Revenue is reported on the income statement in the period earned. The accounting concept supporting this reporting is |
the revenue recognition concept. |
All adjusting entries affect |
at least one income statement account and one balance sheet account. |
Accrued revenues are revenues that |
have been earned but have not been received or recorded in the books. |
If an adjustment for $7,500 in accrued revenues is omitted, how will this affect the financial statements? |
Net income will be understated by $7,500. |
Prepaid expenses |
are an advance payment of cash. |
The adjusting entry for accrued expenses includes |
debit to an expense account. |
The unearned subscriptions account reflected a balance of $32,500 prior to any adjustments. It is determined that $9,800 in subscriptions remain unearned at the end of the period. The adjusting journal entry should include a |
credit to Subscriptions Revenue for $22,700. |
Because collecting the adjustment data requires time, the adjusting entries are often |
entered later but dated as of the last day of the period. |
When recording an adjusting entry for a prepaid expense |
an asset account is credited. |
When recording an adjusting entry for unearned revenues |
a liability account is debited. |
If the following adjusting entry is omitted, what effect will it have on net income? |
net income will be overstated by $4,300 |
The adjusted trial balance is prepared |
after adjusting entries are posted but before financial statements are prepared. |
Once the adjusted trial balance is balanced, it can be used to prepare |
the income statement, the statement of owners’ equity, and the classified balance sheet. |
The adjusted trial balance |
is at a specific date. |
an adjustment to record unrecorded fees earned was posted during the current period. Which of the following would cause the adjusted trial balance totals to be unequal? |
The adjustment was posted as a debit to Accounts Receivable for $870 and a credit to Fees Earned for $780. |
In the vertical analysis of a balance sheet |
each asset item is stated as a percent of total assets. |
Which of the following statements is true about vertical analysis? |
It is useful in analyzing relationships within a financial statement. |
Comparing each line of a financial statement with a total amount from the same financial statement |
is referred to as vertical analysis. |
The following are line items from the vertical analysis of an income statement: |
Total revenues should be the base expressed as 100%. |
unearned revenues |
are referred to as future revenues. |
The adjusting entry to record depreciation includes |
a debit to an expense account. |
The adjusted trial balance is prepared |
to verify the equality of total debit and credit balances. |
Using the following information, prepare a vertical analysis of two years’ income statements. Fees Earned is $153,500 for Year 2 and $149,700 for Year 1. Operating expenses are $122,800 for Year 2 and $127,245 for Year 1. Which of the following statements are true? |
Operating income has increased as a percentage of revenue. |
After which of the following errors would the adjusted trial balance totals not agree? |
A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable. |
In the vertical analysis of an income statement |
each item is stated as a percent of revenues or fees earned. |
The recording of adjusting entries is supported by the |
matching concept. |
Which statement is true regarding the cash basis of accounting? |
Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out. |
Indicate which of the following accounts will never require an adjusting entry. |
Cash |
Barry Company received $8,000 full payment in advance for services that are 60 percent complete at the end of the period. The adjusting entry will |
debit Unearned Revenue for $4,800 and credit Service Revenue for $4,800. |
The accumulated depreciation account is called |
contra asset |
Clever Computers has a 5-day work week and pays the office staff $3,050 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for |
2440 |
The adjusting entry for accrued revenues |
is the same journal entry as recording revenue on account. |
All of the following are types of adjustments except |
Cash expenses. |
If the following adjusting entry is omitted, what effect will it have on the financial statements? |
Revenues will be understated by $1,900. |
Which of the following errors would cause the adjusted trial balance to be unequal ? |
the adjustment for depreciation of $3,545 was journalized as debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation of $3,545. |
The purpose of the adjusted trial balance is to verify |
the equality of the total debit balances and the total credit balances after adjustments have been recorded. |
Adjusting entries are dated |
at the end |
… |
… |
chapter 3 Adjusting Process
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