Exam 3: The Adjusting Process

There is a natural link between some expenses and revenues.

A company receives payment from one of its customers on August 5 for services performed on July 21.Which of the following entries would be recorded if the company uses accrual basis accounting?

What is the difference between cash basis accounting and accrual basis accounting?

Salaries are $4,000 per week for five working days and are paid weekly at the end of the day on Fridays.The end of the month falls on a Thursday.The accountant for Sunset Company made the appropriate accrual adjustment and posted it to the ledger.The balance of Salaries Payable,as shown on the adjusted trial balance,will be a ________.(Assume that there was no beginning balance in the Salaries Payable account. )

Metro Event Planning Services collects fees from its customers in advance.On January 1,2019,the balance of its Unearned Revenue account was $5,000 (CR).During January and February,the company collected $2,000 and $700 as advance fees,respectively.During the two-month period,it performed services of $4,500 related to the deferred revenue.What is the balance in Unearned Revenue at the end of February?

At the end of the current year,the accountant for Computer Graphics Company forgot to make an adjusting entry to accrue Wages Payable for the company's employees for the last week in December.The wages will be paid to the employees in January.Which of the following is an effect of this error?

In the case of deferred revenue,the cash is received first,and the revenue is earned later.

For accounting purposes,depreciation refers to the process of ________.

Under the revenue recognition principle,a good or service is considered transferred when ________.

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

Since net income increases the equity account Owner,Capital,if net income is understated,then equity will also be understated.

A business hired a repair service to overhaul its plumbing system.The repair service began work on September 15 and completed it on October 15.The business agreed to pay the service $4,000 when the work was completed.As of September 30,the work was 50% complete,and the business made an adjusting entry to accrue repair expense as of the end of September.On October 15,the work was completed,and the repair service was paid in full.Provide the journal entry for the cash payment on October 15.(Ignore explanation).

Under cash basis accounting,revenue is recorded when it is earned,regardless of when cash is received.

On December 15,2018,Donald Services Company collected revenue of $3,000 in advance from a new client,and agreed to provide services to the client for the period of December 15 through January 15 of the following year.Assume that the company records deferred revenues using the alternative treatment.Prepare the December 15,2018 journal entry.Omit explanation.

Janno Enterprises prepaid eight months of office rent totaling $9,000 on October 1,2019.The rent period begins on October 1.Assuming Janno records deferred expenses using the alternative treatment,what would be the adjusting entry recorded on December 31,2019?

The entry to record depreciation includes a debit to the ________ account.

The accountant for Watson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year.Which of the following statements is TRUE?

The matching principle is also called the ________.

The revenue recognition principle guides accountants in ________.

Sail Away,a cruise industry magazine,collected $480,000 in subscription revenue in May.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual basis of accounting.Prepare the adjusting entry needed on June 30.(Ignore explanation).Assume the magazine initially records a liability for the subscription revenue.