Chapter 4
accrual adjustment involving a revenue account
interest revenue on a note receivable
found on income statement and statement of retained earnings
net income
reported on both income statement and statement of retained earnings
net income
found on statement of retained earnings
net income dividends NOT: sales revenue rent expense interest payable
an adjusting entry affects _______
one balance sheet account and one income statement account
How do temporary accounts differ from permanent accounts?
only temporary accounts are closed at the end of the accounting period
Preparing a _______ trial balance is the last step in the accounting cycle.
post-closing
salaries and wages payable will be paid in the future period, what will be effect on the accounts be when the wages and salaries are paid?
salaries / wages payable will decrease cash will decrease
Found on an income statement
sales rev rent expense interest expense NOT: interest payable prepaid rent dividends
adjusted trial balance
will be used to determine the asset and liability balances on the balance sheet
entries needed for the closing process
-Credit Dividends Declared and debit Retained Earnings - Debit each revenue, credit each expense, and record the difference in Retained Earnings.
Steps at the end of the accounting period to complete the financial statement preparation process
1- prepare adjusted entries 2- prepare adjusted trial balance 3- prepare the financial statements
the purpose of adjusting entries for income taxes is to record income taxes ____________ the accounting period.
accrued, but not yet paid, at the end of
debut to expense and credit to liability
accruing services received that have not yet been paid
What describes the effect that adjustments may have on liabilities?
adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period
after closing process, which accounts will have a zero balance?
all temporary accounts dividends expenses revenues NOT: all permanent accounts retained earnings
used to record the adjusting entry for the amortization of long-term assets that lack physical substance
amortization expense accumulated amortization
if an adjusting entry decreased an asset on the balance sheet, then one can conclude that ....
an expense was increased on the income statement
adjusting entries never affect the asset account called ________
cash
The step in the accounting cycle where entries are recorded to update retained earnings and zero out temporary accounts is referred to as the ________ process.
closing
if an asset account such as equipment has a normal debit balance, the associaled contra-account should have a normal _______ balance
credit
At Dec 31, profit before tax = 12,000 tax rate 25% adjustment will include a __________ of __________ to income tax expense
debit of 3,000
adjusting entry to record interest owed on obligations at the end of the accounting period
debit to interest expense credit to interest payable
salaries and wages payable
debited when the wages that are previously recorded are paid
adjusting entry to record revenue the seller has performed of its obligations but not yet collected
equity increase assets increase
interest incurred but not yet paid
expense and liability
temporary accounts
income statement
the adjusting entry to record interest owned on obligations at the end of the accounting period includes a debit to ____
interest expense and credit to notes payable
adjustment 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
found on a balance sheet
interest payable prepaid rent NOT: dividends rent expense sales revenue interest expense
permanent accounts are found on
only the balance sheet
The adjusting entry for income taxes records income tax that is incurred and _______ by the company.
owed The payable balance represents the amount of taxes owned, but not yet paid.
which line item on the adjusted trial balance reports its beginning balance but on the balance sheet reports its ending balance
retained earnings
why is it necessary to make adjustments to revenue accounts at the end of the accounting period
revenues the seller has performed of its obligations but not yet billed to accounts receivable, should be recorded as revenue. deferred revenue should be reduced for any portion the seller has fulfilled of its obligations during the current period
financial statement reports the dividends during the current accounting period
statement of retained earnings
what are the reports made available to the public?
statement of retained earnings balance sheet notes to the financial statement statement of cash flows income statement
what is the purpose of preparing an adjusted trial balance?
to ensure that total debits equal total credits after the adjustments have been recorded
effects on the financial condition from the adjustment for revenues from the seller fulfilling its obligations that have not yet been collected
total assets increases equity increases
After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents...
total income tax that has been paid or accrued during the period
after adjustments, adjusted balance on Interest Expense account
total interest that has been paid or accrued during the period
T or F: After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet
true
what are the reports that are NOT made available to the public?
unadjusted trial balance
adjusted income before income tax expense is 10,000 tax rate is 20% what is net income?
8,000
adjusting entry for supplies used during the period
credit to supplies debit to supplies expense
adjusting entry to record depreciation on equipment
debit to depreciation expense credit to accumulated depreciation