Which is the correct order of steps in the accounting cycle?
A. Post transactions, journalize transactions, prepare a trial balance, prepare financial statements
B. Journalize and post transactions, journalize and post closing entries, journalize and post adjusting entries
C. Journalize and post transactions, journalize and post adjusting entries, journalize and post closing entries
D. Prepare financial statements, prepare adjusting
entries, prepare closing entries, prepare a post-closing trial balance
are liabilities due to be paid or settled within one year or the operating cycle, whichever is longer. They usually are settled by paying out cash. Current liabilities include accounts payable, notes payable, wage payable, Taxes payable, interest payable, and unearned revenues.
Also, any portion of a long-term liability due to be paid within one year or the operating cycle, whichever is longer, is a current liability.
Unearned revenues are current liabilities when products or services are to be provided within one year or the operating cycle, whichever is longer
Net income
revenues-expenses
Adjusted Trial Balance
prepared for the purpose of preparing the financial statements.
Post closing trial balance
prepared for the purpose of setting the balances for the balance sheet accounts for the next period, closes out temporary accounts (income statement accounts)
Permanent account
balance sheet account
Temporary account
income statement account
Contra accounts
deducted from the asset account
A contra account, related to accounts receivable, that holds the estimated amount of uncollectible accounts
Allowance for bad debts
Which source provides the raw material to prepare the financial statements?
Adjusted trial balance
The closing entry involving a net loss will include a:
Credit to sales revenue
Debit to retained earnings
Credit to dividends
Debit to salaries expense
Debit to retained earnings
A post-closing trial balance does NOT include the:
Income statement accounts
What is the usual last step in the accounting cycle?
Preparing a post-closing trial balance
In
the closing process, ________ are zeroed out by crediting each account and ________ are
zeroed out by debiting each account.
revenues; expenses and dividends
assets; liabilities
dividends; revenues and expenses
expenses and dividends; revenues
expenses and dividends; revenues
Assuming that revenues exceed expenses, which of the following correctly indicates the structure of the journal entry that is used to close revenue and expense accounts?
Debit Expenses, credit Revenues, and credit Retained Earnings
Debit Revenues, debit Expenses, and credit Retained Earnings
Debit Retained Earnings, credit Expenses, and credit Revenues
Debit Revenues, credit Expenses, and credit Retained Earnings
Debit Revenues, credit Expenses, and credit Retained Earnings
After adjusting entries are prepared and posted, but before closing entries are preparedand posted, the balance in Retained Earnings is equal to:
the difference between total assets and total liabilities.
zero.
the amount that is to be reported in the current year's balance sheet.
the amount that was reported on the previous year's balance sheet.
the amount that was reported on the previous year's balance sheet.
Which of the following statements about the Retained Earnings account is correct?
Retained Earnings and income statement accounts are all temporary accounts.
Retained Earnings is a permanent account; income statement accounts are temporary.
Retained Earnings and income statement accounts are all permanent accounts.
Retained Earnings is a temporary account, while income statement accounts are permanent accounts.
Retained Earnings is a permanent account; income statement accounts are temporary.
Temporary accounts are closed at what stage of the accounting process?
At the last journal entries at the end of each accounting year.
At the time that adjustments are made.
After adjustments are made and before the income statement is prepared.
After the income statement and the statement of retained earnings are prepared, but before the balance sheet is prepared.
At the last journal entries at the end of each accounting year.
Which of the following accounts would be classified as a current liability on a classified
balance sheet?
Interest Payable
Service Revenue
Accumulated Depreciation
Salaries and Wages Expense
Interest Payable
The Don't
Tread on Me Tire Company had Retained Earnings at December 31, 2015 of $200,000. During 2016, the company had revenues of $400,000 and expenses of $350,000, and the company declared and paid dividends of $11,000. Retained earnings on the balance sheet
as of December 31, 2016 will be:
239,000
Yulan, Inc has beginning Retained Earnings of $22,000, ending Retained Earnings of $32,000, and net income of $15,000. What was the amount of dividends declared during the year?
$5,000
Which is the first financial statement that should be prepared after the adjusted trial balance has been prepared?
Income Statement
What is the purpose of the adjusted trial balance?
To ensure that total debits equal total credits after the adjustments have been recorded
Before the closing entries are prepared, the Retained Earnings balance in the adjusted trial balance is equal to the balance of that account:
after adding revenues and subtracting expenses but before subtracting dividends.
at the beginning of the period.
at the beginning of the next period.
at the end of the period.
at the beginning of the period
Which of the following statements about the need for adjustments is not correct?
Without adjustments, the financial statements present an incomplete and misleading picture of the company.
