Exam 3: Adjusting Accounts and Preparing Financial Statements

__________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid._____________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

Failure to record depreciation expense will overstate the asset and understate the expense.

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

The time period assumption assumes that an organization's activities can be divided into specific time periods.

Adjusting entries made at the end of an accounting period accomplish all of the following except:

A salary owed to employees is an example of an accrued expense.

On May 1,Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year.The Cash receipt was recorded as unearned fees.The adjusting entry for the year ended December 31,Year 2 would include:

A _____________ account is an account linked with another account,having an opposite normal balance,and reported as a subtraction from that other account's balance.

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

The accrual basis of accounting recognizes expenses when cash is paid.

A balance sheet that places the assets above the liabilities and equity is called a(n):

Adjusting entries are necessary so that asset,liability,revenue,and expense account balances are correctly recorded.

In general journal form,record the December 31 adjusting entries for the following transactions and events.Assume that December 31 is the end of the annual accounting period. a.The Prepaid Insurance account shows a debit balance of $2,340,representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year. b.The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c.On November 1 of the current year,Rent Earned was credited for $1,500.This amount represented the rent earned for a three-month period beginning November 1. d.Estimated depreciation on office equipment is $600. e.Accrued salaries amount to $400. (all entries dated December 31)

An _______________________ is a listing of all of the accounts in the ledger with their account balances after adjustments are made.

Describe the types of entries required in later periods that result from accruals.

Depreciation measures the decline in market value of an asset.

Based on the unadjusted trial balance for Bella's Beauty Salon and the adjusting information given below,prepare the adjusting journal entries for Bella's Beauty Salon.After completing the adjusting entries,prepare the trial balance for Bella's Beauty Salon. Bella Beauty Salon's unadjusted trial balance for the current year follows: Additional information: a.An insurance policy examination showed $1,240 of expired insurance. b.An inventory count showed $210 of unused shop supplies still available. c.Depreciation expense on shop equipment,$350. d.Depreciation expense on the building,$2,220. e.A beautician is behind on space rental payments,and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared. f.$800 of the Unearned Rent account balance was earned by year-end. g.The one employee,a receptionist,works a five-day workweek at $50 per day.The employee was paid last week but has worked four days this week for which she has not been paid. h.Three months' property taxes,totaling $450,have accrued.This additional amount of property taxes expense has not been recorded. i.One month's interest on the note payable,$600,has accrued but is unrecorded. Use the above information to prepare the adjusted trial balance for Bella's Beauty Salon.

Profit margin is defined as:

A company performs 20 days work on a 30-day contract before the end of the year.The total contract is valued at $6,000 and payment is not due until the contract is fully completed.The adjusting entry includes a $4,000 credit to unearned revenue.

The cash basis of accounting commonly results in financial statements that are less comparable from period to period than the accrual basis of accounting.