Deck 3: The Adjusting Process

Question 1

Accrual accounting records transactions ONLY when cash is received or paid.

Answer 1

False

Question 2

Under accrual basis accounting, an expense is recorded ONLY when the cash is paid out.

Answer 2

False

Question 3

Under cash-basis accounting, an expense is recorded ONLY when cash is paid out.

Answer 3

True

Question 4

The revenue principle is the basis for recording revenues―both when to record revenue and the amount of revenue to record.

Question 5

Generally accepted accounting principles require the use of accrual accounting.

Question 6

Which of the following is NOT considered an interim accounting period?

A)Monthly
B)Quarterly
C)Annually
D)Semi-annually

Question 7

In cash-basis accounting, revenue is recognized when cash is received and expenses are recognized when they are paid.

Question 8

Which of the following entries would be recorded if a company is using the cash-basis method of accounting?

A)
B)
C)
D)

Question 9

Which of the following accounts would be used under the accrual method of accounting, but NOT under the cash-basis method of accounting.

A)Cash
B)Unearned revenue
C)Equipment
D)Salary expense

Question 10

Which of the following would be considered an interim accounting period?

A)One to two months
B)One to two quarters
C)One to two years
D)Either one month or one quarter

Question 11

An example of an interim accounting period is one year.

Question 12

Which of the following situations would result in an increase in income under the accrual method of accounting, but would NOT result in an increase in income under the cash-basis method of accounting?

A)Purchase of supplies for cash
B)Performance of services on account
C)Use of supplies purchased earlier
D)Receipt of cash for services that were performed earlier on account

Question 13

Under accrual basis accounting, revenue is recorded ONLY when cash is received.

Question 14

The owner of Recipes.org purchases $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the $2,000 is paid.

Question 15

Which of the following accounts does cash-basis accounting ignore?

A)Payables
B)Revenue
C)Cash
D)Expenses

Question 16

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

Question 17

If a company is using the cash-basis method of accounting, when is revenue recorded?

A)When services are rendered, even though cash may be received at a later date
B)When cash is received, prior to the services being rendered
C)When cash is received, at a time after the services were rendered
D)When cash is received, either prior to the services being rendered or at a time after the services were rendered

Question 18

Which of the following entries would be recorded ONLY if a company is using the accrual method of accounting?

A)
B)
C)
D)

Question 19

If a company is using the accrual method of accounting, when is revenue recorded?

A)When cash is received, even though services may be rendered at a later date
B)When services are rendered, even though cash may be received at a later date
C)When cash is received, before the completion of the services
D)When cash is received, 30 days after the completion of the services

Question 20

Which of the following is TRUE?

A)Accrual accounting is required by generally accepted accounting principles.
B)Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash is paid.
C)Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue when cash is received.
D)All of the above are true.

Question 21

A contra account has two characteristics: (1)a contra account is paired with a companion account, and (2)a contra account's normal balance is the same as that of the companion account.

Question 22

Which of the following entries would be made as the result of the revenue principle?

A)
B)
C)
D)

Question 23

The matching principle means which of the following?

A)Revenues are subtracted from expenses.
B)Expenses are subtracted from revenues.
C)Assets are subtracted from liabilities.
D)Liabilities are subtracted from expenses.

Question 24

The purposes of the adjusting process are:

A)to adjust expenses and revenues to the proper accrual basis.
B)to adjust asset and liability balances to the proper accrual basis.
C)to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis.
D)none of the above.

Question 25

To accrue revenue means that the cash receipt is recorded before the revenue is earned.

Question 26

Robert Rogers, CPA performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received a check in the mail on January 5. The revenue principle would require that which of the following accounts appear on the balance sheet for December 31?

A)Prepaid expense
B)Accounts receivable
C)Unearned revenue
D)Accounts payable

Question 27

Ensuring that accounting information is updated each period is the purpose of the:

A)matching principle.
B)revenue principle.
C)time-period concept.
D)expense principle

Question 28

The revenue principle guides accountants in which of the following ways?

A)Ensures that information is reported at regular intervals
B)Determines when to record expenses
C)Determines when to record revenue
D)Dictates that expenses be deducted from revenues

Question 29

Employees of Robert Rogers, CPA worked during the last two weeks of December. They received their paychecks on January 2. The matching principle would require that which of the following accounts appear on the balance sheet for December 31?

A)Accounts payable
B)Salaries payable
C)Salary expense
D)Prepaid expense

Question 30

In accounting, the matching principle means to match which of the following?

