenue
asset
Which of the following duties should not be the responsibility of an employee who has access to cash? (Select all that apply.) perform bank reconciliations prepare cash count sheets issue receipts at the point of sale scan items sold record cash collected in the journal
perform bank reconciliations record cash collected in the journal
Adjustments help to ensure that all __________ are recorded in the period in which they are earned. revenues cash transactions closing entries journal entries
revenues
Why is an adjustment necessary for interest accrued on a note payable at the end of the period if the interest will not be paid until the note is due? (Check all that apply.) The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet. Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period. The accrued interest needs to be credited to the Note Payable account to accurately report the total amount due on the note. Interest Revenue should be increased to reflect the amount of the interest generated during the current period.
The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet. Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period.
What would cause a bank statement not to agree with the cash balance in the accounting records? (Check all that apply.) The company made an error in recording a deposit. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank paid interest that the company has not recorded. The company wrote checks that have cleared the bank. The bank made an error in recording a deposit made by the company.
The company made an error in recording a deposit. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company.
Which of the following statements most accurately describes the purposes of the closing entries? To bring the balances in the asset and liability accounts up to date and to transfer net income and dividends into retained earnings To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings To establish zero balances in the balance sheet accounts and to transfer net income and dividends into retained earnings To bring the balances in the revenue and expense accounts up to date and to transfer net income and dividends into retained earnings
To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings
Adjusting entries to adjust Supplies or Prepaid Rent have which of the following effects? (Select all that apply.) The carrying value of the assets are increased. Total assets is decreased on the balance sheet. Total expenses on the income statement are increased. Total expenses on the income statement are decreased. The carrying value of the assets are decreased.
Total assets is decreased on the balance sheet. Total expenses on the income statement are increased. The carrying value (original cost - accumulated depreciation) of the assets are decreased.
What are the effects on the accounting equation from the adjustment for depreciation? Total assets will increase and total stockholders' equity will increase. Total assets will decrease and total stockholders' equity will increase. Total assets will decrease and total stockholders' equity will decrease. Total assets will increase and total stockholders' equity will decrease.
Total assets will decrease and total stockholders' equity will decrease.
What are the effects on the financial condition of the business from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected? Total assets will decrease and total stockholders' equity will increase. Total assets will increase and total stockholders' equity will increase. Total assets will decrease and total stockholders' equity will decrease. Total assets will increase and total stockholders' equity will decrease.
Total assets will increase and total stockholders' equity will increase.
Cash equivalents would include: a 30-day bank certificate of deposit. the amount in the petty cash fund. a 6-month U.S. treasury bill. the balance in the company's savings account.
a 30-day bank certificate of deposit. Cash, as reported on the balance sheet, includes cash deposited with banks, petty cash on hand, and cash equivalents. Cash equivalents are short-term, highly liquid investments purchased within three months of maturity.
Interest Expense is ______. credited when Interest Payable is debited deferred until the notes payable is due and paid accrued each period the notes payable is unpaid recorded when the notes payable are issued
accrued each period the notes payable is unpaid
Adjusting entries are required to ______. be recorded during the accounting period to ensure balances are properly stated be entered in journal and posted to the ledger before preparing the unadjusted trial balance adjust the unadjusted balances to the desired balances
adjust the unadjusted balances to the desired balances
If a company recorded an adjusting entry by debiting Interest Expense for $500 and Interest Payable for $50 in error, then the ______. adjusted trial balance's debits will not equal its credits both the adjusted trial balance's and unadjusted trial balance's debits will not equal its credits unadjusted trial balance's debits will not equal its credits
adjusted trial balance's debits will not equal its credits
Closing journal entries are recorded ______. after the post-closing trial balance is prepared before the adjusted trial balance is prepared before the unadjusted trial balance is prepared after the financial statements have been prepared
after the financial statements have been prepared
A prepayment that is originally recorded as an asset will be ______. allocated to future accounting periods based on the value of the benefit used during the period expensed in total at the end of the accounting period transferred to a liability account at the end of the accounting period
allocated to future accounting periods based on the value of the benefit used during the period