73 Multiple choice questions
a list of all accounts and their balances after we have updated account balances for adjusting entries. Let us look at the relationship between an unadjusted trial balance (before adjustments) and an adjusted trial balance (after adjustments). Recall that in our first adjusting entry, we adjusted the Supplies account from $1,500 to $1,000 by reducing its balance by $500. The adjustment to supplies also resulted in Supplies Expense of $500 recorded. The other three adjustments are for revenue earned from previously unearned amounts, employee salaries owed but not paid, and revenue earned with no cash collection yet. These adjustments are included in the adjusted trial balance the same way. After any other adjustments are made—for example, assume that we also adjust for rent, depreciation, utilities, and interest—the adjusted trial balance is complete.
revenue accounts have credit balances. To transfer these balances to
the Retained Earnings account, we debit each of these revenue accounts
for its balance and credit Retained Earnings for the total.
list of all accounts and their balances at a particular date after we
have updated account balances for closing entries. The post-closing
trial balance helps to verify that we prepared and posted closing
entries correctly and that the accounts are now ready for the next
period's transactions. Notice that the post-closing trial balance does
not include any revenues, expenses, or dividends, because these accounts
all have zero balances after closing entries. The balance of Retained
Earnings has been updated from the adjusted trial balance to include all
revenues, expenses, and dividends for the period.
- Retained Earnings is credited or increased in the first entry and then debited or decreased in the second and third entries.
the time of sale, The revenue recognition principle states that we
should recognize revenue in the period in which we earn it, not
necessarily in the period in which we receive cash.
- Statement of stockholders' equity, For the classified balance sheet, we need the ending balance of retained earnings.
- Record revenues at the time cash is received and expenses at the time cash is paid
Rent Expense, Credit-Prepaid Rent [The adjusting entry for a prepaid
expense always includes a debit to an expense account (increase an
expense) and a credit to an asset account (decrease an asset).]
- Income Statement
To transfer the balances of temporary accounts to the Retained Earnings
account. (Note that closing entries "close out" certain accounts.)
- These are due during the next year.
- These are typically due in more than one year.
- Recognize expenses in the same period as the revenues they help generate
a company has incurred an expense but hasn't yet paid cash or recorded
an obligation to pay.In the case of accrued expenses, we paid cash after
we incurred the expense and recorded a liability. The adjusting entry
for an accrued expense always includes a debit to an expense account
(increase an expense) and a credit to a liability account (increase a
Unearned Revenue ,Credit Service Revenue (The adjusting entry for an
unearned revenue always includes a debit to a liability account and a
credit to a revenue account.)
- True, Adjusted trial balance contains the beginning balance of retained earnings.
- Record revenue in the period in which it's earned
- A list of all accounts and their balances after we have updated account balances for adjusting entries
- Cause and Effect
- A list of all accounts and their balances at a particular date after we have updated account balances for closing entries
- a debit to a liability
- Entries used to record events that occur during the period but that have not yet been recorded by the end of that period
- (1) and (3)
Receivable, Credit- Interest Revenue [The adjusting entry for an
accrued revenue always includes a debit to an asset account (increase an
asset) and a credit to a revenue account (increase a revenue).]
The adjusting entry involves a debit to an expense account, which in this case is Salaries Expense, and a credit to a liability account, which is Salaries Payable. The net effect is an increase in both expenses and liabilities. This adjusting entry is then posted to the company's General Ledger accounts. This entry does not affect assets. As shown, Salaries Payable are increased by $450, and the ending balance in this account is $450. Now let us look at stockholders' equity. Before adjustment, the Salaries Expense account had a debit balance of $4,200 to account for expenses incurred for the first 28 days. This adjustment increases salaries expense by $450. The balance in the Salaries Expense account is now $4,650.
- Salaries Expense (Revenues, expenses, and dividends are termed temporary accounts.)
- The costs of assets acquired in one period that will be expensed in a future period.
We make a single adjusting entry at the end of the month for the total amount used during the period. To record one month of the cost of supplies as an expense in January, we increase the expense account Supplies Expense by debiting it. Supplies, which are assets, are reduced by $500 with a credit entry. Notice that the adjusting entry includes a $500 expense.
January 31 Debit Credit
Supplies Expense 500
- The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale
- False, Think about when the company earns this revenue.
- All accounts that appear in the balance sheet. Account balances are carried forward from period to period
The post-closing trial balance does not include any revenues, expenses,
or dividends, because these accounts all have zero balances after
- These provide a benefit over the next year.