A)Revenues to liabilities
B)Expenses to assets
C)Expenses to revenues
D)Expenses to liabilities

Question 31

Which of the following statements BEST mirrors the matching principle?

A)The principle that ensures that information is reported at regular intervals
B)The principle that only determines when to record revenues
C)The principle that determines when to record expenses
D)None of the above

Question 32

How do the adjusting entries differ from other journal entries?

A)Adjusting entries always include debits or credits to at least one income statement account and at least one balance sheet account.
B)Adjusting entries are made only at the end of the period.
C)Adjusting entries never affect cash.
D)All of the above are true.

Question 33

Employees of Robert Rogers, CPA worked during the last two weeks of December. They received their paychecks on January 2. The matching principle would require that which of the following accounts appear on the income statement for the year ended December 31?

A)Salary expense
B)Prepaid expense
C)Salaries payable
D)Unearned revenue

Question 34

Blum Services has the following unadjusted balances at year-end.
The following information is available to use in making adjusting entries.
a. Office supplies on hand at year-end: $250
b. Prepaid insurance expired during the year: $325
c. Unearned revenue remaining at year-end: $2,500
d. Depreciation expense for the year: $1,800
e. Accrued salaries at year-end: $900
Using the work sheet below, prepare the trial balance, the adjustments and the adjusted trial balance for Blum Services.

Question 35

Prepaid insurance is an asset account.

Question 36

Which of the following is the time-period concept?

A)The concept that ensures that information is reported at regular intervals
B)The concept that determines when to record revenues
C)The concept that determines when to record expenses
D)None of the above

Question 37

Prepaid rent is an expense account.

Question 38

Robert Rogers, CPA owns a computer used by the business. The matching principle would require that which of the following accounts appear on the balance sheet for the year ended December 31?

A)Depreciation expense
B)Service revenue
C)Accumulated depreciation
D)Equipment expense

Question 39

Robert Rogers, CPA owns a computer used for the company's business. The matching principle would require that which of the following accounts appear on the income statement for the year ended December 31?

A)Depreciation expense
B)Service revenue
C)Accumulated depreciation
D)Equipment expense

Question 40

Which of the following entries would be made because of the matching principle?

A)
B)
C)
D)

Question 41

Argyle Designs has a contract to design 20 new dresses for a customer, and will collect a total of $40,000 when the design services are complete. They start on June 1. As of June 30, Argyle has finished 4 of the 20 designs. They will make an adjusting entry at the end of June to accrue $10,000 of service revenue.

Question 42

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a credit to Prepaid expense.

Question 43

Real Losers, a diet magazine, collected $360,000 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 method of accounting. By the end of December, how much Subscription revenue has been earned?

A)$120,000
B)$12,000
C)$360,000
D)$210,000

Question 44

The table below represents Able Company's supplies account. Please supply the missing amount.

A)$9,000
B)$1,000
C)$3,000
D)$11,000

Question 45

Unearned revenue would be classified as a(n)________ account.

A)liability
B)asset
C)revenue
D)equity

Question 46

The table below represents Able Company's supplies account. Please supply the missing amount.

A)$9,000
B)$5,000
C)$11,000
D)$13,000

Question 47

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a debit to Prepaid expense.

Question 48

Smith signed a contract with a service provider for security services at a rate of $250 per month for the period of January through June. He will pay the service provider the entire amount at the end of June. Smith makes adjusting entries each month. During the month of February, Smith will record total security expense of $500.

Question 49

At January 1, Smith has a beginning balance in Unearned revenue of $1,000. During January, he earns $800 of that amount. He also collects $4,000 from a new customer for services to be rendered the following month. As of the end of January, the Unearned revenue account had a balance of $4,800.

Question 50

Smith owns manufacturing equipment that originally cost $12,600 and has an estimated useful life of 7 years. Smith records depreciation monthly in the amount of $100.

Question 51

Robert Rogers, CPA performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received a check in the mail on January 5. The revenue principle would require that which of the following accounts appear on the income statement for the year ended December 31?

A)Service revenue
B)Unearned revenue
C)Accounts payable
D)Prepaid expense

Question 52

Contra asset accounts like Accumulated depreciation have normal debit balances.

Question 53

In the case of Unearned revenue, the adjusting entry at the end of the period includes a debit to Service revenue.

Question 54

In the case of Unearned revenue, the adjusting entry at the end of the period includes a credit to Service revenue.

Question 55

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

Question 56

At January 1, Smith has $1,200 of supplies on hand. During January, Smith purchases $3,000 worth of new supplies. At the end of the month, a count reveals $500 worth of supplies remaining on the shelves. The adjustment entry needed will include a debit to Supply expense of $3,700.

