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Questions and Answers
What is Accrual Basis Accounting?
What is Accrual Basis Accounting?
What is Cash Basis Accounting?
What is Cash Basis Accounting?
Reporting revenues only when cash is received and expenses only when cash is paid
What is a primary purpose of adjusting entries?
What is a primary purpose of adjusting entries?
To record events that have occurred but that have not yet been recorded
Prepaid Insurance is considered a liability on the balance sheet.
Prepaid Insurance is considered a liability on the balance sheet.
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Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.
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What accounting basis records revenues when goods and services are provided?
What accounting basis records revenues when goods and services are provided?
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What are Adjusting Entries used for?
What are Adjusting Entries used for?
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When should Adam Corporation record expenses?
When should Adam Corporation record expenses?
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Adjusting entries are made at the ______ of the accounting period.
Adjusting entries are made at the ______ of the accounting period.
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What are the two major categories reported in the income statement?
What are the two major categories reported in the income statement?
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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.
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.
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When should supplies be recorded as an expense?
When should supplies be recorded as an expense?
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What do companies that utilize accrual-based accounting systems do at year-end?
What do companies that utilize accrual-based accounting systems do at year-end?
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Which financial statement reports beginning balances for common stock and retained earnings?
Which financial statement reports beginning balances for common stock and retained earnings?
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What is Cash Basis Accounting?
What is Cash Basis Accounting?
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A classified balance sheet shows subtotals for current and ______.
A classified balance sheet shows subtotals for current and ______.
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Where are revenues and expenses reported?
Where are revenues and expenses reported?
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How is information reported in the statement of cash flows organized?
How is information reported in the statement of cash flows organized?
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Prepaid rent appears in the ______ because it is an asset.
Prepaid rent appears in the ______ because it is an asset.
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What does the adjusted balance in the Supplies Expense account represent after adjusting entries?
What does the adjusted balance in the Supplies Expense account represent after adjusting entries?
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What are the two purposes of closing entries?
What are the two purposes of closing entries?
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What amounts does the statement of stockholders' equity include?
What amounts does the statement of stockholders' equity include?
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A classified balance sheet groups asset and liabilities into current and long-term categories.
A classified balance sheet groups asset and liabilities into current and long-term categories.
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Which financial statement is typically prepared last?
Which financial statement is typically prepared last?
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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 _____.
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 _____.
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How do temporary accounts differ from permanent accounts?
How do temporary accounts differ from permanent accounts?
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Which financial statement reports beginning balances for common stock and retained earnings?
Which financial statement reports beginning balances for common stock and retained earnings?
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Which statements regarding the statement of cash flows are correct?
Which statements regarding the statement of cash flows are correct?
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A prepayment that is originally recorded as an asset will be ______.
A prepayment that is originally recorded as an asset will be ______.
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The post-closing trial balance checks that total ____ equal total ______ at the end of the period.
The post-closing trial balance checks that total ____ equal total ______ at the end of the period.
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What are the entries that transfer the balances of all temporary accounts to retained earnings referred to as?
What are the entries that transfer the balances of all temporary accounts to retained earnings referred to as?
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At the beginning of the accounting period, the balances of temporary accounts are non-zero.
At the beginning of the accounting period, the balances of temporary accounts are non-zero.
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Which checks does the post-closing trial balance verify?
Which checks does the post-closing trial balance verify?
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Study Notes
Accounting Principles and Concepts
- Accrual Basis Accounting: Measures and reports revenues and expenses to accurately reflect a company's net income.
- Cash Basis Accounting: Records revenues and expenses only when cash is actually received or paid, simplifying the accounting process.
Adjusting Entries and Their Importance
- Purpose of Adjusting Entries: To record events that have occurred but remain unrecorded by the end of the accounting period.
- Timing of Adjusting Entries: Made at the end of the accounting period to update balances for assets, liabilities, revenues, and expenses.
Financial Statement Preparation
- Income Statement: Reports two major categories: revenue and expenses, reflecting a company's financial performance.
- Statement of Stockholders' Equity: Includes net income, dividends, and changes in equity positions over the period.
- Statement of Cash Flows: Organized by three activities: investing, operating, and financing; typically prepared last in the financial reporting sequence.
Assets and Expenses
- Prepaid Insurance and Prepaid Rent: Listed as assets on the balance sheet until they expire or are used, at which point they are recorded as expenses.
- Supplies: Recorded as an expense in the period they are used, regardless of when they were purchased.
Closing Entries and Temporary Accounts
- Closing Entries: Serve two purposes: transferring balances of temporary accounts to retained earnings and resetting temporary accounts to zero for the new period.
- Temporary vs. Permanent Accounts: Temporary accounts are cleared at the end of the period, while permanent accounts carry their balances forward.
Balance Sheet Components
- Classified Balance Sheet: Groups assets and liabilities into current and long-term categories, providing clarity on financial position.
- Post-Closing Trial Balance: Verifies that total debits equal total credits at the end of the period, ensuring accuracy before starting a new accounting cycle.
Key Adjustments
- Adjusting entries for prepaid items will result in a decrease in the asset account and an increase in the respective expense account.
- It is crucial for companies utilizing accrual-basis accounting to record adjusting entries at the end of the period to complete the measurement process.
Financial Statements Overview
- Understanding various financial statements ensures accurate representation of a company's financial health and operational performance.
- Both current and long-term financial metrics are critical for stakeholders assessing company performance and making investment decisions.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge of key accounting concepts with these flashcards from Chapter 3. This quiz focuses on important accounting methods like accrual and cash basis accounting, as well as the purpose of adjusting entries. Perfect for accounting students looking to reinforce their understanding of foundational terms and definitions.
