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Questions and Answers
Accrual basis accounting recognizes ___ when the service or product is delivered and records ___ when ___ in order to adhere to the matching principle.
Accrual basis accounting recognizes ___ when the service or product is delivered and records ___ when ___ in order to adhere to the matching principle.
revenues; expenses; incurred
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)
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)
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.
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Demonstrate the required adjusting journal entry on Dec. 31 for a 12-month insurance policy purchased on Dec. 1 for $3,600.
Demonstrate the required adjusting journal entry on Dec. 31 for a 12-month insurance policy purchased on Dec. 1 for $3,600.
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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)
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Accrual basis accounting is defined as: (Check all that apply)
Accrual basis accounting is defined as: (Check all that apply)
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The expense recognition ___ principle requires that be recorded in the same accounting period as the ___ that are recognized as a result of those costs. This principle is a major part of the ___ process.
The expense recognition ___ principle requires that be recorded in the same accounting period as the ___ that are recognized as a result of those costs. This principle is a major part of the ___ process.
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Describe the final step in the adjusting process.
Describe the final step in the adjusting process.
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The required adjusting journal entry on December 31 for a 12-month insurance policy purchased on Dec. 1 for $4,800 includes: (Check all that apply)
The required adjusting journal entry on December 31 for a 12-month insurance policy purchased on Dec. 1 for $4,800 includes: (Check all that apply)
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What does the revenue recognition principle state?
What does the revenue recognition principle state?
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For the adjusting journal entry for $1,000 of supplies purchased at the beginning of the month, which of the following is correct? (Check all that apply)
For the adjusting journal entry for $1,000 of supplies purchased at the beginning of the month, which of the following is correct? (Check all that apply)
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Which account is considered a prepaid expense?
Which account is considered a prepaid expense?
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A plant asset can be defined by which of the following statements? (Check all that apply)
A plant asset can be defined by which of the following statements? (Check all that apply)
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Explain what unearned revenues are.
Explain what unearned revenues are.
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What would be the adjusting entry for supplies purchased at the beginning of the month valued at $800, with $200 remaining?
What would be the adjusting entry for supplies purchased at the beginning of the month valued at $800, with $200 remaining?
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Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply)
Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply)
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Select the correct statements regarding accrued expenses. (Check all that apply)
Select the correct statements regarding accrued expenses. (Check all that apply)
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What is a plant asset?
What is a plant asset?
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Select the correct statements regarding unearned revenues. (Check all that apply)
Select the correct statements regarding unearned revenues. (Check all that apply)
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What is the proper adjusting entry for $500 of salaries that employees have earned but will not be paid until the next pay period?
What is the proper adjusting entry for $500 of salaries that employees have earned but will not be paid until the next pay period?
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For a $4,000 loan from the bank at 9% interest, which is the required adjusting entry after 30 days?
For a $4,000 loan from the bank at 9% interest, which is the required adjusting entry after 30 days?
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Which of the accounts below are considered accrued expenses? (Check all that apply)
Which of the accounts below are considered accrued expenses? (Check all that apply)
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Demonstrate the required journal entry on January 3 for accrued salaries. (Check all that apply)
Demonstrate the required journal entry on January 3 for accrued salaries. (Check all that apply)
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Which of the following statements reflect the required adjusting entry if employees have earned salaries of $650 that will be paid later? (Check all that apply)
Which of the following statements reflect the required adjusting entry if employees have earned salaries of $650 that will be paid later? (Check all that apply)
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For a loan of $10,000 at 5% interest after 45 days, what is the required adjusting entry? (Check all that apply)
For a loan of $10,000 at 5% interest after 45 days, what is the required adjusting entry? (Check all that apply)
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Accrued ___ are earned in a period that are both unrecorded and not yet received in cash.
Accrued ___ are earned in a period that are both unrecorded and not yet received in cash.
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What is the journal entry for accrued salaries for Sheldon Company?
What is the journal entry for accrued salaries for Sheldon Company?
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What is the adjusting entry for catering services completed but not recorded?
What is the adjusting entry for catering services completed but not recorded?
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For earned but not recorded interest of $200, the required adjusting entry involves debiting the ___ account and ___ the ___ account.
For earned but not recorded interest of $200, the required adjusting entry involves debiting the ___ account and ___ the ___ account.
