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Questions and Answers
What is the periodicity assumption?
What is the periodicity assumption?
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
Which one of these statements about the accrual basis of accounting is false?
Which one of these statements about the accrual basis of accounting is false?
Adjusting entries are made to ensure that:
Adjusting entries are made to ensure that:
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Each of the following is a major type (or category) of adjusting entry except:
Each of the following is a major type (or category) of adjusting entry except:
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The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:
The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:
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Adjustments for unearned revenues:
Adjustments for unearned revenues:
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Adjustments for prepaid expenses:
Adjustments for prepaid expenses:
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Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:
Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:
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Adjustments for accrued revenues:
Adjustments for accrued revenues:
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Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30 is:
Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30 is:
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Which statement is incorrect concerning the adjusted trial balance?
Which statement is incorrect concerning the adjusted trial balance?
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Which account will have a zero balance after a company has journalized and posted closing entries?
Which account will have a zero balance after a company has journalized and posted closing entries?
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Which types of accounts will appear in the post-closing trial balance?
Which types of accounts will appear in the post-closing trial balance?
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All of the following are required steps in the accounting cycle except:
All of the following are required steps in the accounting cycle except:
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Study Notes
Periodicity Assumption
- Defines that the economic life of a business can be divided into artificial time periods.
- Related concepts: revenue recognition principle (when services are performed) and expense recognition principle (matching expenses with revenues).
Expense Recognition Principle
- States that expenses must be matched with the revenues they help to generate in the same period.
- Important for accurate reflection of financial performance.
Accrual Basis of Accounting
- Revenue is recognized when earned, regardless of cash exchange.
- True statements include recognizing revenue once performance obligations are met.
Adjusting Entries
- Made to ensure accurate recognition of expenses and revenues in the correct accounting period.
- Correct adjustments confirm that financial statement accounts reflect true balances.
Major Types of Adjusting Entries
- Prepaid expenses, accrued revenues, and accrued expenses are key categories.
- Unearned expenses are not considered a major adjusting entry type.
Supplies Adjustment
- If supplies on hand are less than recorded, the adjustment involves debiting Supplies Expense and crediting Supplies.
Unearned Revenues
- Adjustment decreases liabilities and increases revenues, reflecting services or goods received before payment is made.
Prepaid Expenses
- Adjustments decrease assets while increasing expenses to align with usage over time.
Depreciation Adjustment
- Depreciation for assets must be recorded through specific journal entries, affecting both expense and accumulated depreciation accounts.
Accrued Revenues
- Adjustments for accrued revenues increase both asset accounts and revenue accounts, acknowledging earnings that have not yet been received in cash.
Salaries and Wages Adjustment
- An adjusting entry is necessary for salaries earned but not yet paid, affecting expense and payable accounts.
Adjusted Trial Balance
- Confirms the equality of total debits and credits after all adjustments; provides groundwork for preparing financial statements.
- Lists both temporary and permanent accounts.
Closing Entries
- Service Revenue will reflect zero balance post-closing entries, while assets and permanent accounts like Supplies and Prepaid Insurance retain their balances.
Post-Closing Trial Balance
- Comprises only permanent accounts, which are not closed at the end of the accounting period.
Steps in the Accounting Cycle
- Key actions include journalizing closing entries, preparing adjusted and post-closing trial balances, and generating financial statements from the adjusted trial balance. Unadjusted trial balance is not used for financial statement preparation.
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Test your knowledge on the periodicity assumption and other key concepts from ACCT207 Chapter 4. These flashcards will help you reinforce your understanding of accounting principles related to time periods and financial reporting. Perfect for exam preparation!