Acct- ch3
An adjusting entry for accrued expenses involves:
debit to an expense credit to a liability
On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?
$35,910 Reason: (($53,520/24 months) x 7 months remaining)+(($34,800/24 months) x 14 months remaining). Note that the question is asking for the Prepaid rent on the balance sheet on December 31, 2020 and not the expense on the income statement.
Which of the following statements describes the effect that adjusting entries may have on liabilities?
Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.
Which of the following would be referred to as "accruals?" (Select all that apply.)
Expenses incurred, not yet paid Goods and services provided, not yet collected
True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.
False
When should supplies be recorded as an expense?
In the period the supplies are used, regardless of when they were purchased
Which of the following statements is true?
Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.
The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as
accrual-basis accounting.
Deferred revenue is a(n) ______.
liability
Accrual, Accural, or Accruals
-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.
Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)
A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.
_____ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period
Deferred, Unearned, or Deffered
revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.
Deffered
_____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.
Depreciation
The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _____expense.
Interest
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.
On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.)
Rent expense of $2,000 Prepaid rent of $22,000
Which of the following transactions would normally be recorded as an asset when cash is paid?
Rent paid in advance
Which of the following statements regarding the statement of cash flows are correct?
Reports cash receipts The final financial statement that is typically prepared Reports cash disbursements
On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:
Service revenue for $1,800
Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?
Statement of stockholders' equity
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
To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by
adjusting entries
A prepayment that is originally recorded as an asset will be ______.
allocated to future accounting periods based on the cost of the asset used during the period
Adjusting entries: (Select all that apply.)
are needed before financial statement preparation. update the accounts to their proper balances.
A prepayment such as "Prepaid Insurance" is originally recorded as a(n)____when an insurance policy is purchased and will later be expensed in the period used.
asset or debit
Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.
asset; revenue
Classified balance sheet shows subtotals for current
assets & liabilities
Temporary accounts
assets, liabilities, dividends
Permanent accounts
assets, liabilities, equity
Prepaid rent appears in the ______.
balance sheet because it is an asset
Reporting revenues only when cash is received and expenses only when cash is paid is called the basis of accounting.
cash
Andy records an adjusting entry for deferred revenue. Andy should:
credit a revenue account debit a liability account
Post-closing trial balance checks that total____ equal total ____
credits & debits
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
decreased; increased
If an adjusting entry's credit is to a liability account, then the debit must be to ______.
expense
Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n)___the period the benefit expires.
expense or expenses
Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.
expenses
Under cash-basis accounting, (Select all that apply.)
expenses are recorded when cash is paid. revenues are recorded when cash is received.
Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.
false
The information reported in the statement of cash flows is organized by these activities:
financing operating investing
A classified balance sheet ______.
groups asset and liabilities into current and long-term categories
An adjusting entry is necessary to record interest expense at year-end because the interest:
has already been incurred
If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?
liability prepaid expense
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
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.
Prepaid expenses should be ______ by the cost of the asset used during the accounting period.
decreased
The process of allocating the cost of an asset to expense over the useful life of the asset is called
depreciation
The two major categories reported in the income statement are:
revenue expense
Which of the following financial statements typically is prepared last?
statement of cash flows
Closing entries move the balances from the ______ accounts into the Retained Earnings account.
temporary
The post-closing trial balance helps to verify that
the accounts are ready for next period's transactions we prepared and posted closing entries correctly
A primary purpose of adjusting entries is to record events that
have occurred but that have not yet been recorded.
The statement of stockholders' equity includes these amounts:
net income dividends for the period ending balance retained earnings
Accruals, Accrual, or Accurals
occur when the cash flow occurs after either the expense is incurred or the revenue is earned.
How do temporary accounts differ from permanent accounts?
Only temporary accounts are cleared out at the end of the accounting period.
At the beginning of the accounting period, the balances of temporary accounts
are zero
A prepayment such as "Prepaid Insurance" is originally recorded as a(n)_____when an insurance policy is purchased and will later be expensed in the period used.
asset
Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period
asset
Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.
asset