Deck 3: Adjusting Accounts for Financial Statements

Question 1

Adjusting entries are made after the preparation of financial statements.

Answer 1

False

Question 2

The cash basis of accounting recognizes revenues when cash payments from customers are received.

Answer 2

True

Question 3

Since the revenue recognition principle requires that revenues be recorded when earned,there are no unearned revenues in accrual accounting.

Answer 3

False

Question 4

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Question 5

Two main accounting principles used in accrual accounting are expense recognition and full closure.

Question 6

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Question 7

Adjusting entries result in a better matching of revenues and expenses for the period.

Question 8

The accrual basis of accounting recognizes expenses when cash is paid.

Question 9

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

Question 10

Recording revenues early overstates current-period income; recording revenues late understates current period income.

Question 11

The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues.

Question 12

Under the cash basis of accounting,no adjustments are made for prepaid,unearned,and accrued items.

Question 13

The time period assumption assumes that an organization's activities can be divided into specific time periods such as months,quarters,or years.

Question 14

The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred.

Question 15

Adjusting entries are necessary so that asset,liability,revenue,and expense account balances are correctly reported.

Question 16

The expense recognition (matching)principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Question 17

A company's fiscal year must correspond with the calendar year.

Question 18

Interim financial statements report a company's business activities for a one-year period.

Question 19

The accrual basis of accounting recognizes revenues when cash is received from customers,regardless of when the goods or services are provided.

Question 20

The expense recognition (matching)principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses,not necessarily when cash is paid.

Question 21

Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

Question 22

The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.

Question 23

Each adjusting entry will affect a balance sheet account.

Question 24

Failure to record depreciation expense will overstate assets and understate expenses.

Question 25

The entry to record a cash receipt from a customer when the service is to be provided in a future period involves a debit to an unearned revenue account.

Question 26

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned,not when cash is received.

Question 27

Accrued revenues at the end of one accounting period are expected to result in cash receipts in a future period.

Question 28

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

Question 29

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Question 30

Costs incurred during an accounting period but unpaid and unrecorded are accrued expenses.

Question 31

An adjusting entry often includes an entry to Cash.

Question 32

Prior to recording adjusting entries at the end of an accounting period,some accounts may not show correct balances even though all transactions were properly recorded.

Question 33

Under the accrual basis of accounting,adjustments are often made for prepaid expenses and unearned revenues.

Question 34

On October 15,a company received $15,000 cash as a down payment on a consulting contract.The amount was credited to Unearned Consulting Revenue.By October 31,10% of the services required by the contract were completed.The company will record consulting revenue of $1,500 from this contract for October.

Question 35

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Question 36

Before an adjusting entry is made to recognize the cost of expired insurance for the period,Prepaid Insurance and Insurance Expense are both overstated.

Question 37

Adjusting entries always affect the cash account.

Question 38

Adjusting entries are designed primarily to correct accounting errors.

Question 39

A company paid $9,000 for a twelve-month insurance policy on February 1.The policy coverage began on February 1.On February 28,$750 of insurance expense must be recorded.

Question 40

Each adjusting entry affects one or more income statement account,one or more balance sheet account,and never cash.

Question 41

Profit margin can also be called return on sales.

Question 42

In accrual accounting,accrued revenues are recorded as liabilities.

Question 43

Profit margin reflects the percent of profit in each dollar of revenue.

Question 44

If a company reporting on a calendar year basis,paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1),and adjusting entries are made at the end of each month,the balance remaining in Prepaid Rent on December 1 should be $1,500.

Question 45

A company's month-end adjusting entry for Insurance Expense is $1,000.If this entry is not made then expenses are understated by $1,000 and net income is overstated by $1,000.

Question 46

Depreciation expense is an example of an accrued expense.

Question 47

A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.

Question 48

All plant assets,including land,are depreciated.

Question 49

A company performs 20 days of work on a 30-day contract before the end of the year.The total contract is valued at $6,000 and payment is not due until the contract is fully completed.The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Question 50

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

Question 51

A salary owed to employees is an example of an accrued expense.

Question 52

Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

Question 53

Profit margin measures the relation of debt to assets.

Question 54

Truman had total assets of $149,501,000,net income of $6,276,090,and net sales of $209,203,000.Its profit margin was 3%.

Question 55

Earned but unrecorded revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

Question 56

Profit margin is calculated by dividing net sales by net income.

Question 57

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

Question 58

A company owes its employees $5,000 for the year ended December 31.It will pay employees on January 6 for the previous two weeks' salaries.The year-end adjusting entry on December 31 will include a debit to Salaries Expense and a credit to Cash.

Question 59

A company had no supplies available at the beginning of August.A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account.On August 31,the fiscal year-end,the physical count of supplies indicates the cost of unused supplies is $3,200.The adjusting entry would include a $2,800 debit to Supplies.

Question 60

Depreciation measures the decline in market value of an asset.

Question 61

In preparing statements from the adjusted trial balance,the balance sheet must be prepared first.

Question 62

Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

Question 63

Financial statements can be prepared directly from the information in the adjusted trial balance.

Question 64

A company performs 20 days of work on a 30-day contract before the end of the year.The total contract is valued at $6,000,with payment received in advance.The $6,000 cash receipt was initially recorded as Unearned Revenue.The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Question 65

A company entered into a 2-month contract for $50,000 on April 1.It earned $25,000 of the contract services in April and billed the customer.The company should recognize the revenue when it receives the customer's check.

Question 66

Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

Question 67

Closing entries are required at the end of each accounting period to close all ledger accounts.

Question 68

Closing entries result in the Dividends account being transferred into net income or net loss for the period ending.

Question 69

Revenue and expense accounts are permanent (real)accounts and should not be closed at the end of the accounting period.

Question 70

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

Question 71

Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

Question 72

Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

Question 73

Accounts that appear in the balance sheet are often called temporary (nominal)accounts.

Question 74

The closing process takes place before financial statements have been prepared.

Question 75

The adjusted trial balance must be prepared before the adjusting entries are made.

Question 76

Asset and liability balances are transferred from the adjusted trial balance to the income statement.

Question 77

Income Summary is a temporary account only used for the closing process.

Question 78

An unadjusted trial balance is a list of accounts and balances prepared before adjustments are recorded.

Question 79

It is acceptable to record prepayment of expenses as debits to expense accounts if an adjusting entry is made at the end of the period to bring the asset account balance to the correct unused or unexpired amount.

Question 80

It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.