Deck 3: The Adjusting Process

Question 1

are two ways to do accounting: accrual accounting and cash-basis accounting.

Answer 1

True

Question 2

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
C) Only when cash is received before the completion of the services
D) Only when cash is received during the completion of the services

Answer 2

When cash is received

Question 3

Cash-basis accounting ignores all of the following except:

A) payables.
B) depreciation.
C) receivables.
D) expenses.

Answer 3

expenses.

Question 4

Under which of the following methods of accounting is revenue recorded ONLY when cash is received?

A) Cash
B) Receivable
C) Deferral
D) Accrual

Question 5

Under which of the following methods of accounting is revenue recorded when it is earned, regardless of when cash is received?

A) Deferral
B) Cash
C) Receivable
D) Accrual

Question 6

Under which of the following methods of accounting is an expense recorded when it is incurred, regardless of when cash is paid?

A) Cash
B) Accrual
C) Deferral
D) Receivable

Question 7

Under which of the following methods of accounting is an expense recorded ONLY when cash is paid?

A) Receivable
B) Accrual
C) Deferral
D) Cash

Question 8

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

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Accounts receivable } & & 1,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Salary expense } & & 1,000 & \\\hline & \text { Cash } & & 1,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
D) Both A and C are correct.

Question 9

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

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Accounts receivable } & & 1,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Salary expense } & & 1,000 & \\\hline & \text { Cash } & & 1,000 \\\hline\end{array}$$
D) Both A and C are correct.

Question 10

Under the accrual method of accounting, service revenue is recorded at which of the following times?

A) When the services are completed
B) When payment for the services is received
C) At the end of the accounting period
D) Both A and B

Question 11

Under the cash-basis method of accounting, service revenue is recorded at which of the following times?

A) When payment for the services is received
B) At the end of the accounting period
C) When the services are completed
D) At both A and B

Question 12

Under the accrual method of accounting, an expense is recorded at which of the following times?

A) When the expense is incurred
B) When payment for the expense is made
C) At the end of the accounting period
D) At both A and C

Question 13

Under the cash-basis method of accounting, an expense is recorded at which of the following times?

A) At the end of the accounting period
B) When the expense is incurred
C) When payment for the expense is made
D) At both A and B

Question 14

Which of the following are differences in the accrual method and cash-basis method of accounting?

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 15

basic interim accounting period is one year.

Question 16

"Matching" in accounting means to make an entry in the journal.

Question 17

matching principle guides accounting for expenses?identifying all expenses incurred during the period, measuring the expenses, and matching them against the revenues earned during that time period.

Question 18

accrual of revenue records the cash receipt before the expense.

Question 19

account "Prepaid insurance" is an asset account.

Question 20

Recording the amount of earned revenue from an account that was originally recorded as unearned revenue is an example of:

A) the accounting period concept.
B) the revenue concept.
C) the matching principle.
D) all of the above.

Question 21

Ensuring that information is reported often is part of the:

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

Question 22

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

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Accounts receivable } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Salary expense } & & 1,000 & \\\hline & \text { Cash } & & 1,000 \\\hline\end{array}$$
D) Both A and B are correct.

Question 23

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

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Salary expense } & & 1,000 & \\\hline & \text { Salary payable } & & 1,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Accounts receivable } & & 1,000 & \\\hline & \text { Service revenue } & & 1,000 \\\hline\end{array}$$
D) Both A and B are correct.

Question 24

a prepaid adjustment, the cash payment occurs before an expense is recorded.

Question 25

adjusting entry required for a prepaid expense consists of a debit to an expense and a credit to an asset.

Question 26

account type is debited in the adjusting entry when a prepaid expense was initially recorded as an expense?

A) A debit to an asset account
B) A debit to a deferred revenue account
C) A debit to an unearned expense account
D) A debit to a contra account

Question 27

account type is debited in the adjusting entry when unearned income was initially recorded as revenue?

A) A debit to a deferred revenue account
B) A debit to an unearned expense account
C) A debit to an asset account
D) A debit to a contra account

Question 28

debit to a(n) _________ account is required in the adjusting process for depreciation.

A) deferred revenue
B) asset
C) expense
D) unearned expense

Question 29

credit to a(n) _________ account is required as part of an adjusting entry when an accrued expense was initially recorded as an expense.

A) contra liability
B) unearned revenue
C) liability
D) revenue

Question 30

credit to a(n) _________ account is required as part of an adjusting entry when an accrued revenue was initially recorded as revenue.

A) revenue
B) liability
C) contra liability
D) unearned revenue

Question 31

accrued expense is an expense that:

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

Question 32

of the following accounts would be adjusted at the end of an accounting period?

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

Question 33

A prepaid expense is an expense that:

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

Question 34

Every adjustment affects which of the following accounts on the income statement?

A) asset and equity accounts
B) revenue and liability accounts
C) revenue and asset accounts
D) none of these accounts

Question 35

Every adjustment affects which of the following accounts on the balance sheet?

A) revenue or liability accounts
B) revenue or expense accounts
C) asset or expense accounts
D) asset or liability accounts

Question 36

Unearned rent is an example of a(n):

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

Question 37

The Supplies account is an example of a(n):

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

Question 38

The adjusting entry to record prepaid rent after the company has used the rented property for the rental period accomplishes which of the following?

A) Decreases an asset and increases an expense
B) Decreases a liability and increases an expense
C) Decreases a liability and increases a revenue
D) Increases an asset and increases an expense

Question 39

The accountant for Noble Jewelry Repair Company failed to make an adjusting entry for depreciation expense for the current year. What is the effect of this error on total liabilities?

