Podcast
Questions and Answers
Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply)
Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply)
- Businesses report financial information at regular intervals to ensure timeliness of data (correct)
- Decision makers require financial statements that are audited to ensure reliability
- Usefulness of information must reach decision makers frequently and promptly (correct)
- The value of information is often linked to its timeliness (correct)
Accrual basis accounting is defined as: (Check all that apply)
Accrual basis accounting is defined as: (Check all that apply)
- An accounting system which is consistent with generally accepted accounting principles (correct)
- An accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred (correct)
- An accounting system that uses the matching principle to determine when to recognize revenues and expenses (correct)
- An accounting system that recognizes revenues when cash is received and records expenses when cash is paid
The expense recognition (matching) principle aims to record ______ in the same accounting period as the ______ that are earned as a result of those costs. This principle is a major part of the ______ process.
The expense recognition (matching) principle aims to record ______ in the same accounting period as the ______ that are earned as a result of those costs. This principle is a major part of the ______ process.
expenses; revenues; adjusting
Place the steps in the adjusting process in the correct order in which they would be performed.
Place the steps in the adjusting process in the correct order in which they would be performed.
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)
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)
Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply)
Which of the following could be a logical or realistic accounting period for a business that is creating financial statements? (Check all that apply)
Accrual basis accounting recognizes ______ when earned and records ______ when ______ in order to adhere to the matching principle.
Accrual basis accounting recognizes ______ when earned and records ______ when ______ in order to adhere to the matching principle.
Which of the following statements describes the expense recognition (matching) principle? (Check all that apply)
Which of the following statements describes the expense recognition (matching) principle? (Check all that apply)
Describe the final step in the adjusting process.
Describe the final step in the adjusting process.
A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. The required adjusting journal entry on Dec. 31 would include:
A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. The required adjusting journal entry on Dec. 31 would include:
$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. At the end of the period, $200 of supplies still remain. Which is the correct adjusting entry?
$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. At the end of the period, $200 of supplies still remain. Which is the correct adjusting entry?
Which of the following accounts is considered a prepaid expense?
Which of the following accounts is considered a prepaid expense?
What is a plant asset?
What is a plant asset?
Explain what unearned revenues are by choosing the correct statement below.
Explain what unearned revenues are by choosing the correct statement below.
$1,000 of supplies were purchased at the beginning of the month and $300 were used. The required adjusting journal entry includes:
$1,000 of supplies were purchased at the beginning of the month and $300 were used. The required adjusting journal entry includes:
An advance payment of $1,000 for services was received on December 1. By year-end, $400 had been earned. Demonstrate what the correct adjusting entry should include:
An advance payment of $1,000 for services was received on December 1. By year-end, $400 had been earned. Demonstrate what the correct adjusting entry should include:
Which of the accounts below are considered accrued expenses?
Which of the accounts below are considered accrued expenses?
Explain what unearned revenues are by selecting the statements below which are correct.
Explain what unearned revenues are by selecting the statements below which are correct.
Define the Salaries payable account by selecting the appropriate statement below.
Define the Salaries payable account by selecting the appropriate statement below.
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. The required adjusting entry includes:
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. The required adjusting entry includes:
$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. The required adjusting journal entry includes:
$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. The required adjusting journal entry includes:
Explain your understanding of what an accrued expense is by selecting the statements below which are correct.
Explain your understanding of what an accrued expense is by selecting the statements below which are correct.
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. The required journal entry on January 3 includes:
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. The required journal entry on January 3 includes:
Study Notes
Timeliness and Periodic Reporting
- Useful information must be delivered to decision makers frequently and promptly.
- The value of information often correlates with its timeliness.
- Regular financial reporting intervals enhance data timeliness.
Accrual Basis Accounting
- Defined by the matching principle, recognizing revenues and expenses when earned or incurred.
- Consistent with generally accepted accounting principles (GAAP).
- Cash transactions do not dictate recognition of revenues and expenses.
Expense Recognition Principle
- Aims to match expenses with related revenues in the same accounting period.
- Integral to the adjusting process in accounting.
Adjusting Process Steps
- Identify the current account balance, determine the correct balance, then record an adjusting entry in that order.
Insurance Policies and Adjusting Entries
- For a 12-month insurance policy, an adjusting journal entry is necessary for monthly expense recognition.
- Example: A $4,800 policy incurs a $400 expense for one month.
Accounting Periods
- Logical accounting periods include one-month, six-month, and one-year intervals.
Recognizing Revenues and Expenses
- Accrual basis accounting recognizes revenues when earned and expenses when incurred for proper matching.
Regarding Expense Recognition
- Expenses must be matched with revenues in the same accounting period.
- Recognizing revenues when earned is a key aspect of this principle.
Final Step in Adjusting Process
- The last step consists of creating an adjusting journal entry to ensure financial statements are accurate.
Prepaid Expenses
- Prepaid expenses, like insurance and supplies, require adjusting entries to reflect usage.
Plant Assets
- A plant asset is a long-term tangible asset utilized to produce goods or services.
Unearned Revenues
- Cash received in advance for services is classified as unearned revenue, representing a liability until earned.
Accrued Expenses
- Examples include wages and interest expense, which are incurred but not yet paid.
Adjusting Entries for Supplier and Unearned Revenues
- Adjusting entries may involve crediting or debiting unearned revenue and recognizing earned revenue as services are performed.
Salaries Payable Account
- This liability account tracks amounts owed to employees until payment is made.
Interest and Loan Adjustments
- Interest expense must be recognized for loans outstanding over an accounting period, calculated based on the principal and rate.
Handling Adjustments
- Accurate adjustments require proper selection of amounts to be debited or credited, ensuring correct reflection in financial statements.
Overall Adjustments
- Adjustments generally affect both expense and liability accounts, ensuring financial accuracy at period ends.
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Description
This quiz explores key concepts in accounting, focusing on timeliness and periodic reporting, accrual basis accounting, and the expense recognition principle. It emphasizes the importance of adjusting entries in financial reporting and the steps involved in this process. Test your knowledge on these essential accounting practices.
