Exam 3: Adjusting Accounts and Preparing Financial Statements

What is the purpose of closing entries? Describe the closing process.

On December 31, the balance in the Prepaid Insurance account was $4,500, which is the remaining balance of a twelve-month policy purchased on October 31 in the current year. How much did this policy originally cost?

The recurring steps performed each accounting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, are referred to as the:

The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries.

The current portion of long-term debt is classified with the _________________________.

__________________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

On May 1, 2011, Giltus Advertising Company received $1,500 from Julie Bee for advertising services to be completed April 30, 2012. The cash receipt was recorded as unearned fees. At December 31, 2011, $500 of the fees had been earned. The adjusting entry on December 31, 2011 should include:

A company paid $6,000 for a six-month insurance policy. The policy coverage began on February 1. On February 28, $100 of insurance expense must be recorded.

If the Balance Sheet columns of a work sheet fail to balance when the amount of the net income is added to the Balance Sheet Credit column, the cause could be:

Pfister Co. leases an office to a tenant at the rate of $5,000 per month. The tenant contacted Pfister and arranged to pay the rent for December 2011 on January 8, 2012. Pfister agrees to this arrangement. a. Prepare the journal entry that Pfister must make at December 31, 2011 to record the accrued rental revenue. b. Prepare the journal entry to record the receipt of the rent on January 8, 2012.

The matching principle and the full closure principle are the two main accounting principles used in accrual accounting.

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

Adjusting entries are made after the preparation of financial statements.

Presented below are the year-end balances at December 31 of Laura's Laundry Service. (All accounts have normal balances.) Accounts receivable \ 12,000 Accounts payable 25,000 Accumulated depreciation - Catering equipment 30,000 Advertising expense 4,000 Cash 42,000 Depreciation expense - Catering equipment 12,000 Insurance expense 3,000 Catering equipment 125,000 Catering service revenue 200,000 Notes payable 65,000 Common stock 3,000 Retained earnings 14,000 Dividends 18,000 Prepaid insurance 1,500 Salaries payable 4,000 Salary expense 97,000 Supplies 1,500 Supplies expense 9,000 Repair expense 7,000 Unearned catering service revenues 500 Utilities expense 9,500 a. Prepare the necessary closing entries at December 31. b. Prepare a post-closing trial balance at December 31.

A ____________________ is useful in preparing interim statements and in showing the effects of proposed transactions.

______________________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

Net income for a period will be overstated if accrued salaries are not recorded at the end of the accounting period.

__________________________ is the process of allocating the cost of plant assets to their expected useful lives.

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:

An expense account is normally closed by debiting Income Summary and crediting the expense account.