Chapter 3

Which of the following is a characteristic of adjusting entries?

Allows for proper application of the revenue recognition principle (revenues) or expenses recognition.

The adjusting entry to record interest earned during the period includes a:

Credit to Interest Revenue.

In a classified balance sheet, long-term assets used in the normal course of business are known as

Property, plant, and equipment.

Which of the following is an example of an accrued revenue?

Providing services to a customer without having yet collected the cash.

closing entries

made to transfer the balances of temporary accounts to retained earnings

Recording salaries owed to employees that will not be paid by the company until the following accounting period is an example of a(n):

Accrued expense

Financial statements are prepared from which of the following trial balances?

Adjusted trial balance.

Which of the following describes the information reported in the statement of stockholders' equity?

Change in stockholders' equity through changes in common stock and retained earnings.

The adjusting entry to record supplies used during the period includes a:

Debit to Supplies Expense

The balance of retained earnings in the adjusted trial balance:

Equals the balance of retained earnings at the beginning of the accounting period.

Which of the following describes the purpose(s) of closing entries? I. Adjust the balances of asset and liability accounts for unrecorded activity during the period. II. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. III. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

II and III Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

Under cash-basis accounting, companies typically record revenue:

In the period in which we received cash from customers for goods and services.

Under accrual-basis accounting, companies typically report expenses:

In the same period as the revenue they help to generate.

Under cash-basis accounting, companies typically report expenses:

In the same period in which cash is paid.

Which of the following describes the information reported in the statement of cash flows?

Net cash flows from operating, investing, and financing activities.

Which of the following describes the information reported in the income statement?

Net income for the period calculated as revenues minus expenses.

Which of the following describes the information reported in the income statement?

Net income for the period is calculated by subtracting expenses from revenues.

Which of the following is not a characteristic of adjusting entries?

Reduce the balances of revenue, expense, and dividend accounts to zero.

Which of the following is an example of a prepaid expense?

Rent has been purchased in advance.

Which of the following accounts is NOT listed in a post-closing trial balance?

Salaries Expense.

Which of the following accounts is listed in a post-closing trial balance?

Salaries Payable.

Which of the following accounts is not listed in a post-closing trial balance?

Service Revenue.

In a classified balance sheet, liabilities are separated into two categories based on

The length of time until the obligation is expected to be satisfied—less than one year versus more than one year.

Which of the following describes the information reported in the balance sheet?

Total assets equal total liabilities plus stockholders' equity.

Which of the following describes the closing process?

Transfer the balances of temporary accounts (revenues, expenses, and dividends) to retained earnings.

The entry to close the expense accounts includes:

debit to retained earnings

After the closing entries are posted to the accounts, all temporary accounts:

have to balance to zero

The revenue recognition principle states that companies typically record revenue:

in the period in which we provide goods and services to customers.