CH 3 Study Set

The closing entry for Salaries Expense includes:

A debit to Retained Earnings

Which of the following accounts are listed in a post-closing trial balance? (Select all that apply)

A. Salaries Expense B. Supplies C. Retained Earnings D. Dividends E. Service Revenue F. Deferred Revenue All

October: Receive cash in advance from customers for services to be performed in November November: Receive cash for services performed in November November: Perform services for customers who paid in advance during October

Accrual-Basis Cash-Basis Do not record revenue Record revenue Record revenue Record revenue Record revenue Do Not Record Revenue

____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned. (Enter only one word.)

Accurals

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

Asset

Reporting revenues only when cash is received and expenses only when cash is paid is called the ____basis of accounting. (Enter one word per blank.)

Cash

On June 30, a company provides $900 of services to customers on account. It usually takes the company one week to mail bills to customers and another week for customers to pay. In June, the adjusting entry is recorded as:

Debit Accounts Receivable $900, Credit Service Revenue $900

A company receives $450 in February for services that will be performed in March. In March, the adjusting entry is recorded as:

Debit Deferred Revenue $450, Credit Service Revenue $450

On January 1, a company pays one year of rent in advance for $12,000 ($1,000 per month). On January 31, the adjusting entry is recorded as:

Debit Rent Expense $1,000, Credit Prepaid Rent $1,000

At the end of May, a company receives a utility bill for $500 associated with operations in May. The company plans to pay the bill on June 10. In May, the adjusting entry is recorded as:

Debit Utilities Expense $500, Credit Utilities Payable $500

A company pays one year of rent in advance on January 1. On January 31, the company will record an adjusting entry that will:

Decrease assets and increase expenses

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

A company receives cash in March for services that it will provide in April. This scenario is an example of a(n):

Deferred revenue Correct. A deferred revenue arises when a company receives cash in advance of providing goods or services

Adjusting entries are made at the ____of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.

End

Under cash-basis accounting, (Select all that apply

Expenses are recorded when cash is paid Revenues are recorded when cash is received

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

In the adjusted trial balance, the balance of the Retained Earnings account is its balance at the end of the accounting period—the balance after all revenue, expense, and dividend transactions.

False Correct. In the adjusted trial balance, the balance of the Retained Earnings account is its balance at the beginning of the accounting period—the balance before all revenue, expense, and dividend transactions

Financial statements are typically prepared before completing the adjusted trial balance.

False Correct. Financial statements are prepared after the adjusted trial balance is complete

A publisher receives cash for a magazine subscription during Year 1. The publisher sends magazines on a monthly basis to that customer in Year 2. According to the revenue recognition principle, the publisher should report the related magazine subscription revenue in its income statement for Year 1 since it received cash for the magazine subscription in Year 1.

False Even though the company received payment in Year 1, the revenue associated with the Year 2 editions should be recorded in Year 2 when the magazines are provided to the customer

A publisher sends magazines on a monthly basis to a customer throughout Year 2. The customer had paid for this subscription in December Year 1. For the February Year 2 edition of the magazine, the publisher purchases paper in January Year 2 by paying cash. When should the company report the costs associated with the purchase of paper?

February Year 2

A primary purpose of adjusting entries is to record events that

Have occurred but that have not yet been recorded

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

In the same period as related revenue

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.

The _____ is the average time between purchasing inventory and receiving cash proceeds from its sale.

Operating Cycle

The closing entry for which of the following accounts will result in an increase in retained earnings?

Revenues

Which of the following is a temporary account?

Salaries Expense

Which of the following provides the balance of retained earnings to be used in a classified balance sheet?

Statement of stockholders' equity

Which of the following is an objective for preparing closing entries?

To transfer the balances of temporary accounts to the Retained Earnings account

The balance of the Retained Earnings account in the post-closing trial balance will be different from that of the adjusted trial balance

True

The adjusted trial balance is used to verify that total debits equal total credits after account balances have been updated to reflect adjusting entries.

True Correct. A trial balance is used to verify that total debits equal total credits. The adjusted trial balance is prepared after account balances have been updated to reflect adjusting entries

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

When costs are recognized as expenses in the income statement