Accounting 221 Chapters 3 & 4

Using accrual accounting, expenses are recorded and reported only:

When they are incurred whether or not cash is paid.

Adjusting entries are made to ensure that:
a. Expenses are recognized in the period in which they are incurred.
b. Revenues are recorded in the period in which the performance obligation is satisfied.
c. Balance sheet and income statement accounts have correct balances at the end of an accounting period.
d. All of the above

d. All of the above

An adjusting entry affects:

A balance sheet account and an income statement account.

If a revenue has been consumed but a bill has not been received at the end of the accounting period, then:

An adjusting entry should be made recognizing the expense.

Accrued expenses are:

Incurred but not yet paid or recorded.

Accrued revenues are:

Recognized but not yet received or recorded.

Deferred expenses are:

Paid and recorded in an asset account before they are used or consumed.

Deferred revenues are:

Received and recorded as liabilities before they are recognized.

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:
a. Expenses to be overstated
b. Net income to be overstated
c. Liabilities to be understated
d. Revenues to be understated

d. Revenues to be understated

Unearned revenue is classified as a(n):
a. Asset account
b. Revenue account
c. Contra revenue account
d. Liability

d. Liability

On July 1 the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:
a. debit Rent Expense, $18,000; credit Prepaid Rent, $3,000
b. debit Prepaid Rent, $3,000; credit Rent Expense, $3,000
c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000
d. debit Rent Expense, $18,000; credit Prepaid Rent, $15,000

c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:
a. debit Unearned Service Revenue and credit Cash
b. debit Unearned service Revenue and credit Service Revenue
c. debit Unearned Service Revenue and credit Prepaid Expense
d. debit Unearned Service Revenue and credit Accounts Receivable

b. debit Unearned Service Revenue and credit Service Revenue

If a company fails to make an adjusting entry to record supplies expense, then:
a. stockholders' equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.

b. expense will be understated

If a company fails to adjust an Unearned Rent Revenue account for rent that has been earned, what effect will this have on that month's financial statements?
a. Assets will be understated and revenues will be understated.
b. Liabilities will be understated and revenues will be understated.
c. Liabilities will be overstated and revenues will be understated.
d. Assets will be overstated and revenues will be understated.

c. Liabilities will be overstated and revenues will be understated.

If a company fails to adjust for accrued expenses what effect will this have on that month's financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be understated and net income and stockholders' equity will be overstated.
c. Assets will be overstated and net income and stockholders' equity will be understated.
d. Assets will be overstated and net income and stockholders' equity will be overstated.

b. Expenses will be understated and net income and stockholders' equity will be overstated.

Green Realty Company received a check for $30,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements will be prepared on July 31. Green Realty should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $5,000; credit Rent Revenue, $5,000
b. debit Rent Revenue, $5,000; credit Unearned Rent Revenue, $5,000
c. debit Unearned Rent Revenue, $30,000; credit Rent Revenue, $30,000
d. debit Cash, $30,000; credit Rent Revenue, $30,000

a. debit Unearned Rent Revenue, $5,000; credit Rent Revenue, $5,000

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause:
a. Net income to be understated.
b. An overstatement of assets and an overstatement of liabilities.
c. An understatement of expenses and an understatement of liabilities.
d. An overstatement of expenses and an overstatement of liabilities.

c. An understatement of expenses and an understatement of liabilities.

An adjusted trial balance:
a. Is prepared after the financial statements are completed.
b. Proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. Is a required financial statement under generally accepted accounting principles.
d. Cannot be used to prepare financial statements.

b. Proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

The following accounts show balances on the adjusted trial balance. Which of these account balances will NOT appear the same on the balance sheet?
a. Retained earnings
b. Accounts receivable
c. Common stock
d. Notes payable

a. Retained earnings

The closing entry process consists of closing:

All temporary (nominal) accounts

A post-closing trial balance will show:

Only balance sheet accounts

Accounting 221 Chapters 3 & 4 - Subjecto.com

Accounting 221 Chapters 3 & 4

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Using accrual accounting, expenses are recorded and reported only:

When they are incurred whether or not cash is paid.

