Deck 3: The Adjusting Process

Question 1

Adjusting entries are made at the end of an accounting period to adjust accounts on the balance sheet.

Answer 1

False

Question 2

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.

Answer 2

False

Question 3

An adjusting entry would adjust an expense account so the expense is reported when incurred.

Answer 3

True

Question 4

An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.

Question 5

If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.

Question 6

The matching concept requires expenses be recorded in the same period that the related revenue is recorded.

Question 7

Revenue recognition concept requires that the reporting of revenue be included in the period when cash for the service is received.

Question 8

Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.

Question 9

Revenues and expenses should be recorded in the same period to which they relate.

Question 10

Generally accepted accounting principles require accrual-basis accounting.

Question 11

An adjusting entry to accrue an incurred expense will affect total liabilities.

Question 12

Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.

Question 13

Adjusting entries affect only expense and asset accounts.

Question 14

The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded.

Question 15

The updating of accounts is called the adjusting process.

Question 16

An example of deferred revenue is Unearned Rent.

Question 17

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

Question 18

Proper reporting of revenues and expenses in a period is due to the accounting period concept.

Question 19

The matching concept supports matching expenses with the related revenues.

Question 20

The financial statements measure precisely the financial condition and results of operations of a business.

Question 21

A company realizes that the last two day's revenue for the month was billed but not recorded. The adjusting entry on December 31 is debit Accounts Receivable and credit Fees Earned.

Question 22

Accumulated Depreciation accounts are liability accounts.

Question 23

At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000.

Question 24

A company pays $360 for a yearly trade magazine on August 1. The adjusting entry on December 31 is debit Unearned Subscription Revenue, $150 and credit Subscription Revenue, $150.

Question 25

Depreciation Expense is reported on the balance sheet as an addition to the related asset.

Question 26

The Accumulated Depreciation's account balance is the sum of the depreciation expense recorded in past periods.

Question 27

Deferrals are recorded transactions that delay the recognition of an expense or revenue.

Question 28

A fixed asset's market value is reflected in the Balance Sheet.

Question 29

A company pays an employee $3,000 for a five day work week, Monday - Friday. The adjusting entry on December 31, which is a Wednesday, is debit Wages Expense, $1,800 and credit Wages Payable, $1,800.

Question 30

Unearned revenue is a liability.

Question 31

A company pays $36,000 for twelve month's rent on October 1. The adjusting entry on December 31 is debit Rent Expense, $9,000 and credit Prepaid Rent, $9,000.

Question 32

The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset.

Question 33

If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and owner's equity will be understated for the period.

Question 34

Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded.

Question 35

A company depreciates its equipment $500 a year. The adjusting entry for December 31 is debit Depreciation Expense, $500 and credit Equipment, $500.

Question 36

If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated.

Question 37

The systematic allocation of land's cost to expense is called depreciation.

Question 38

Accumulated Depreciation is reported on the income statement.

Question 39

A contra asset account for Land will normally appear in the balance sheet.

Question 40

A company pays $6,500 for two season tickets on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is debit Cash, $2,500 and credit Ticket Revenue, $2,500.

Question 41

Using accrual accounting, revenue is recorded and reported only

A) when cash is received without regard to when the services are rendered
B) when the services are rendered without regard to when cash is received
C) when cash is received at the time services are rendered
D) if cash is received after the services are rendered

Question 42

The adjusted trial balance verifies that total debits equals total credits before the adjusting entries are prepared.

Question 43

If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated.

Question 44

Using accrual accounting, expenses are recorded and reported only

A) when they are incurred, whether or not cash is paid
B) when they are incurred and paid at the same time
C) if they are paid before they are incurred
D) if they are paid after they are incurred

Question 45

Adjusting journal entries are dated on the last day of the period.

Question 46

One of the accounting concepts upon which deferrals and accruals are based is

A) matching
B) cost
C) price-level adjustment
D) conservatism

Question 47

The matching concept

A) addresses the relationship between the journal and the balance sheet
B) determines whether the normal balance of an account is a debit or credit
C) requires that the dollar amount of debits equal the dollar amount of credits on a trial balance
D) states that the revenues and related expenses should be reported in the same period

Question 48

Prior to the adjusting process, accrued expenses have

A) not yet been incurred, paid, or recorded
B) been incurred, not paid, but have been recorded
C) been incurred, not paid, and not recorded
D) been paid but have not yet been incurred

Question 49

The revenue recognition concept

A) is not in conflict with the cash method of accounting
B) determines when revenue is credited to a revenue account
C) states that revenue is not recorded until the cash is received
D) controls all revenue reporting for the cash basis of accounting

Question 50

By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated.

Question 51

The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the Adjusted Trial Balance is prepared.

Question 52

Prior to the adjusting process, accrued revenue has

A) been earned and cash received
B) been earned and not recorded as revenue
C) not been earned but recorded as revenue
D) not been recorded as revenue but cash has been received

Question 53

If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?

