Ch 4: Adjustments, Financial Statements

In its 1st year of business, Eel Electric purchased $1,000 worth of supplies on account. During the year it paid $700 of the amount it owed for supplies. At the end of the year, it had $200 left of supplies. What is the supplies expense on the income statement equal?

$800

How can accrual adjustments for interest on loans to others that have not been collected affect the balance sheet and income statement?

Accrual adjustments can increase assets and increase revenues.

When are adjusting entries recorded?

At the end of the accounting period, prior to preparation of financial statements

Adjustments help to ensure that all ______ are recorded in the period in which they were incurred.

Expenses

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 (assets increase with debit, decrease with credit)

In deferral adjustment for revenues collected in advance for which the company has now satisfied the performance obligation, _______.

The liability recorded when cash is received is decreased by the adjustment for the amount of the obligation that has been fulfilled.

Why are adjustments needed at the end of the accounting period?

To ensure that all assets and liabilities are reported at appropriate amounts

What are the effects on the accounting equation from the adjustment for depreciation?

Total assets will decrease and total stockholders equity will increase

Deferring a revenue or expense account in accounting means that the amount _____.

Will be reported as a revenue or expense in a later period.

The adjusting entry to record the amount of interest from lending money to others that will be collected later is a(n) ___ adjustment and will cause an increase in _____.

accrual; an asset and revenue

Accrual adjustments are necessary when cash is paid or collected _____.

after the expense is incurred or seller performs its obligation.

After the adjustments have been completed, the balance in the Rent Expense account represents the _______.

cost of rent for the accounting period.

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the

depreciation for the current fiscal year

To determine the adjusting entries, a(n) ________ is prepared.

unadjusted trial balance

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?

-Taggert will debit Insurance Expense for $300 on Sept. 30 -Taggert will credit Prepaid Insurance for $300 on Sept 30 -Taggert will debit prepaid Insurance for $1,800 on Sept. 1

Which of the following transactions constitute an accrual adjustment involving an expense account?

-Wages incurred but not yet paid to employees as of the end of the accounting period -Taxes incurred but not yet paid to the government as of the end of the accounting period

Which of the following types of transactions represent deferral adjustments that are recorded to adjust for amounts expired or used during the period?

-Decrease to prepaid Insurance and increase to Insurance Expense -Decrease to Supplies and increase to Supplies Expense

Which of the following is true regarding depreciation of equipment?

-accumulated depreciation is increased as the equipment is used, causing the carrying value to increase -accumulated depreciation is a contra-account that reports the amount of usefulness used as of the balance sheet date -depreciation is reported in accumulated depreciation which is netted against the related Equipment account on the balance sheet.

Which of the following account balances will typically be reduced as a result of adjusting entries?

-supplies -prepaid rent -deferred revenue