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Which of the following describes accrued revenue? (Check all that apply)
Which of the following describes accrued revenue? (Check all that apply)
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The required adjusting entry for a service completed for $400 that had not been billed involves debiting the ___ account and ___ the ___ account.
The required adjusting entry for a service completed for $400 that had not been billed involves debiting the ___ account and ___ the ___ account.
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What is the required half of the adjusting entry for $600 interest earned but not recorded?
What is the required half of the adjusting entry for $600 interest earned but not recorded?
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Select the journal entries on January 31 for the customer payment of $900 including a previous $500 owed. (Check all that apply)
Select the journal entries on January 31 for the customer payment of $900 including a previous $500 owed. (Check all that apply)
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Which transactions may require adjustments? (Check all that apply)
Which transactions may require adjustments? (Check all that apply)
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Journal entry for a customer payment of $900 that includes a previous balance of $500 owed? (Check all that apply)
Journal entry for a customer payment of $900 that includes a previous balance of $500 owed? (Check all that apply)
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Identify which group of accounts may require adjustments at the end of the accounting period. (Check all that apply)
Identify which group of accounts may require adjustments at the end of the accounting period. (Check all that apply)
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What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply)
What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply)
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To prepare an income statement using the account balances on an adjusted trial balance, all of the ___ and their credit balances are transferred to the income statement as well as all of the ___ and their ___ balances.
To prepare an income statement using the account balances on an adjusted trial balance, all of the ___ and their credit balances are transferred to the income statement as well as all of the ___ and their ___ balances.
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Which of the following statements correctly define(s) a profit margin? (Check all that apply)
Which of the following statements correctly define(s) a profit margin? (Check all that apply)
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Explain the difference between the unadjusted and the adjusted trial balance.
Explain the difference between the unadjusted and the adjusted trial balance.
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The formula to figure out the profit margin of a company is ___ divided by ___.
The formula to figure out the profit margin of a company is ___ divided by ___.
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Study Notes
Accrual Basis Accounting
- Recognizes revenues when goods/services are delivered.
- Records expenses when incurred to follow the matching principle.
- Expense recognition (matching) involves aligning expenses with the revenues they generate.
Accounting Periods
- Common accounting periods include one-month, six-month, and one-year.
Adjusting Process Steps
- Identify the current balance of accounts.
- Determine the correct balance needed.
- Record the necessary adjusting entries.
Insurance and Supplies Adjustments
- For a prepaid insurance policy, adjust the insurance expense monthly as it accrues.
- Supplies used during the period need adjustment entries to reflect the expense incurred.
Timeliness of Reporting
- Financial information must reach decision-makers regularly to remain useful.
- Timeliness enhances the value of information in decision-making.
Revenue and Expense Recognition
- Revenue is recorded when services are provided at expected amounts to be received.
- Accrual accounting recognizes revenues earned and expenses incurred through adjustments.
Prepaid Expenses
- Prepaid Insurance, Supplies, and Prepaid Rent are examples of prepaid assets.
Accrued Expenses
- Include costs incurred that have not yet been recorded or paid, like wages and interest.
- Require adjustments that increase both expense and liability accounts.
Plant Assets Definition
- Long-term tangible assets reported on the balance sheet.
- Costs are expensed over their useful lives.
Unearned Revenues
- Cash received before services are rendered, treated as a liability.
- Represent a future obligation to provide goods or services.
Adjusting Entries for Salaries
- Adjust for earned salaries not yet paid by debiting Salaries Expense and crediting Salaries Payable.
- Include accrued interest expense adjustments based on outstanding loans.
Account Adjustments During Period End
- Common adjustments involve supplies, prepaid expenses, and unearned revenues needing proper recognition.
Adjusted vs. Unadjusted Trial Balance
- Adjusted balances reflect entries after adjustments are made, used to prepare financial statements.
- The adjusted trial balance typically lists more accounts due to adjustments.
Profit Margin Calculation
- Calculated as net income divided by net sales, reflecting the efficiency of operations.
By understanding these key concepts, you can effectively work with and prepare financial statements, ensuring compliance with accounting principles.
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Description
Test your knowledge on adjusting accounts for financial statements with this quiz based on Smartbook Chapter 3. Explore key concepts such as accrual basis accounting and the matching principle through flashcards designed to enhance your understanding of essential accounting principles.