Adjustments help the financial statements present the economic resources that the company owns and owes at the end of the period.
Adjustments help the financial statements present the best picture of whether the company's activities were profitable for the period.
Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.
Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance
One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:
ensure that revenues and expenses are recognized during the period they are earned and incurred.
ensure that revenues and expenses are recognized conservatively during the period in which they are paid.
provide an opportunity to manipulate the numbers to the best advantage of the reporting company.
ensure that all estimates of future activities are eliminated from consideration.
ensure that revenues and expenses are recognized during the period they are earned and incurred
If certain assets are partially used up during the accounting period, then:
an asset account is decreased and an expense is recorded.
nothing is recorded on the financial statements until they are completely used up.
nothing is recorded on the financial statements until they are replaced or replenished.
a liability account is decreased and an expense is recorded.
an asset account is decreased and an expense is recorded
The company uses up $5,000 of an existing asset and the company adjusts its accounts accordingly. This is an example of a(n):
deferral adjustment.
The term, deferral, best describes a situation in which:
cash is paid in advance of recognizing an expense
Accrual adjustments involve increasing:
assets and expenses or increasing liabilities and revenues.
assets and decreasing expenses or increasing liabilities and decreasing revenues.
assets and revenues or increasing liabilities and expenses.
assets and decreasing revenues or increasing liabilities and decreasing expenses.
assets and revenues or increasing liabilities and expenses
Accrued revenues recorded at the end of the current year:
are also called Unearned Revenues.
are recorded in the current year when cash is received.
often result in cash payments in the next period.
often result in cash receipts from customers in the next period.
often result in cash receipts from customers in the next period
An example of an account that could be included in an accrual adjustment for revenue is:
Interest Receivable.
Unearned Revenue.
Cash.
Interest Payable.
Interest Receivable
If an expense has been incurred but will be paid later, then:
a liability account is created or increased and an expense is recorded.
a revenue and an expense are accrued.
an asset account is decreased or eliminated and an expense is recorded.
nothing is recorded on the financial statements.
a liability account is created or increased and an expense is recorded
Which of the following best describes when an accrual adjustment is required?
An expense has been incurred and paid in cash.
An expense has not been incurred nor has it been paid in cash.
An expense has not been incurred, but cash has been paid.
An expense has been incurred but not yet paid in cash.
An expense has been incurred but not yet paid in cash
One major difference between deferral and accrual adjustments is that deferral adjustments:
deferral adjustments involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities
Adjusting entries affect:
both income statement and balance sheet accounts.
only balance sheet accounts.
only statement of cash flow accounts.
only income statement accounts.
both income statement and balance sheet accounts
Adjustments ensure that ________ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.
assets
Adjustments to revenue accounts at the end of the accounting period are made to adhere
to accrual accounting principles, specifically the ________ principle.
revenue recognition
Deferring a revenue or expense account in accounting means that the amount:
will be reported as a revenue or an expense in the current period
will be reported as a revenue or an expense in a later period
was reported as a revenue or an expense in a prior period
will not be reported in the accounting records
will be reported as a revenue or an expense in a later period
Interest earned and receivable on a note receivable equals $50 for the month of March. What adjusting entry, if any, should be recorded as of March 31?
Debit Interest Receivable $50 and credit Interest Revenue $50.
Debit Interest Receivable for $150 and credit Interest Revenue $150.
Debit Cash $50 and credit Interest Revenue $50.
No journal entry is needed at this time.
Debit Interest Receivable $50 and credit Interest Revenue $50
A company pays its workforce on Fridays for a five-day workweek ending on that day. The payroll for a week is $100,000. If the accounting year-end falls on a Tuesday, the adjusting journal entry to record this will include a:
debit to Salaries and Wages Expense $40,000.
credit to Salaries and Wages Payable $60,000.
credit to Salaries and Wages Payable $100,000.
debit to Salaries and Wages Expense $100,000.
debit to Salaries and Wages Expense 40,000.
An adjustment to accrue the amount of salaries and wages owed was recorded on December 31. These salaries and wages were paid on the following January 5. The entry on January 5 would include
a debit to:
Cash and Credit to Salaries and Wages Payable.
Cash and Credit to Salaries and Wages Expense.
Salaries and Wages Expense and Credit to Cash.
Salaries and Wages Payable and Credit to Cash.
Salaries and Wages Payable and Credit to Cash.
A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of the following adjustments would be made at the end of a month in which no payment for interest was made?
