Accounting Principles Quiz - Adjusting Entries
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Questions and Answers

What is the purpose of an adjusted trial balance?

  • To prove the equality of debits and credits after adjustments. (correct)
  • To prepare financial statements for reporting purposes.
  • To summarize the company's overall profitability.
  • To record the initial entries of debits and credits.

Which entry records a payment made to settle a liability?

  • Debit to Cash.
  • Credit to Cash.
  • Debit to Accounts Payable. (correct)
  • Credit to Accounts Receivable.

How is rent revenue recognized when received in advance?

  • Debit to Cash.
  • Credit to Rent Revenue.
  • Debit to Unearned Rent Revenue.
  • Credit to Unearned Rent Revenue. (correct)

When recording a sale of inventory on account, which account is debited?

<p>Accounts Receivable. (A)</p> Signup and view all the answers

What characterizes a prepaid expense?

<p>An expense paid but currently unmatched with revenues. (A)</p> Signup and view all the answers

Which entry correctly reflects an unearned revenue transaction?

<p>Credit to Unearned Revenue. (C)</p> Signup and view all the answers

In accounting, what does the term 'Cost of Goods Sold' represent?

<p>Expenses directly attributed to inventory sold. (D)</p> Signup and view all the answers

What happens when a company records a sale of inventory?

<p>Inventory is decreased and cost of goods sold is recorded. (A)</p> Signup and view all the answers

What is the main purpose of adjusting entries in financial statements?

<p>To ensure compliance with International Financial Reporting Standards (IFRS) (B)</p> Signup and view all the answers

When are adjustments typically prepared in relation to the statement of financial position date?

<p>After the statement date but dated as of that date (A)</p> Signup and view all the answers

How is an accrued revenue characterized?

<p>Not collected and reported on the income statement (C)</p> Signup and view all the answers

What accounts are affected by an adjusting entry to record an accrued expense?

<p>Debit to an expense account and credit to a liability account (D)</p> Signup and view all the answers

Which of the following best describes accrued expenses?

<p>Expenses that are incurred but not yet paid (D)</p> Signup and view all the answers

In which situation would a company typically need to make an adjusting entry?

<p>When revenue is earned but not yet collected (C)</p> Signup and view all the answers

What is another term for accrual accounting?

<p>Accrual basis accounting (A)</p> Signup and view all the answers

What impact do adjusting entries generally have on financial statements?

<p>They modify the reported income and affect retained earnings (A)</p> Signup and view all the answers

What will occur if an adjusting entry to accrue an expense is not recorded?

<p>Understatement of expenses and an understatement of liabilities. (D)</p> Signup and view all the answers

When Wave Inn makes the adjusting entry for the conference charges, what accounts are affected?

<p>Credit Revenue $270,000. (B)</p> Signup and view all the answers

During December 2019, how much of the cash collected by Wave Inn represents unearned revenue?

<p>$90,000. (A)</p> Signup and view all the answers

What impact does the adjusting entry on December 31, 2019, have on Wave Inn's equity?

<p>Decreases liabilities by $30,000. (B)</p> Signup and view all the answers

If Wave Inn earned one third of the collected cash by the end of December 2019, how much is recognized as revenue?

<p>$30,000. (A)</p> Signup and view all the answers

In the absence of an adjusting entry for unearned revenue, which financial statement would show a distortion?

<p>Balance Sheet shows incorrect liabilities. (A)</p> Signup and view all the answers

What represents the total charges for the conference held at Wave Inn?

<p>$360,000. (B)</p> Signup and view all the answers

How much cash did Spin Jammers pay immediately for the conference?

<p>$90,000. (B), $90,000. (C)</p> Signup and view all the answers

How will the adjusting entry impact Cara, Inc.’s statement of financial position at December 31, 2019, considering supplies costing TL2,500 with TL1,000 still on hand?

<p>Decrease Assets TL1,500. (B)</p> Signup and view all the answers

What accounts are involved in the adjusting entry when an expense has been incurred but not yet paid or recorded during an accounting period?

<p>A liability account and an expense account. (D)</p> Signup and view all the answers

What is the net effect on equity for Maso Company after issuing ordinary shares for $50,000, paying $13,000 on accounts payable, and paying salaries of $21,000?

