Question 1

A deferral adjustment that decreases an asset will include an increase in an expense.

Accepted Answer

When an asset is deferred, it means that it is postponed to a later period. In order to reflect this postponement, an adjustment is made to decrease the asset in the current period and increase an expense. This is done to match the cost of the asset with the period in which it is expected to provide benefits.

Question 2

An accrual adjustment that increases an asset will include an increase in an expense.

Accepted Answer

An accrual adjustment that increases an asset typically involves an increase in revenue or a decrease in an expense, not an increase in an expense.

Question 3

Corporate income taxes have to be calculated before all other adjustments are made.

Accepted Answer

Corporate income taxes are calculated after accounting for all allowable deductions and adjustments, which reduce the taxable income.

Question 4

Depreciation expense represents the use of part of the value of an asset until it has no remaining market value.

Accepted Answer

Depreciation expense represents the allocation of the cost of an asset over its useful life, not necessarily until it has no remaining market value.

Question 5

Adjustments ensure that the related accounts on the balance sheet are up to date and complete.

Accepted Answer

Adjustments are necessary to ensure that the related accounts on the balance sheet are accurate and up to date. These adjustments may include items such as accrued expenses, prepaid expenses, depreciation, and unearned revenue. Failing to make these adjustments can result in inaccurate financial statements and misleading information for users of the statements.

Question 6

Adjustments are needed to ensure that the accounting system records all of the revenues and expenses that relate to that period.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that all revenues and expenses for that period are accurately recorded in the accounting system. These adjustments help to properly match revenues with expenses and ensure that financial statements reflect the true financial position of the company.

Question 7

The carrying value of an asset is an approximation of the asset's market value.

Accepted Answer

The carrying value of an asset is the value of the asset as recorded on the company's financial statements, which may be different from the market value. It takes into account factors such as depreciation and amortization, while market value is determined by supply and demand in the market.

Question 8

The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses.

Accepted Answer

The primary purpose of the adjusted trial balance is not to see whether revenues are greater than expenses. The adjusted trial balance is used to ensure that total debits and credits are equal after adjusting entries have been made for accruals, deferrals, and other adjustments. This helps to identify any errors or discrepancies before preparing the financial statements.

Question 9

Adjustments are only made if cash has been received or paid during the period.

Accepted Answer

Adjustments are made regardless of whether cash has been received or paid during the period. Adjustments are made to ensure that the financial statements reflect the actual economic activity of the business, even if the cash transactions have not occurred yet.

Question 10

Trial balances are prepared after the financial statements to verify that the numbers are accurate.

Accepted Answer

Trial balances are prepared before the financial statements to ensure that the total debit balances equal the total credit balances. They help to detect errors and ensure accuracy before the financial statements are prepared.

Question 11

The adjusted trial balance shows the end-of-year balance for Retained Earnings.

Accepted Answer

The adjusted trial balance includes accounts for revenues, expenses, assets, liabilities, and equity, but the Retained Earnings figure is updated later when closing entries are made, after the adjusted trial balance is prepared.

Question 12

The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received.

Accepted Answer

The amount charged for a good or service provided to a customer on account is posted to a revenue account at the time of the sale, regardless of when the payment is received. This is known as accrual accounting.

Question 13

All real accounts will have zero balances when the closing process is complete.

Accepted Answer

Real accounts, also known as permanent accounts, carry their balances over to the next accounting period and are not closed at the end of the accounting period.

Question 14

You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets.All other things equal,your debit and credit column totals will differ by $40,000.

Accepted Answer

By including a contra account in the same column as the account it offsets, you effectively double the impact of the contra account. This mistake increases the total of one column by $20,000 and decreases the total of the other column by $20,000, leading to a difference of $40,000 between the debit and credit column totals.

Question 15

Prior to calculating income tax expense,adjustments to all revenue and expense accounts have to be made.

Accepted Answer

Adjustments such as accruals, prepayments, depreciation, and allowances have to be made to revenue and expense accounts in order to accurately calculate income tax expense.

Question 16

Adjusting journal entries never affect the cash account.

Accepted Answer

Adjusting journal entries are made to record non-cash transactions such as depreciation or accruals. As cash does not change hands in these transactions, they do not affect the cash account.

Question 17

If a company has a net loss during the current accounting period,then the post-closing retained earnings will be smaller than the pre-closing retained earnings.

Accepted Answer

A net loss for the current accounting period will decrease the retained earnings for the company, resulting in a smaller post-closing retained earnings balance compared to the pre-closing balance.

Question 18

A contra account is added to the account it offsets.

Accepted Answer

A contra account is subtracted from the account it offsets to calculate the net balance, not added.

Question 19

As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account as it represents the use of a resource (asset).

Accepted Answer

This is correct accounting practice as the use of supplies represents a decrease in an asset account and an increase in an expense account.

Question 20

In general,adjusting journal entries improve the usefulness of the financial reports.

Accepted Answer

Adjusting journal entries help to ensure that financial reports reflect accurate and complete information, improving their usefulness for decision-making purposes. Without these adjustments, certain accounts may be overstated or understated, leading to inaccurate financial analysis.

Quiz 4: Adjustments, financial Statements, and Financial Results