Ch. 3 Financial Accounting

balance sheet because it is an asset

Prepaid rent appears in the _____.

closing entries

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

temporary

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

accrual

Consistent with the ____ -basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses in the period that costs are used to provide those goods and services.

prepaid expenses; assets

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 ____.

December 31

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?

expenses

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as an ____ in the period the benefit expires.

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

When should supplies be recorded as an expense?

have occurred but that have not yet been recorded.

A primary purpose of adjusting entries is to record events that

used during the accounting period

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

1. debit a liability account 2. credit a revenue account

Andy records an adjusting entry for deferred revenue. Andy should:

are zero

At the beginning of the accounting period, the balances of temporary accounts

17840

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.

Rent expense of $2,000 Prepaid rent of $22,000

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:

decreased

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

decreased; increased

Supplies should be _____ and Supplies Expense should be _____ for the cost of supplies used up during the period.

liability; revenue

The adjusting entry for a deferred revenue includes a debit to a _____ account and a credit to a _____ account.

depreciation.

The process of allocating the cost of an asset to expense over the useful life of the asset is called

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

The statement of stockholders' equity includes these amounts:

Rent paid in advance

Which of the following transactions would normally be recorded as an asset when cash is paid?

groups asset and liabilities into current and long-term categories

A classified balance sheet _____.

assets; liabilities

A classified balance sheet shows subtotals for current _____ and current _____.

asset

A prepayment such as "Prepaid Insurance" is originally recorded as an ____ when an insurance policy is purchased and will later be expensed in the period used.

allocated to future accounting periods based on the cost of the asset used during the period.

A prepayment that is originally recorded as an asset will be

end

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

asset

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

1. credit to a liability 2. debit to an expense

An adjusting entry for accrued expenses involves:

recording of adjusting entries

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

liability

Deferred revenue is a _____.

cost

Depreciation is an allocation of the _____ of buildings, vehicles, and equipment to expense over time as they are used.

Only temporary accounts are cleared out at the end of the accounting period.

How do temporary accounts differ from permanent accounts?

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

If an adjusting entry for expenses incurred but not yet paid _____.

expense

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

liability, prepaid expense

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

an asset is increased since cash will be collected at a later date.

In recording an accrual adjusting entry to account for revenues earned but not yet collected,

Temporary: revenues, expenses, dividends. Permanent: assets, liabilities, equity.

Match the accounts with the correct terms.

asset; revenue

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 an ______ account and a credit to a _____ account.

cash

Reporting revenues only when cash is received and expenses only when cash is paid is called the _____ basis of accounting.

income statement

Revenues and expenses are reported in the:

interest

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as _____ expense.

1. operating 2. investing 3. financing

The information reported in the statement of cash flows is organized by these activities:

1. revenues are recorded when cash is received. 2. expenses are recorded when cash is paid.

Under cash-basis accounting,

Interest

______ is defined as the "cost of borrowing money."

1. the accounts are ready for next period's transactions 2. we prepared and posted closing entries correctly

The post-closing trial balance helps to verify that:

adjusting

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for changes created by _____ entries.

False

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.

Statement of stockholders' equity

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?

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

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

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

1. reports cash receipts 2. the final financial statement that is typically prepared 3. reports cash disbursements

Which of the following statements regarding the statement of cash flows is are correct?

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

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. Expenses incurred, not yet paid 2. Goods and services provided, not yet collected

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

Revenues; expenses

____ are recorded in the period that goods and services are provided to customers and ____ are recorded in the period that costs are incurred while providing those goods and services.

Accruals

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

Deferred

_____ revenue arises when a business received cash in one period, but does not provide all of the related goods or services until a later period.