Deck 3: The Adjusting Process

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts.

Question 5

An example of deferred revenue is Unearned Rent.

Question 6

Adjusting entries affect only expense and asset accounts.

Question 7

Generally accepted accounting principles require the accrual basis of accounting.

Question 8

The updating of accounts when financial statements are prepared is called the adjusting process.

Question 9

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

Question 10

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

Question 11

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.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

The matching principle supports matching expenses with the related revenues.

Question 19

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

Question 20

For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.

Question 21

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

Question 22

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 23

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

Question 24

Unearned revenue is a liability.

Question 25

A fixed asset's market value is reflected on the balance sheet.

Question 26

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

Question 27

A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is a debit to Unearned Subscription Revenue of $150 and a credit to Subscription Revenue of $150.

Question 28

Accumulated depreciation accounts are liability accounts.

Question 29

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 30

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

Question 31

A company pays $36,000 for 12 months' rent on October 1, recording the prepayment as an asset. The adjusting entry on December 31 is a debit to Rent Expense of $9,000, and a credit to Prepaid Rent of $9,000.

Question 32

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

Question 33

If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders' 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 pays an employee $3,000 for a five-day workweek, Monday-Friday. The adjusting entry on December 31, which is a Wednesday, is a debit to Wages Expense of $1,800, and a credit to Wages Payable of $1,800.

Question 36

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 37

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 38

Accumulated depreciation is reported on the income statement.

Question 39

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

Question 40

The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.

Question 41

The financial statements are prepared from the unadjusted trial balance.

Question 42

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 43

The accounting principle upon which deferrals and accruals are based is

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

Question 44

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 45

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

Question 46

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 47

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

Question 48

Prepaid expenses have

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

Question 49

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 50

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 51

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

Question 52

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 53

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

Question 54

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 55

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

Question 56

The revenue recognition principle

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 57

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 58

Prior to the adjusting process, accrued expenses have

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

Question 59

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

Question 60

The matching principle

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 61

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

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

Question 62

Prepaid expenses are eventually expected to become

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

Question 63

The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is

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

Question 64

Which of the following is considered to be unearned revenue?

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

Question 65

If there is a balance in the prepaid rent account after adjusting entries are made, it represents a (n)

A) deferral
B) accrual
C) revenue
D) liability

Question 66

Which account would normally not require an adjusting entry?

A) Wages Expense
B) Accounts Receivable
C) Accumulated Depreciation
D) Cash

Question 67

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 68

The account type and normal balance of Prepaid Expense would be

A) revenue, credit
B) expense, debit
C) liability, credit
D) asset, debit

Question 69

Which of the following is an example of accrued revenue?

A) snow removal services that have been paid for three months in advance
B) snow removal services that have been provided but have not been billed or paid
C) an agreement that has been signed for snow removal services for the next three months
D) snow removal services that have been provided and paid on the same day

Question 70

Which of the following is not a characteristic of the 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) The accrual basis of accounting supports the matching concept.
D) Expenses are reported in the same period as the revenues to which they relate.

Question 71

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

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

Question 72

By matching revenue earned during the accounting period to related incurred expenses,

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 73

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

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

Question 74

Adjusting entries affect at least one

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

Question 75

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

A) prepaid
B) deferred
C) accrued
D) matched

Question 76

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 77

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

Question 78

If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a (n)

A) deferral
B) accrual
C) dividend
D) revenue

Question 79

The unexpired insurance at the end of the fiscal period represents a (n)

A) accrued asset
B) accrued liability
C) accrued expense
D) deferred expense

Question 80

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

A) A computer technician 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 an invoice or made payment.