A) decreases the balance of an owner's equity account
B) increases the balance of a liability account
C) increases the balance of an asset account
D) decreases the balance of an expense account

Question 54

Deferred expenses have

A) not yet been recorded as expenses or paid
B) been recorded as expenses and paid
C) been incurred and paid
D) not yet been recorded as expenses

Question 55

When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income.

Question 56

Vertical analysis is useful for analyzing financial statement changes over time.

Question 57

If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated.

Question 58

The financial statements are prepared from the unadjusted trial balance.

Question 59

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

A) increases the balance of a contra asset account
B) increases the balance of an asset account
C) decreases the balance of an owner's equity account
D) increases the balance of an expense account

Question 60

Vertical analysis compares each item in a financial statement with a total amount from the same statement.

Question 61

The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis of accounting

A) records revenues when they are earned and expenses when they are paid
B) records revenues and expenses when they are incurred.
C) records revenues when cash is received and expenses when they are incurred.
D) records revenues and expenses when the company needs to apply for a loan.

Question 62

Deferred revenue is revenue that is

A) earned and the cash has been received
B) earned but the cash has not been received
C) not earned and the cash has not been received
D) not earned but the cash has been received

Question 63

The balance in the office supplies account on June 1 was $7,500, supplies purchased during June were $3,100, and the supplies on hand at June 30 were $2,300. The amount to be used for the appropriate adjusting entry is

A) $2,100
B) $12,900
C) $6,700
D) $8,300

Question 64

Prepaid expenses are eventually expected to

A) become expenses when their future economic value expires.
B) become revenues when services are performed.
C) become expenses in the period when they are paid.
D) become revenues when the liability is no longer owed.

Question 65

The entry to adjust for the cost of supplies used during the accounting period is

A) debit Supplies Expense; credit Supplies
B) debit Owner Capital; credit Supplies
C) debit Accounts Payable; credit Supplies
D) debit Supplies; credit Owner Capital

Question 66

By matching revenues and expenses in the same period in which they incur

A) net income or loss will always be underestimated.
B) net income or loss will always be overestimated.
C) net income or loss will be properly reported on the income statement
D) net income or loss will not be determined.

Question 67

The general term employed to indicate an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is

A) capital
B) deferral
C) accrual
D) inventory

Question 68

Which one of the following accounts below would likely be included in a deferral adjusting entry?

A) Interest Revenue
B) Unearned Revenue
C) Salaries Payable
D) Accounts Receivable

Question 69

Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?

A) debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000
B) debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000
C) debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000
D) debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000

Question 70

Generally accepted accounting principles requires that companies use the ____ of accounting.

A) cash basis
B) deferral basis
C) accrual basis
D) account basis

Question 71

Adjusting entries are

A) the same as correcting entries
B) needed to bring accounts up to date and match revenue and expense
C) optional under generally accepted accounting principles
D) rarely needed in large companies

Question 72

Which one of the accounts below would likely be included in an accrual adjusting entry?

A) Insurance Expense
B) Prepaid Rent
C) Interest Expense
D) Unearned Rent

Question 73

Adjusting entries affect at least one

A) income statement account and one balance sheet account
B) revenue and the drawing account
C) asset and one owner's equity account
D) revenue and one capital account

Question 74

Which of the following is an example of accrued revenue?

A) Swimming pool cleaning that has been paid for three months in advance.
B) Swimming pool cleaning that has been provided but has not been billed or paid.
C) An agreement has been signed for swimming pool cleaning for the next three months.
D) Swimming pool cleaning that has been provided and paid on the same day.

Question 75

Which account would normally not require an adjusting entry?

A) Wages Expense
B) Accounts Receivable
C) Accumulated Depreciation
D) Smith, Capital

Question 76

Which of the following is considered to be an accrued expense?

A) A computer technician has installed the latest software updates and was paid on the same day.
B) A computer technician has been paid in advance to install software updates as they become available.
C) A computer technician has just signed an agreement with you regarding pricing for future work.
D) A computer technician has installed the latest software updates, but you have not received their invoice for payment.

Question 77

The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents four months' rent paid on December 1. The adjusting entry required on December 31 is

A) debit Rent Expense, $8,000; credit Prepaid Rent, $8,000
B) debit Prepaid Rent, $24,000; credit Rent Expense, $8,000
C) debit Rent Expense, $24,000; credit Prepaid Rent, $8,000
D) debit Prepaid Rent, $8,000; credit Rent Expense, $8,000

Question 78

Which of the following is considered to be unearned revenue?

A) Concert tickets sold last month for yesterday's performance.
B) Concert tickets sold yesterday on credit for yesterday's performance.
C) Concert tickets that were not sold for the current performance.
D) Concert tickets sold for next month's performance.

Question 79

Which of the following is not a characteristic of accrual basis of accounting?

A) Revenues and expenses are reported in the period in which cash is received or paid
B) Revenues are reported on the income statement in the period in which they are earned
C) Accrual basis of accounting supports the matching concept
D) Expenses are reported in the same period as the revenues to which they relate

Question 80

Adjusting entries always include

A) only income statement accounts.
B) only balance sheet accounts.
C) the cash account.
D) at least one income statement account and one balance sheet account.