Ch. 3 Accounting

the matching concept

states that the revenues and related expenses should be reported in the same period

Using accrual accounting, expenses are recorded and reported only

when they are incurred, whether or not cash is paid

Prior to the adjusting process, accrued revenue has

been earned and not recorded as revenue

Deferred expenses have

not yet been recorded as expenses

Deferred revenue is revenue that is

not earned but the cash has been received

Adjusting entries affect at least one

income statement account and one balance sheet account

Which one of the accounts below would likely be included in an accrual adjusting entry?
-insurance expense, prepaid rent, interest expense, unearned rent

Interest Expense

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

Unearned Revenue

The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents four months’ rent paid on December 1. The adjusting entry required on December 31 is

debit Rent Expense, $8,000; credit Prepaid Rent, $8,000

As time passes, fixed assets other than land lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called

depreciation

The entry to adjust the accounts for wages accrued at the end of the accounting period is

debit Wages Expense; credit Wages Payable

Data for an adjusting entry described as "accrued wages, $2,020" means to debit

Wages Expense and credit Wages Payable

Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies

used

Accrued expenses are ordinarily reported on the balance sheet as

liabilities

Which of the following pairs of accounts could not appear in the same adjusting entry?

Interest Income and Interest Expense

The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is

$54,000

Which of the following is not true regarding depreciation?

Depreciation expense reflects the decrease in market value each year.

The balance in the supplies account, before adjustment at the end of the year is $6,250. The proper adjusting entry if the amount of supplies on hand at the end of the year is $1,500 would be

debit Supplies Expense $4,750, credit Supplies $4,750

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?

Salary Expense for the year was understated.

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the trial balance?

Depreciation Expense

All of the following statements regarding vertical analysis are true except:

In a vertical analysis of an income statement, each item is stated as a percent of total expenses.

For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?

Net income is overstated by $2,300.