<p>Increase of $29,000. (A)</p> Signup and view all the answers

What is the net impact on equity for Mune Company after declaring R$55,000 in dividends, increasing accounts receivable by R$32,000, and purchasing equipment for R$21,000?

<p>Decrease of R$23,000. (A)</p> Signup and view all the answers

What is the correct adjusting entry for Panda Corporation on December 31, 2019, for one year’s rent paid in advance of Rp12,000?

<p>Debit Prepaid Rent and credit Rent Expense, Rp7,000. (B)</p> Signup and view all the answers

What is the effect of recording an entry for the payment of accounts payable on a company’s liabilities?

<p>Decrease liabilities by the amount paid. (C)</p> Signup and view all the answers

If a company incurs an expense during the period but has not yet recorded it, which financial position element is primarily affected at the end of the period?

<p>Increase in liabilities. (B)</p> Signup and view all the answers

After accounting for both dividends declared and the increase in accounts receivable, what other factor must be considered in calculating the overall change in equity?

<p>Expenses incurred during the period. (C)</p> Signup and view all the answers

Which of the following is an example of an accrued expense?

<p>Property taxes incurred during the year, to be paid in the first quarter of the subsequent year. (D)</p> Signup and view all the answers

Which statement regarding adjusting entries is false?

<p>Each adjusting entry affects one revenue account and one expense account. (B)</p> Signup and view all the answers

Which statement about the adjusted trial balance is false?

<p>Companies can prepare the statement of cash flows directly from the adjusted trial balance. (D)</p> Signup and view all the answers

What does an accrued expense represent?

<p>An expense that is incurred but not yet paid. (A)</p> Signup and view all the answers

Which of the following is not a purpose of adjusting entries?

<p>To correct any errors made in the bookkeeping process. (C)</p> Signup and view all the answers

Which type of accounts are affected by adjusting entries?

<p>Both permanent and temporary accounts. (A)</p> Signup and view all the answers

When are adjusting entries typically made?

<p>At the end of an accounting period before financial statements are prepared. (D)</p> Signup and view all the answers

What is the main benefit of preparing an adjusted trial balance?

<p>It helps ensure the accuracy of the financial statements before finalization. (A)</p> Signup and view all the answers

Flashcards

Adjusted Trial Balance

A document showing debits and credits after adjustments are made.

Payment on Account

Recording a payment made to settle a pending account.

Receipt of Rent Revenue (in advance)

Recording rent received before it's earned.

Inventory Sales (on account)

Recording the sale of inventory, where payment is expected later.

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Prepaid Expense

An expense paid in advance, not yet matched with revenue.

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Accounts Payable

Amount owed to suppliers for goods or services.

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Accounts Receivable

Amounts owed to a company by customers.

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Journal Entry

A record of a financial transaction; balancing debits and credits.

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Adjusting Entries

Entries made at the end of an accounting period to ensure financial statements accurately reflect current financial position and performance.

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Accrual Accounting

A method of accounting where revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid.

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Why are adjustments often prepared after the financial statement date?

Adjustments are often prepared after the financial statement date because they are based on the need to accurately reflect transactions that occurred during the period, even if cash hasn't been exchanged yet. This ensures the financial statements are accurate and complete.

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Accrued Revenue

Revenue earned but not yet collected in cash.

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Accrued Expense

An expense incurred but not yet paid.

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Adjusting Entry for Accrued Expense

An adjusting entry for an accrued expense debits the expense account and credits a liability account (often called 'Accrued Expenses').

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Why is adjusting entries important?

Adjusting entries are important because they ensure that financial statements accurately reflect the company's financial position and performance, preventing distortions and misleading information.

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What is the purpose of adjusting entries?

Adjusting entries are used to update accounts to make them reflect the current financial situation, including expenses incurred but not yet paid, and revenue earned but not yet collected.

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Failure to Record an Adjusting Entry

Omitting an adjusting entry for accrued expenses causes an understatement of expenses and an understatement of liabilities.

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Unearned Revenue

Revenue received but not yet earned. It represents a liability for the business.

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Adjusting Entry for Unearned Revenue

A journal entry made at the end of an accounting period to recognize revenue earned from previously collected unearned revenue. It decreases liabilities and increases equity.

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Impact of Adjusting Entry on Statement of Financial Position

Adjusting entries for unearned revenue affect the statement of financial position by decreasing liabilities (unearned revenue) and increasing equity (revenue earned).

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Adjusting Entry for Revenue Earned

A journal entry made at the end of an accounting period to recognize earned revenue for services provided but not yet billed. It increases assets (accounts receivable) and increases equity (revenue earned).

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Revenue Recognition

The principle that revenue should be recognized when it is earned, regardless of when cash is received.

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Supplies Adjustment

Adjusting the Supplies account to reflect the actual amount of supplies used during the period. This involves decreasing the Supplies asset and increasing the Supplies Expense.

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Impact of Adjusting Entry on Financial Position

Adjusting entries impact the balance sheet by adjusting assets, liabilities, and equity to reflect the true financial position of the business.

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Net Effect on Equity

The overall impact on equity (owner's stake) after considering all journal entries related to revenues, expenses, and owner investments.

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What is FALSE about Adjusting Entries?

Each adjusting entry affects one revenue and one expense account.

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What is FALSE about the Adjusted Trial Balance?

You can prepare the statement of cash flows directly from it.

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What makes an Accrued Expense different?

It's an expense incurred but not yet paid for. The business owes the expense.

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What is a FALSE statement about the Adjusted Trial Balance?

You can prepare the statement of cash flows directly from it.

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What is the purpose of the Adjusted Trial Balance?

To demonstrate the balance after making adjustments to accounts at the end of an accounting period.

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Study Notes

Question 1

  • A document proving the equality of debits and credits after adjustments is the adjusted trial balance.

Question 2

  • A journal entry for a payment on account debits Accounts Payable.

Question 3

  • A journal entry for a rent revenue receipt in advance credits Unearned Rent Revenue.

Question 4

  • A journal entry for inventory sale on account debits Accounts Receivable.

Question 5

  • A prepaid expense is an amount paid but not yet matched with revenues.

Question 6

  • Adjusting entries are needed for financial statements to conform to IFRS.
  • Adjusting entries are often prepared after the statement of financial position date, but dated as of that date.
  • Adjusting entries include accruals and deferrals.

Question 7

  • Adjustments are often prepared after the statement of financial position date, but dated as of that date.

Question 8

  • An accrued revenue is an amount not collected but reported on the income statement.

Question 9

  • An adjusting entry for an accrued expense debits an expense account and credits a liability account.

Question 10

  • If supplies costing TL2,500 were purchased and TL1,000 are still on hand at year-end, the adjusting entry decreases assets by TL1,500.

Question 11

  • An expense incurred but not paid or recorded requires a liability account and an expense account in the adjusting entry.

Question 12

  • Issuing shares of $50,000, paying accounts payable of $13,000, and paying salaries and wages of $21,000 increases equity by $29,000.

Question 13

  • Declaring dividends of R$55,000, increasing accounts receivable by R$32,000, and purchasing equipment for R$21,000 decreases equity by R$23,000.

Question 14

  • Paying rent in advance of Rp12,000 for one year requires debiting Rent Expense and crediting Prepaid Rent for Rp7,000 at year-end.

Question 15

  • Failure to record an adjusting entry for an accrued expense understates expenses and understates liabilities.

Question 16

  • Wave Inn's adjusting entry for Spin Jammers' conference charges at year-end credits Revenue by $270,000.

Question 17

  • Collecting cash for reservations and recording it as unearned revenue at year-end requires decreasing liabilities by $30,000.

Question 18

  • An example of an accrued expense is property taxes incurred during the year, to be paid the next quarter.

Question 19

  • An adjusting entry affects one revenue account and one expense account.

Question 20

  • Companies cannot prepare the statement of cash flows directly from the adjusted trial balance.

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Tutorial 1 Past Exam Questions (Oct 2024)

Description

Test your knowledge on key concepts related to adjusting entries in accounting. This quiz covers topics such as trial balances, journal entries, and the importance of adjustments for financial statements. Perfect for students learning about accounting practices and IFRS compliance.

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