Exam 3: The Adjusting Process

The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the ________ principle.

The allocation of a plant asset's cost to expense over its useful life is called ________.

The Hartman Dental Corporation prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How much Rent Expense should the corporation record for the three months ended September 30 under the accrual basis? Why?

Accumulated Depreciation is a(n) ________ account and carries a normal ________ balance.

Deferred Revenue is a liability created when a business collects cash from customers in advance of completing a service or delivering a product.

On September 28, 2018, Benson Consulting signs a contract with Commercial Cleaning Services. Commercial Cleaning will provide 6 months of office cleaning services for $2,000 per month. Benson Consulting pays $12,000 cash to Commercial Cleaning on September 28, 2018. Cleaning services will begin on October 1, 2018. Complete the following requirements for Benson Consulting. (1) Prepare the journal entries for September 28, 2018 and December 31, 2018 (the end of Benson's fiscal year). Make proper journal entries (omit explanations). (2) If Benson fails to record the December 31, 2018 adjusting entry, what is the effect on net income, income statement account(s) and balance sheet account(s)? (3) Why is it important for companies to record adjusting entries?

Adjusting entries do not update balance sheet accounts.

Stallings, Inc. purchased manufacturing equipment for $8,400. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $50 per month. (Assume that the company uses the straight-line method.)

The accounting records of Mason Service Company include the following selected, unadjusted balances at June 30: Accounts Receivable, $2,700; Office Supplies, $1,800; Prepaid Rent, $3,600; Equipment, $15,000; Accumulated Depreciation - Equipment, $1,800; Salaries Payable, $0; Unearned Revenue, $2,400; Office Supplies Expense, $2,800; Rent Expense, $0; Salaries Expense, $15,000; Service Revenue, $40,500. The following data developed for adjusting entries are as follows: a. Service revenue accrued, $1,400 b. Unearned Revenue that has been earned, $800 c. Office Supplies on hand, $700 d. Salaries owed to employees, $1,800 e. One month of prepaid rent has expired, $1,200 f. Depreciation on equipment, $1,500 Journalize the adjusting entries. Omit explanations. Accounts Debit Credit a b c d e f

Athens Delivery Service is hired on October 31, 2018 to perform services, beginning on November 1, 2018. The delivery services will be performed for six months at a rate of $3,500 per month. Athens' fiscal year ends on December 31. What amount of service revenue should be recorded as an adjusting entry on December 31, 2018?

Which of the following assumes that the financial statements of a business can be prepared for specific periods?

Aquatic Supplies, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

Advance cash payments of future expenses are called ________.

Deferred expenses are advanced payments of future expenses.

Contra asset accounts, such as Accumulated Depreciation, always have normal debit balances.

Which of the following accounting elements does the matching principle help to match?

The adjusted trial balance shows ________.

Wellness, a healthy living magazine, collected $504,000 in subscription revenue on May 31. Each subscriber will receive an issue of the magazine in each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue account as of December 31?

Financial statements are prepared from the balances in a(n) ________.

The sum of all the depreciation expense recorded to date for a depreciable asset is called ________.