Accounting 225- Chapter 3 – Flashcards
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Prepaid expenses should be ______ by the benefits that were used up during the accounting period.
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decreased
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The steps of the adjustment process at the end of the accounting period in the correct order:
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1. using the unadjusted trial balance, determine the accounts requiring adjustment 2. record the adjusting entries in the journal 3. post the adjusting journal entries to the t-accounts 4. prepare an adjusted trial balance to check the equality of the debits and credits
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The closing entry for the expense accounts involves the following journal entry
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debit=retained earnings credit=expenses
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The adjusting entry for supplies requires a ____ credit to Supplies and a _____ to supplies expense
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-credit -debit
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Examples of prepayments that will require an adjustment at the end of the accounting period on December 31:
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-a company pays a 6 month insurance premium at the beginning of Oct. -a company pays for 4 months of advertising on November 1
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At the beginning of the accounting period, the balances of temporary accounts are:
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zero
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_______ 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.
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Deferred
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How do accrual adjustments affect liabilities and expenses?
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Accrual adjustments can increase liabilities and increase expenses.
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Deferred revenue is a:
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liability
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In the closing process, ______ are zeroed out by crediting each account and _____ are zeroed out by debiting each account.
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-expenses and dividends -revenues
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Closing entries
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entries that transfer the balances of all temporary accounts to retained earnings
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When are long-term liabilities due?
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Not due within the next year
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Current liabilities
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Will be due within the next year
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Liquidity
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an asset that can be quickly turned into cash
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How long are long-term assets expected to provide benefits for?
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More than a year
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Current assets
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assets that provide benefits within the next year
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Total liabilities
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the sum of current and long-term liabilities on a classified balance sheet
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Total assets
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the sum of current and long-term assets on a classified balance sheet
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What does a classified balance sheet show?
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The subtotals for current assets and current liabilities.
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What does the statement of stockholders' equity show?
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-ending balance retained earnings -dividends for the period -net income
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True or false: Each adjusting entry is posted to the general ledger.
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True
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At the time of purchase supplies should be recorded as an:
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asset
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Supplies should be ____ and Supplies Expense should be ___ for supplies used up during the period.
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-decreased -increased
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Depreciation
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an allocation of the cost of buildings, vehicles, and equipment to expense over times as they are used
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Deferred revenue
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arises when a business receives cash in one period but does not provide all of the related goods or services until a later period
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An adjusting entry for accrued expenses involves a:
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-credit to a liability -debit to an expense
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Adjustments for accrued expenses ensure that liabilities are reported as all amounts ____ at the end of the accounting period.
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owed
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Which is permitted under current US GAAP?
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accrual-basis accounting
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How does the timing of adjusting entries differ from the accounting for daily transactions?
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adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient
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Adjustments help to ensure that all _____ are recorded in the period in which they are incurred.
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expenses
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Prepaid rent appears in the:
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balance sheet because its an asset
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What kind of account is interest?
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Expense because it represents all the cost incurred during the period
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Interest
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the cost of borrowing money
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Transactions that do not involve revenues or expenses and transactions that result in revenues and expenses being recorded at the same time as cash flows:
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never require adjusting entries