- is a list of all accounts and their balances after adjusting entries.
- those due in more than one year
when the cash flow occurs after either the expense is incurred or the
revenue is earned. Accruals are the opposite of prepayments.
- Both b and c are true.
that transfer the balances of all temporary accounts (revenues,
expenses, and dividends) to the balance of the Retained Earnings account
The adjusting entry would increase an asset—Accounts Receivable—by debiting $800 and will also increase Service Revenue by crediting it. Now, let's post this adjusting entry to the company's General Ledger accounts. Assume that before adjustments, the Accounts Receivable account had a balance of $2,900. The adjusting entry increases Accounts Receivable by $800. The balance including other receivables for January is now $3,700. This entry does not affect any liability. Now let's look at the Stockholders' Equity section. Before adjustments, this account had a balance of $7,200. Notice that we had credited $400 from an earlier transaction when the company performed $400 worth of recording services. Now we credit the Service Revenue T-account by $800. Notice that the new balance in the Service Revenue account is $8,400.
a company has earned revenue but hasn't yet received cash or recorded
an amount receivable In the case of accrued revenues, we receive cash
after we earned the revenue and recorded an asset. The adjusting entry
for an accrued revenue always includes a debit to an asset account
(increase an asset) and a credit to a revenue account (increase a
revenue, expense, and dividend accounts. Account balances are
maintained for a single period and then closed (or zeroed out) and
transferred to the balance of the Retained Earnings account at the end
of the period
- those due during the next year
- update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for the next period's transactions.
The adjusting entry involves a debit to Supplies Expense and a credit to Supplies. This adjusting entry is then posted to the company's General Ledger accounts. As shown, supplies are reduced by $500, and the ending balance is $1,000. This entry does not affect any liabilities. Stockholder's equity decreases by $500 as expenses increase.
- An account with a balance that is opposite, or "contra," to that of its related accounts
that groups a company's assets into current assets and long-term assets
and that separates liabilities into current liabilities and long-term
- Recording revenues when earned (the revenue recognition principle) and expenses with related revenues (the matching principle)
- No entry required
(This transaction involves the recognition of revenues and therefore will not require month-end adjusting entries. )
- (1), (2), and (3)
- Supplies, Some examples of current assets are cash, accounts receivable, supplies, and prepaid rent.
- These provide a benefit for more than one operating cycle.
expenses against the revenues earned in the SAME period. in a given
period, we report revenue as it is earned, according to the revenue
recognition principle. It's only logical, then, that in the same period
we should also record all expenses incurred to generate that revenue.
The result is a measure—net income—that matches current period revenues
and expenses. That's the matching principle in a nutshell.
- operating cycle
- True, Think of accounts that permanently appear in a balance sheet.
- always involve at least one income statement account and one balance sheet account.
- February 2013, We match expenses to the revenues they help to generate.
- Retained Earnings (Think of the account to which we transfer the balance of all revenue, expense, and dividend accounts.)
- False, Think of why we would need a post-closing trial balance.
- Revenues, Think of a closing entry in which retained earnings is credited.
- Insurance Expense of $3,600, and Prepaid Insurance of $1,200.
expense and dividend accounts have debit balances. So, we credit each
of these accounts for its balance and debit Retained Earnings for the
This requires an adjusting entry for the $400 that the company has already earned for providing the service. Let's look at the adjusting entry now. Unearned Revenue, a liability account, is debited by $400, and the Service Revenue account is credited for the same amount. This adjusting entry is then posted to the company's General Ledger accounts. This entry does not affect any assets. As shown, unearned revenues are reduced by $400, and the ending balance is $1,600. Stockholders' equity increases as revenues increase. Note that the company had other revenues of $7,200 during the month before this adjustment. The ending balance in the Service Revenue account is now $7,600.
Utilities Expense, Credit-Utilities Payable ( The adjusting entry for
an accrued expense always includes a debit to an expense account
(increase an expense) and a credit to a liability account (increase a
- requires that revenue be recognize in the accounting period when it is earned
a company receives cash in advance from a customer for products or
services to be provided in the future. Example-When customers pay cash
in advance, we debit cash and credit a liability. This liability
reflects the company's obligation to provide goods or services to the
customer in the future. After the company has provided these products or
services, the company can record revenue earned and reduce its
obligation to the customer. The adjusting entry for an unearned revenue
always includes a debit to a liability account and a credit to a revenue
- Supplies, Retained Earnings, Unearned Revenue (think of accounts that are closed out to retained earnings)
- Prepaid Rent, Accounts Payable