SB3

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______

$22,000

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

What are current assets?

Assets that provide benefits within the next year.

When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a $300 debit to ______ and a $300 credit to ______.

Cash; Deferred Revenue

Which activities are part of the operating cycle?

Collecting cash from customers Paying cash to suppliers Selling goods and services

Which of the following expressions correctly calculates "total assets?"

Current assets plus long-term assets

_____ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

Deferred, Unearned, or Deffered

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

asset

Prepaid rent appears in the ______.

balance sheet because it is an asset

The adjusting entry for prepaid rent requires a(n) _____ to Rent Expense and a(n) _____ to Prepaid Rent.

debit or increase; credit or decrease

The post-closing trial balance checks that total _____ equal total _____at the end of the period.

debit; credit

The post-closing trial balance checks that total _____ equal total _____ at the end of the period.

debits;credits

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

Which of these is a long-term liability?

mortgage payable due in 20 years

The information reported in the statement of cash flows is organized by these activities:

operating financing investing

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents:

the cost of supplies remaining at the end of the accounting period

On a classified balance sheet, the sum of current and long-term liabilities refers to _____ liabilities.

total

The sum of current and long-term assets reported on the balance sheet is referred to as

total assets

The post-closing trial balance helps to verify that:

we prepared and posted closing entries correctly the accounts are ready for next period's transactions

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

_____-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company.

accrual

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) _____ when an insurance policy is purchased and will later be expensed in the period used.

asset or debit

The statement of stockholders' equity includes these amounts:

ending balance retained earnings net income dividends for the period

Sabrina Company recorded an adjusting entry for salaries owed to employees at the end of the year. As a result of this entry, Sabrina Company's:

equity decreases liabilities increase

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet?

$35,910

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays for 4 months of advertising in the Wall Street Journal on November 1. A company pays a 6-month insurance premium at the beginning of October.

When recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

_____ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

Depreciation

Which of the following would be referred to as "accruals?"

Expenses incurred, not yet paid Goods and services provided, not yet collected

True or false: A contra-asset account, such as Accumulated Depreciation, will have a normal debit balance.

False

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

True or false: Salaries Receivable is the account used to record salaries owed to employees for work performed during the current period.

False

Which of the following situations matches a journal entry that debits Deferred Revenue and credits Service Revenue.

Goods or services, for which cash was collected in advance, were provided during the current period.

_____ is defined as the "cost of borrowing money."

Interest

Which of the following statements is correct regarding the adjusting entry 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.

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.

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show:

Rent expense of $2,000 Prepaid rent of $22,000

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

Which of the following statements regarding the statement of cash flows are correct?

Reports cash receipts Reports cash disbursements The financial statement that is typically prepared last

Which of the following statements is correct regarding an adjusting entry for salaries accrued but not paid at the end of the accounting period?

Salaries Expense will increase by the amount of the unpaid salaries.

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

Which of the following financial statements typically is prepared last?

Statement of cash flows

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders' equity

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period?

Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. Taggert will credit Prepaid Insurance for $300 on Dec. 31. Taggert will debit Insurance Expense for $300 on Dec. 31.

Which of the following relationships is correct?

Total assets = total liabilities plus stockholders' equity

What are the effects on the accounting equation when an adjusting entry is made for goods or services provided during the accounting period related to an amount previously received in advance from a customer?

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for salaries incurred but not yet paid during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

True or false: The adjusting entry to record depreciation does not directly reduce the long-lived asset accounts, such as Equipment, so that the original cost of the asset remains unchanged.

True

Which of the following statements is correct regarding a long-lived asset such as equipment?

When adjusting entries are recorded, the original cost in the Equipment account will not change.

The adjusting entry for an accrued revenue always includes:

a debit to an asset account a credit to a revenue account

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual-basis accounting.

_____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

accruals

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for _____ entries.

adjusting

A prepayment that is originally recorded as an asset will be ______.

allocated to future accounting periods based on the cost of the asset used during the period

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______.

amount of the prepayment that remains towards future rental periods

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

Adjusting entries:

are needed before financial statement preparation. update the accounts to their proper balances.

At the beginning of the accounting period, the balances of temporary accounts

are zero

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n)

asset

Prepaid insurance is a(n) ______.

asset in the balance sheet

A classified balance sheet shows subtotals for current _____ and current _____

assets; liabilities

Reporting revenues only when cash is received and expenses only when cash is paid is called the

cash basis of accounting

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

After the adjusting entries have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

If an asset account such as Equipment has a normal debit balance, the associated contra account should have a normal _____ balance.

credit

The adjusting entry for supplies used requires a _____ to Supplies and a _____ to Supplies Expense.

credit; debit

Accumulated Depreciation has a normal _____ balance which indicates that it total _____ assets.

credit; decreases

Assets that will be used up or converted to cash within the next year are _____ assets.

current or short-term

On a classified balance sheet, total liabilities represent the sum of _____ and long-term liabilities

current, short-term, short term, or short

On a classified balance sheet, total liabilities represent the sum of _____ and long-term liabilities.

current, short-term, short term, or short

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue credit to Revenue

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

debit to Insurance Expense credit to Prepaid Insurance

An adjusting entry for accrued expenses involves:

debit to an expense credit to a liability

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

As the balance in the Accumulated Depreciation increases, total assets _____ because Accumulated Depreciation is a(n) _____ account.

decrease; contra or negative or contra-asset

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

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

The adjusting entry for equipment depreciation includes a debit to _____ and a credit to _____.

depreciation expense; accumulated depreciation

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation.

The two major categories reported in the income statement are:

expense revenue

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account.

expense; asset

The adjusting entry to record salaries owed to employees at the end of the accounting period includes a debit to "Salaries _____ " and a credit to "Salaries _____."

expense; payable

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) _____ in the period the benefit expires.

expenses

True or false: Accumulated Depreciation is a contra-account to a long-lived asset account, such as Equipment. This means that it is added to the balance of the long-lived asset in the balance sheet.

false

True or false: Total assets must always be equal to total liabilities less stockholders' equity

false

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Revenues and expenses are reported in the:

income statement

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as _____ expense.

interest

A long-term liability:

is not due within the next year

Munster Inc. debits Deferred Revenue and credits Service Revenue. As a result of this adjusting entry, Munster's:

liabilities will decrease equity will increase

Deferred revenue is a(n) ______.

liability

Deferred revenue is reported on the balance sheet as a current _____

liability

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

liability prepaid expense

The adjusting entry for a deferred revenue includes a debit to a(n) _____ account and a credit to a(n) _____ account

liability; revenue

An asset that can quickly be turned into cash has the characteristic of

liquidity

With respect to current assets, _____ refers to how quickly an asset can be converted to cash.

liquidity

With respect to current assets, refers to how quickly an asset _____ can be converted to cash.

liquidity

Assets that provide benefits for more than one year are classified as

long-term

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______.

remaining at the end of the accounting period

Stockholders' equity consists of two main components, common stock and ______.

retained earnings

Which of the following accounts should be classified as stockholders' equity?

retained earnings common stock

As of December 31, the end of the accounting period, $700 of salaries to employees have been incurred but not paid. The employees will be paid on January 5. On December 31, which two of the following will occur?

salaries payable will increase by $700 salaries expense will increase by $700

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

supplies expense; supplies

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary