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Accruals and Pre-payments Adjusting Entries

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Accruals and Pre-payments Adjusting Entries

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Questions and Answers

What is the purpose of an adjusted trial balance?

To prove that total debit and credit balances are equal after adjusting entries (correct)

To prepare adjusting entries for the next accounting period

To calculate the net income for the current period

To prove that total assets equal total liabilities

In the context of financial statements preparation, what follows the adjusted trial balance?

Income Statement (correct)

Statement of Cash Flows

Statement of Owner's Equity

Balance Sheet

What account would typically be debited when recognizing accrued revenues?

Expenses

Unearned Revenue

Accumulated Depreciation

Revenue (correct)

Which account is credited when recognizing unearned revenue?

Revenue Signup and view all the answers

When preparing the financial statements, the adjusted trial balance is used to calculate the ________.

Net income Signup and view all the answers

Which principle requires the preparation of Adjusting Entries in accounting?

Revenue recognition principle Signup and view all the answers

In accrual basis accounting, when are revenues recognized?

When services are performed or goods are sold and delivered Signup and view all the answers

Which accounting concept states that expenses should be recognized in the same period as the related revenue is earned?

Matching concept Signup and view all the answers

What is the purpose of preparing adjusting entries for prepayments in accrual accounting?

To recognize expenses incurred but not yet paid Signup and view all the answers

How are long-lived assets typically expensed in accounting?

Over the useful life of the asset Signup and view all the answers

Which concept divides the economic life of a business into time periods in accounting?

Periodicity concept Signup and view all the answers

What is the purpose of adjusting entries for accruals?

To record revenue or expenses that have occurred but not yet been recorded Signup and view all the answers

Which of the following best describes accrued revenues?

Revenues that have been earned but not yet recorded or received in cash Signup and view all the answers

In an adjusting entry for accrued expenses, what accounts are typically affected?

Liability and expense accounts Signup and view all the answers

What would be the journal entry to record an accrued revenue?

Dr. Accounts Receivable, Cr. Revenue Signup and view all the answers

Accrued expenses are best described as:

Expenses that have been incurred but not yet paid or recorded Signup and view all the answers

Why are adjusting entries important in accrual accounting?

To align reported revenues and expenses with their actual occurrence Signup and view all the answers