A) Total liabilities are understated.
B) Total liabilities are not affected.
C) Total liabilities are overstated.
D) There is not enough information presented to determine the effect on total liabilities.

Question 40

The purposes of the adjusting process are:

A) to measure net income or loss and to update the balance sheet.
B) to compute ending retained earnings and to journalize the period's activity.
C) both A and B.
D) none of the above.

Question 41

adjusting entry required for an accrued expense consists of a debit to a liability and a credit to revenue.

Question 42

adjusting entry required for unearned revenue consists of a debit to a liability and a credit to revenue.

Question 43

adjusting entry required to accrue revenue consists of a debit to an expense and a credit to a liability.

Question 44

Supplies account for Vulcan Detail Company had a balance of $3,200 at the beginning of the year. Additional supplies of $13,400 were purchased during the year. A physical count of the ending inventory of supplies revealed that $5,900 of supplies was still on hand. What was total Supplies expense for the year?

A) $16,400
B) $9,100
C) $10,700
D) $4,300

Question 45

January 1, 2012, Office Manor's Unearned revenue account had a balance of $3,800. During the year, the company received $22,300 for services to be performed in the future. After adjusting entries were made, the balance in Unearned revenue on December 31, 2012 was $2,900.
Accounts receivable at the beginning of the year was $3,200. Billings for services performed on account were $31,200 during the year. After adjusting entries were made, the balance in Accounts receivable on December 31, 2012 was $1,000. No services were performed with immediate cash collection. What is the total Service revenue?

A) $56,600
B) $54,400
C) $55,700
D) $53,500

Question 46

adjusting entry to record depreciation expense accomplishes which of the following?

A) Decreases a liability and increases an expense
B) Decreases a liability and increases a revenue
C) Increases an asset and increases an expense
D) Increases a contra-asset and increases an expense

Question 47

adjusting entry to record supplies expense accomplishes which of the following?

A) Decreases an asset and increases an expense
B) Decreases a liability and increases a revenue
C) Increases an asset and increases an expense
D) Decreases a liability and increases an expense

Question 48

The adjusting entry to record unearned revenue that has now been earned accomplishes which of the following?

A) Increases an asset and increases an expense
B) Decreases an asset and increases an expense
C) Decreases a liability and increases a revenue
D) Decreases a liability and increases an expense

Question 49

The adjusting entry to record prepaid insurance that has now been used accomplishes which of the following?

A) Increases an asset and increases an expense
B) Decreases an asset and increases an expense
C) Decreases a liability and increases a revenue
D) Decreases a liability and increases an expense

Question 50

Plant assets are long-lived tangible assets used in the operation of a business. The allocation of a plant asset's cost to expense is which of the following?

A) The revenue principle
B) Revenue allocation
C) Depreciation
D) Historical cost

Question 51

Joy Company paid $4,500 for an 8-month lease on September 1, 2010. The adjusting entry would include a:

A) debit of $4,500 to rent expense on December 31, 2010.
B) credit of $4,500 to rent expense on December 31, 2010.
C) debit of $2,250 to rent expense on December 31, 2010.
D) credit of $2,250 to rent expense on December 31, 2010.

Question 52

A company had $5,645 of supplies on hand on January 1. On December 31, a physical count showed $3,000 of supplies remained. The adjusting entry would require a:

A) debit to supplies expense of $3,000.
B) credit to supplies expense of $3,000.
C) debit to supplies expense of $2,645.
D) credit to supplies expense of $2,645.

Question 53

ABC Company signed a one-year $12,000 note at 8% interest on May 1, 2010. If the company paid the note in full on December 31, 2010, they would owe the bank $12,640. How much interest expense must be accrued on December 31, 2010?

A) $960
B) $320
C) $640
D) None of the above

Question 54

What type of account is Salary payable and what is its normal balance?

A) Expense, debit
B) Liability, credit
C) Asset, debit
D) Revenue, credit

Question 55

Which of the following is TRUE of plant asset accounts and their related accumulated depreciation accounts?

A) The allocation of a plant asset's cost to expense is called depreciation.
B) Accounting for plant assets is the same as accounting for a prepaid expense.
C) Accumulated depreciation is a contra-asset account which has a normal credit balance.
D) All of the above are true.

Question 56

adjusted trial balance columns on a work sheet contain the account balances after the adjusting entries are made.

Question 57

The accountant for Duman Legal Services failed to make an adjusting entry for supplies inventory that had been used for the year. Which of the following is true?

A) Total revenue is overstated.
B) Total revenue is understated.
C) Total expenses are overstated.
D) Total expenses are understated.

Question 58

Which of the following accounts would most likely appear on the adjusted trial balance (have an account balance), but NOT appear on the unadjusted trial balance (account balance would be zero)?

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

Question 59

financial statements should be prepared in this order: 1) income statement, 2) balance sheet, and 3) statement of owner's equity for a proprietorship.

Question 60

owner's equity from the statement of owner's equity is included on the balance sheet for a proprietorship.

Question 61

of the following categories does not show up on an adjusted trial balance?

A) Assets
B) Liabilities
C) Owners' Equity
D) None of the above

Question 62

of the following computes ending capital in a proprietorship?

A) Income statement
B) Statement of owner's equity in a proprietorship
C) Adjusted trial balance
D) Balance sheet

Question 63

income statement should list expenses is what order?

A) Ascending order by amount
B) Descending order by amount
C) In order of importance to the company's primary mission
D) Alphabetical order

Question 64

All of the financial statements include which of the following elements?

A) Date, or period, covered by the statement
B) Name of the company
C) Title of the statement
D) All of the above