Accounting Concepts Week 3 Flashcards

Questions and Answers

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

Consistent with the ______-basis of accounting, we record revenue when we provide goods and services to customers.

accrual

When should supplies be recorded as an expense?

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

Reporting revenues only when cash is received and expenses only when cash is paid is called the _____ basis of accounting.

cash Signup and view all the answers

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses Signup and view all the answers

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

A company pays for 4 months of advertising in the Wall Street Journal on November 1. Signup and view all the answers

Prepaid insurance is a(n) ______.

Asset in the balance sheet Signup and view all the answers

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

Used during the accounting period Signup and view all the answers

Under cash-basis accounting, (Select all that apply.)

Revenues are recorded when cash is received. Signup and view all the answers

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. Signup and view all the answers

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

depreciation Signup and view all the answers

Prepaid rent appears in the ______.

Balance sheet because it is an asset Signup and view all the answers

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

Decreased; increased Signup and view all the answers

Adam Corporation should record expenses when:

Paid Signup and view all the answers

Adjusting entries are made at the end of the _____ accounting period.

end Signup and view all the answers

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

Depreciation Signup and view all the answers

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 Signup and view all the answers

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased Signup and view all the answers

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. Signup and view all the answers

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 Signup and view all the answers

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

liability; revenue Signup and view all the answers

The adjusting entry for accrued revenue always includes:

a debit to an asset account and a credit to a revenue account Signup and view all the answers

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

Adjusting entries for accrued expenses can increase liabilities and increase expenses. Signup and view all the answers

___ is defined as the 'cost of borrowing money.'

Interest Signup and view all the answers

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 Signup and view all the answers

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. Signup and view all the answers

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

Interest Signup and view all the answers

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

recording of adjusting entries Signup and view all the answers

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. When should Mainzel recognize the related revenue using accrual accounting?

Dec 31 Signup and view all the answers

Revenue in the income statement for the year ended December 31, 2018 equals the _____

amount earned by selling goods or services to customers during 2018 Signup and view all the answers

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts _____ at the end of the accounting period.

owed Signup and view all the answers

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

adjusting Signup and view all the answers

The primary components of net income are:

Revenues Signup and view all the answers

Which of the following line items appear in an income statement?

Sales Revenue Signup and view all the answers

A classified balance sheet _____

groups assets and liabilities into current and long-term categories Signup and view all the answers

Temporary accounts include ___, _, and ___.

Revenues Signup and view all the answers

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. Signup and view all the answers

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

closing entries Signup and view all the answers

Temporary accounts are found in:

income statement Signup and view all the answers

In the closing process, are zeroed out by crediting each account and are zeroed out by debiting each account.

expenses and dividends; revenues Signup and view all the answers

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should:

Debit retained earnings and credit dividends Signup and view all the answers

Identify the entries needed for the closing process.

Debit Dividends Declared and Credit Retained Earnings. Signup and view all the answers

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

debits; credits Signup and view all the answers

Which of the following would be included (added or subtracted) in the calculation of retained earnings?

Revenues Signup and view all the answers

Study Notes

Accounting Principles and Adjustments

Prepayments recorded as assets will be allocated to future periods based on the cost incurred.
Revenue is recognized under accrual accounting when goods/services are provided, while expenses align with the period costs are used.
Supplies are recorded as expenses in the period they are utilized, not necessarily when purchased.
Cash-basis accounting records revenues upon cash receipt and expenses upon cash payment.
Adjusting entries ensure that all expenses are recorded within the correct period.

Prepayments and Adjusting Entries

Transactions involving prepayments, such as utility bills and insurance premiums, require adjustments at the end of the accounting period.
Prepaid insurance and prepaid rent are classified as assets on the balance sheet.
Adjusting entries decrease asset accounts and increase related expense accounts for prepaid items.

Cash-Basis Accounting

Under cash-basis accounting, expenses are recorded when cash is paid, and revenues when cash is received, rather than when earned or incurred.
Accrued revenue adjusting entries increase assets and revenues, reflecting income not yet received.

Types of Revenue and Expense Adjustments

Deferred revenue arises when cash is received before goods/services are provided, requiring future adjustment entries.
Adjusting entries for accrued expenses increase liabilities and signal costs incurred but not yet paid.
Interest expense accumulates throughout the period and is recognized as it incurs.

Income Statement and Closing Process

Net income consists of revenues minus expenses.
Income statement items include Sales Revenue and Salaries Expense.
Temporary accounts, such as revenues, expenses, and dividends, are closed to Retained Earnings at year-end.

Retained Earnings and Trial Balance

The closing process involves transferring balances of temporary accounts to Retained Earnings, ensuring all accounts are appropriately zeroed out.
The post-closing trial balance verifies that total debits equal total credits, confirming the accuracy of the closing entries.

Key Definitions

Depreciation is the allocation of an asset's cost as an expense over its useful life.
Interest is characterized as the cost incurred for borrowed funds.
Adjusting entries are crucial for accurate financial reporting and recognizing all incurred expenses and revenues.

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Test your knowledge on key accounting principles with these flashcards focused on Week 3 concepts. Each card features essential terms and their definitions, helping you reinforce your understanding of accrual accounting and asset allocation.

Accounting Concepts Week 3 Flashcards

Questions and Answers

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

Consistent with the ______-basis of accounting, we record revenue when we provide goods and services to customers.

When should supplies be recorded as an expense?

Reporting revenues only when cash is received and expenses only when cash is paid is called the _____ basis of accounting.

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

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

Prepaid insurance is a(n) ______.

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

Under cash-basis accounting, (Select all that apply.)

Which of the following pre-payments requires an adjusting entry at the end of the year?

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

Prepaid rent appears in the ______.

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

Adam Corporation should record expenses when:

Adjusting entries are made at the end of the _____ accounting period.

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

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 ____.

When should supplies be recorded as an expense?

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

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.

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

The adjusting entry for accrued revenue always includes:

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

___ is defined as the 'cost of borrowing money.'

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

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

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

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

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. When should Mainzel recognize the related revenue using accrual accounting?

Revenue in the income statement for the year ended December 31, 2018 equals the _____

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts _____ at the end of the accounting period.

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

The primary components of net income are:

Which of the following line items appear in an income statement?

A classified balance sheet _____

Temporary accounts include _____, _____, and _____.

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

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

Temporary accounts are found in:

In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account.

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should:

Identify the entries needed for the closing process.

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

Which of the following would be included (added or subtracted) in the calculation of retained earnings?

Study Notes

Accounting Principles and Adjustments

Prepayments and Adjusting Entries

Cash-Basis Accounting

Types of Revenue and Expense Adjustments

Income Statement and Closing Process

Retained Earnings and Trial Balance

Key Definitions

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Description

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

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 .

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.

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

Temporary accounts include ___, _, and ___.

In the closing process, are zeroed out by crediting each account and are zeroed out by debiting each account.

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