Question 57

Smith borrows $10,000 on a one year Note payable that bears interest at 12% per year. He will repay the principal and interest at the end of the one-year period. Smith makes accrual adjustments and each month, he records interest expense of $1,200.

Question 58

At January 1, Smith has a beginning balance in Prepaid insurance expense of $1,200. Smith pays insurance premiums once a year, and his total premium is $4,800. As of the end of February, the balance in prepaid insurance is $2,000.

Question 59

The table below represents Able Company's supplies account. Please supply the missing amount.

A)$2,000
B)$15,000
C)$11,000
D)$6,000

Question 60

Real Losers, a diet magazine, collected $360,000 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 method of accounting. What is the balance in the Unearned revenue account at the end of December?

A)$150,000
B)$330,000
C)$360,000
D)$0

Question 61

The entry to record depreciation includes a debit to which account?

A)Equipment
B)Cash
C)Accumulated depreciation
D)Depreciation expense

Question 62

Accrued revenue is revenue that:

A)has been collected and earned.
B)the business has collected, but not yet earned.
C)the business has earned, but not collected.
D)will be collected and earned in the future.

Question 63

The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. What is the effect of this error on total assets?

A)Total assets are understated.
B)Total assets are not affected.
C)Total assets are overstated.
D)There is not enough information presented to answer the question.

Question 64

The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. Which of the following is one of the effects of this error?

A)Net income is understated.
B)Total assets are understated.
C)Net income is overstated.
D)Total liabilities are understated.

Question 65

Entries that record an expense before the cash is paid are:

A)accrued revenues.
B)prepaid expenses.
C)unearned revenues.
D)accrued expenses.

Question 66

An adjusting entry that credits Salaries payable is an example of a(n):

A)accrued expense.
B)unearned revenue.
C)accrued revenue.
D)prepaid expense.

Question 67

An adjusting entry that debits Accounts receivable is an example of a(n):

A)prepaid expense.
B)accrued revenue.
C)accrued expense.
D)unearned revenue.

Question 68

Which of the following accounts would NOT be included in the adjusting entries made at the end of an accounting period?

A)Accounts receivable
B)Accounts payable
C)Cash
D)Prepaid insurance

Question 69

If an adjusting entry includes a debit to Rent expense, that would indicate that the payment of rent had been previously recorded as a(n)________ entry.

A)prepaid expense
B)depreciation
C)accrued expense
D)accrued revenue

Question 70

Adjusting entries NEVER involve:

A)expenses.
B)cash.
C)liabilities.
D)revenues.

Question 71

Entries that record cash collected before the revenues are earned are:

A)accrued revenues.
B)prepaid expenses.
C)unearned revenues.
D)accrued expenses.

Question 72

Which of the following is a contra account?

A)Depreciation expense
B)Accumulated depreciation
C)Unearned revenue
D)Earned revenue

Question 73

An entry that reflects the using up of a portion of a fixed asset's value would be a(n)________ entry.

A)prepaid expense
B)accrued expense
C)accrued revenue
D)depreciation

Question 74

At the end of the current year, the accountant for Navistar Graphics forgot to make an adjusting entry to accrue Wages payable to 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 one of the effects of this error?

A)Net income is overstated.
B)Liabilities are overstated.
C)Net income is understated.
D)Expenses are overstated.

Question 75

The table below represents Able Company's supplies account. Please supply the missing amount.

A)$9,000
B)$10,000
C)$6,000
D)$16,000

Question 76

Which of the following accounts would NOT be adjusted at the end of an accounting period?

A)Accounts receivable
B)Unearned revenue
C)Equipment
D)Prepaid insurance

Question 77

Entries that record revenues earned before the cash is collected are:

A)accrued revenues.
B)prepaid expenses.
C)unearned revenues.
D)accrued expenses.

Question 78

Unearned revenue is revenue that:

A)will be collected and earned in the future.
B)the business has collected, but not yet earned.
C)has been collected and earned.
D)the business has earned, but not collected.

Question 79

The entry to record depreciation includes a credit to which account?

A)Equipment
B)Cash
C)Accumulated depreciation
D)Depreciation expense

Question 80

What is the effect of the adjusting entry for Depreciation expense?

A)The entry increases total liabilities and increases total expenses.
B)The entry increases total assets and increases total expenses.
C)The entry decreases total assets and increases total expenses.
D)The entry decreases total liabilities and increases total expenses.