Intro to Accounting Chapter 3 SmartBook

The expense recognition (matching) principle aims to record (expenses/assets/liabilities) in the same accounting period as the (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the (timing/adjusting/estimating) process.

Blank 1: expenses Blank 2: revenues Blank 3: adjusting

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry on January 3 by selecting from the choices below. (Check all that apply.)

Cash would be credited for $4,000. Salaries payable will be debited for $500. Salaries expense would be debited for $3,500.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Which of the following describe the Salaries payable account? (Check all that apply.)

It is increased with a credit. It is reported on the balance sheet. It reports amounts owed to employees. It is a liability account.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

Profit margin is the ratio of a business's net income to its net sales. Profit margin is also called return on sales. Profit margin is a useful measure of a business's operating results.

Which of the accounts below would appear in the equity section of a classified balance sheet?

Retained Earnings

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

Accrual basis accounting is defined as: (Check all that apply.)

an accounting system that uses the matching principle to determine when to recognize revenues and expenses. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system which is consistent with generally accepted accounting principles.

When does the closing process take place?

at the end of an accounting period

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

lists current assets in the order of how quickly they can be converted to cash. organizes assets and liabilities into important subgroups.

Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply.)

one-month one-year six-month

Accrued _____ are earned in a period that are both unrecorded and not yet received in cash.

revenues

Given the following information for Mouse Inc., calculate its profit margin for the year 2018. $ in thousands 2018 / 2019 Net income $ 500 / $ 450 Net sales 3500 / 3650 Accounts receivable 2150 / 1500

14.29%

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

Which of the statements below describe(s) a temporary account? (Check all that apply.)

A temporary account is closed at the end of an accounting period. A temporary account has a balance for only one period.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

The closing process takes place at the (end/beginning) of an accounting period, after the (adjusted/unadjusted) trial balance is prepared and (after/before) the financial statements are prepared.

Blank 1: end Blank 2: adjusted Blank 3: after

The formula to figure out the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Blank 1: net income Blank 2: net sales

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (revenues/expenses/liabilities) when (incurred/paid) in order to adhere to the matching principle.

Blank 1: revenues Blank 2: expenses Blank 3: incurred

Current items can be described as those expected to come due within one (month/year) and are listed in the order of how (quickly/slowly) they could be converted to or paid in cash.

Blank 1: year Blank 2: quickly

On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Accounts receivable for $600.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Prepaid rent Office supplies Accounts receivable Cash

Which of the following accounts is considered a prepaid expense?

Supplies

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Supplies Prepaid insurance Prepaid rent

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies expense would be debited for $300. Supplies would be credited for $300.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.)

Temporary accounts are reported on the income statement. Permanent accounts are reported on the balance sheet. Retained Earnings is a permanent account, but Dividends is a temporary account. Temporary accounts have a balance for one period only. Permanent accounts will appear on a post-closing trial balance.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle refers to steps followed by a company to prepare its financial statements. The cycle contains steps for adjusting and closing accounts. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle contains 10 steps.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is used to prepare financial statements.

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

The income statement is the first financial statement prepared after preparing the adjusted trial balance. The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. The adjusted trial balance includes all accounts and balances appearing in financial statements. Financial statements are easier to prepare using the adjusted trial balance than the general ledger.

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

The value of information is often linked to its timeliness. Businesses report financial information at regular intervals to ensure timeliness of data. Useful information must reach decision makers frequently and promptly.

Which of the following describes accrued revenue? (Check all that apply)

They refer to revenues that are earned in a period, but have not been received and are unrecorded. Accounts receivable is usually increased when accruing revenues. The adjustment causes an increase in an asset account and an increase in a revenue account. They refer to earnings which have been earned but not yet billed.

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent

Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product.

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Dividends

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Select all that apply).

credit services revenue debit accounts receivable

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

credit to Prepaid insurance for $400. debit to Insurance expense for $400.

The revenue recognition principle states that revenue:

should be recorded when goods or services are provided to customers at an amount expected to be received

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation.

1. Prepare an unadjusted trial balance. 2. Journalize and post adjusting entries. 3. Prepare and adjusted trial balance. 4. Prepare financial statements.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. They are reported on an income statement. Examples of accrued expenses are wages expense and interest expense.

Determine which of the following transactions may require adjustments. (Check all that apply.)

An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. a 24-month insurance policy was prepaid Six months of rent were paid in advance. Supplies were purchased at the beginning of the year, but not all were used. Equipment was purchased in the middle of the year.

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Service revenue) account and (debit/credit) the (Unearned revenue/Accounts receivable/Cash/Service revenue) account.

Blank 1: Accounts receivable Blank 2: credit Blank 3: Service revenue

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) account and (debit/credit) the Interest (expense/payable/receivable) account.

Blank 1: expense or expenses Blank 2: credit Blank 3: payable

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and (debit/credit) the (Cash/Accounts receivable/Interest revenue/Interest receivable) account.

Blank 1: interest receivable Blank 2: credit Blank 3: interest revenue

A post-closing trial balance is a list of (permanent/temporary) accounts and their balances from the (journal/ledger) (after/before) all (adjusting/closing) entries have been journalized and posted.

Blank 1: permanent Blank 2: ledger Blank 3: after Blank 4: closing

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600.

Place the steps in the adjusting process in the correct order in which they would be performed.

Determine what the current account balance is. Determine what the correct account balance should be. Record an adjusting entry.

A plant asset can be defined by which of the following statements? (Check all that apply.)

Its original cost (minus any salvage value) is expensed over its useful life. It has a life within the business greater than one year or the current operating cycle, whichever is longer. It is reported on the balance sheet. It is a tangible long-term asset.

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700. Unearned revenue would be debited for $700.

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They are a liability. They are reported on a balance sheet. They are also called deferred revenues. They refer to cash received in advance of performing a service or product.