Adjusting entries are made to ensure that:
a. Expenses are recognized in the period in which they are incurred.
b. Revenues are recorded in the period in which the performance obligation is satisfied.
c. Balance sheet and income statement accounts have correct balances at the end of an accounting period.
d. All of the above

d. All of the above

An adjusting entry affects:

A balance sheet account and an income statement account.

If a revenue has been consumed but a bill has not been received at the end of the accounting period, then:

An adjusting entry should be made recognizing the expense.

Accrued expenses are:

Incurred but not yet paid or recorded.

Accrued revenues are:

Recognized but not yet received or recorded.

Deferred expenses are:

Paid and recorded in an asset account before they are used or consumed.

Deferred revenues are:

Received and recorded as liabilities before they are recognized.

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:
a. Expenses to be overstated
b. Net income to be overstated
c. Liabilities to be understated
d. Revenues to be understated

d. Revenues to be understated

Unearned revenue is classified as a(n):
a. Asset account
b. Revenue account
c. Contra revenue account
d. Liability

d. Liability

On July 1 the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:
a. debit Rent Expense, $18,000; credit Prepaid Rent, $3,000
b. debit Prepaid Rent, $3,000; credit Rent Expense, $3,000
c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000
d. debit Rent Expense, $18,000; credit Prepaid Rent, $15,000

c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:
a. debit Unearned Service Revenue and credit Cash
b. debit Unearned service Revenue and credit Service Revenue
c. debit Unearned Service Revenue and credit Prepaid Expense
d. debit Unearned Service Revenue and credit Accounts Receivable

b. debit Unearned Service Revenue and credit Service Revenue

If a company fails to make an adjusting entry to record supplies expense, then:
a. stockholders’ equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.

b. expense will be understated

If a company fails to adjust an Unearned Rent Revenue account for rent that has been earned, what effect will this have on that month’s financial statements?
a. Assets will be understated and revenues will be understated.
b. Liabilities will be understated and revenues will be understated.
c. Liabilities will be overstated and revenues will be understated.
d. Assets will be overstated and revenues will be understated.

c. Liabilities will be overstated and revenues will be understated.

If a company fails to adjust for accrued expenses what effect will this have on that month’s financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be understated and net income and stockholders’ equity will be overstated.
c. Assets will be overstated and net income and stockholders’ equity will be understated.
d. Assets will be overstated and net income and stockholders’ equity will be overstated.

b. Expenses will be understated and net income and stockholders’ equity will be overstated.

Green Realty Company received a check for $30,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements will be prepared on July 31. Green Realty should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $5,000; credit Rent Revenue, $5,000
b. debit Rent Revenue, $5,000; credit Unearned Rent Revenue, $5,000
c. debit Unearned Rent Revenue, $30,000; credit Rent Revenue, $30,000
d. debit Cash, $30,000; credit Rent Revenue, $30,000

a. debit Unearned Rent Revenue, $5,000; credit Rent Revenue, $5,000

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause:
a. Net income to be understated.
b. An overstatement of assets and an overstatement of liabilities.
c. An understatement of expenses and an understatement of liabilities.
d. An overstatement of expenses and an overstatement of liabilities.

c. An understatement of expenses and an understatement of liabilities.

An adjusted trial balance:
a. Is prepared after the financial statements are completed.
b. Proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. Is a required financial statement under generally accepted accounting principles.
d. Cannot be used to prepare financial statements.

b. Proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

The following accounts show balances on the adjusted trial balance. Which of these account balances will NOT appear the same on the balance sheet?
a. Retained earnings
b. Accounts receivable
c. Common stock
d. Notes payable

a. Retained earnings

The closing entry process consists of closing:

All temporary (nominal) accounts

A post-closing trial balance will show:

Only balance sheet accounts

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