Debit Cash and credit Notes Payable
Debit Interest Expense and credit Interest Payable
Debit Interest Payable and credit Interest Expense
Debit Notes Payable and credit Cash
Debit Interest Expense and credit Interest Payable
On December 31, 2015, interest of $500 is owed on a bank loan that will not be paid until June 30, 2016. What is the necessary adjusting journal entry on December 31, 2015?
Debit Interest Expense and credit Cash for $500
Debit Interest Payable and credit Interest Expense for $500
Debit Interest Receivable and credit Interest Revenue for $500
Debit Interest Expense and credit Interest Payable for $500
Debit Interest Expense and credit Interest Payable for $500
To calculate the company's income tax expense for the current period, it is necessary to know the company's:
operating expenses and revenue.
revenues, expenses, and dividends.
operating revenue and tax bill from prior periods.
adjusted income (before income taxes) and the company's tax rate.
adjusted income (before income taxes) and the company's tax rate
When should supplies be recorded as an expense?
In the period the supplies are sold, regardless of when they were received
In the period the supplies are used, regardless of when they were purchased
In the period cash is paid for the supplies, regardless of when the supplies were received
In the period the supplies are purchased, regardless of when cash is paid
In the period the supplies are used, regardless of when they were purchased
Supplies should be ________ and Supplies Expense should be ________ for supplies used up during the period
decreased; increased
A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required?
accrual adjustment
What is the main difference between accrual and deferral adjustments?
Deferral adjustments are required to include items not previously recorded whereas accrual adjustments are required to update previously recorded items.
Deferral adjustments are used for expenses whereas accrual adjustments are used for revenues.
Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded.
Deferral adjustments are required under the cash basis of accounting whereas accrual adjustments are required under the accrual basis of accounting.
Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded.
Adjustments help to ensure that all ________ are recorded in the period in which they are incurred
expenses
A deferral adjusting entry that adjusts assets (such as prepaids and supplies):
increases total assets because cash will be received in the future
increases total assets because costs are incurred
expenses the amount used during the period
decreases total assets because cash is paid at the time of the adjustment
expenses the amount used during the period
The deferral adjustment to record the amount of unearned service revenue that is now earned includes a:
debit to Unearned Revenue
How do deferral adjustments for prepaid expenses—such as rent—that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?
Deferral adjustments decrease assets and decrease expenses.
Deferral adjustments increase assets and increase expenses.
Deferral adjustments increase assets and decrease expenses.
Deferral adjustments decrease assets and increase expenses.
Deferral adjustments decrease assets and increase expenses
How can accrual adjustments for interest earned but not yet collected affect the balance sheet and the income statement?
Accrual adjustments can decrease assets and decrease expenses.
Accrual adjustments can increase assets and increase revenues.
Accrual adjustments can increase liabilities and decrease expenses.
Accrual adjustments can increase assets and increase expenses.
Accrual adjustments can increase assets and increase revenues
The process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used is called:
depreciation
Which of the following statements about the presentation of a trial balance is correct?
The order of accounts on a trial balance is as follows: assets, liabilities, stockholders' equity,
dividends, revenues and expenses.
An adjusted trial balance presents account balances in the same level of detail as in the
presentation of the financial statements.
The adjusted trial balance shows all the debit and credit postings to all the ledger accounts.
The adjusted trial balance shows the end-of-year balance for Retained Earnings.
The order of accounts on a trial balance is as follows: assets, liabilities, stockholders' equity,
dividends, revenues and expenses.
If no errors have been made, when a company prepares its adjusted trial balance:
the debit column and the credit column will be equal.
Lansing Limited had a beginning balance in its Retained Earnings account
of $385,600.
During the year, the company declared and paid a $4,700 dividend, and at the end of the year,
it reported Retained Earnings of $399,860. The company's net income for the year was:
18,960
Which of the following statements about revenues and expenses is correct?
If revenues are greater than expenses, the company has net income and Retained Earnings decreases.
If revenues are less than expenses, the company has a net loss and Retained Earnings decreases.
If revenues are greater than expenses, the company has net income and Common Stock increases.
If revenues are less than expenses, the company has a net loss and Common Stock increases to balance off the loss.
If revenues are less than expenses, the company has a net loss and Retained Earnings decreases
Which of the following statements about the closing process is correct?
Closing entries are made to zero out the balances of the permanent accounts on the balance sheet.
Closing entries are recorded at the end of each reporting period which could be monthly, quarterly or annually.
After closing entries are posted, the balances of the income statement accounts will be zero.
After closing entries are posted, the only temporary account with a balance is the Dividends account.
After closing entries are posted, the balances of the income statement accounts will be zero
At the end of the accounting period:
temporary accounts are closed; permanent accounts are not.
only accounts with a credit balance are closed.
all accounts are closed.
permanent accounts are closed; temporary accounts are not.
temporary accounts are closed; permanent accounts are not
Adjusting entries are typically prepared:
at the end of the accounting period
Closing journal entries:
transfer assets and liabilities to Retained Earnings.
transfer revenues and expenses to Retained Earnings.
transfer net income (or loss) and Dividends to Retained Earnings.
close permanent and temporary accounts.
transfer net income (or loss) and Dividends to Retained Earnings
Closing entries:
summarize the activity in every account.
are prepared before financial statements are prepared.
cause the revenue and expense accounts to have zero balances.
reduce the number of permanent accounts.
cause the revenue and expense accounts to have zero balances
Which of the following statements about the income statement is correct?
Dividends are listed on the income statement.
Revenues are listed before expenses on the income statement.
Expenses are listed before revenues on the income statement.
The income statement is prepared after the balance sheet.
Revenues are listed before expenses on the income statement.
If
total debits are not equal to total credits in an adjusted trial balance, which of the following
errors may have occurred?
Recording a transaction twice
Posting a credit to Salaries and Wages Payable as a debit to that account
Debiting Interest Payable instead of debiting Interest Expense
Posting an entry to Salaries and Wage Expense to Administrative Expenses
Posting a credit to Salaries and Wages Payable as a debit to that account
Which of the following statements about adjusting entries is not correct?
Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete.
Adjusting entries generally include one balance sheet and one income statement account.
Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period.
Adjusting entries often affect the cash account.
Adjusting entries often affect the cash account.
After the adjustments have been completed, the adjusted balance in the Interest Payable account
represents:
interest on notes receivable owed to the company
total interest that has been paid or accrued during the period
interest that has accrued, but has not been paid, at the end of the period
interest that has been prepaid on existing debt at the end of the period
interest that has accrued, but has not been paid, at the end of the period
The adjusting entry to record interest owed on obligations at the end of the accounting period includes
a debit to:
Interest Expense and credit to Interest Payable
Interest Receivable and credit to Interest Receivable
Interest Expense and credit to Notes Payable
Interest Payable and credit to Interest Expense
Interest Expense and credit to Interest Payable
What are the effects on the accounting equation from the adjustment for salaries and wages incurred, but not yet paid, during the accounting period?
Total liabilities will increase and total stockholders' equity will increase.
Total liabilities will decrease and total stockholders' equity will decrease.
Total liabilities will decrease and total stockholders' equity will increase.
Total liabilities will increase and total stockholders' equity will decrease.
Total liabilities will increase and total stockholders' equity will decrease
Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?
Salaries and Wages Expense will be recorded as a credit for the amount of the unpaid salaries and wages.
Salaries and Wages Payable will be recorded as a debit for the amount of the unpaid salaries and wages.
Salaries and Wages Payable will decrease by the amount of the unpaid wages.
Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages
Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages
The purpose of recording an adjusting entry for salaries and wages is to record wages:
paid during the accounting period
paid in the prior accounting period
incurred but not yet paid
to be incurred in the next accounting period
incurred but not yet paid
What is the effect of the December 31 adjusting entry to record $400 of revenues earned but not yet collected?
Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400.
Accounts Receivable should be increased by $400 and Unearned Revenue should be increased
by $400.
Cash should be decreased by $400 and Sales Revenue should be increased by $400.
Unearned Revenue should be increased by $400 and Sales Revenue should be decreased by $400.
Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400
How do temporary accounts differ from permanent accounts?
Only temporary accounts are closed at the end of the accounting period.
As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?
Interest Expense should be increased, because the cost of interest relates to the current period.
Three months of rent were prepaid on May 1 for $7,200, but two months' have now expired, leaving only one month prepaid at June 30. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?
4,800
Recording an adjusting journal entry to recognize depreciation would cause:
A decrease in assets, a decrease in stockholders' equity, and an increase in expenses
The book value of equipment is equal to:
Cost of equipment - the related accumulated depreciation
A company pays salaries and wages every two weeks. Salaries and wages amount to 100 a day and they company has a seven day work week. On March 31, the company pays wages for the two weeks ending March 24 and recorded the related journal entry. The adjusting journal entry, dated March 31, to record unpaid wages and salaries owed since March 25 will include a debit to:
Salaries and Wages Expense and a credit to Salaries and Wages Payable for $1,400.
Salaries and Wages Payable and a credit to Salaries and Wages Expense for $1,400.
Salaries and Wages Payable and a credit to Cash for $700.
Salaries and Wages Expense and a credit to Salaries and Wages Payable for $700.
Salaries and Wages Expense and a credit to Salaries and Wages Payable for $700.