Adjusting Entries Flashcards
(15 cards)
Why are adjusting entries necessary in accrual accounting?
A. To correct errors made in journal entries
B. To match revenues and expenses to the correct period
C. To balance debits and credits
D. To prepare cash flow statements
B. To match revenues and expenses to the correct period
What is the main conceptual difference between a prepaid expense and an accrued expense?
A. Prepaid expenses involve estimates, while accrued expenses are exact amounts
B. Prepaid expenses involve cash before the benefit is received; accrued expenses involve benefit before cash
C. Prepaid expenses occur only at year-end; accrued expenses occur monthly
D. Prepaid expenses are liabilities; accrued expenses are assets
B. Prepaid expenses involve cash before the benefit is received; accrued expenses involve benefit before cash
How do estimated adjusting entries differ from other types of adjusting entries?
A. They are only made when an error is discovered
B. They involve known transactions with exact amounts
C. They are based on assumptions and approximations, not actual transactions
D. They are reversed immediately after posting
C. They are based on assumptions and approximations, not actual transactions
What accounting principle is most closely tied to the need for accrued and prepaid adjustments?
A. Conservatism principle
B. Full disclosure principle
C. Matching principle
D. Cost principle
C. Matching principle
Which statement best explains the nature of accrued revenues?
A. They are recorded when cash is received
B. They are always calculated based on estimates
C. They recognize income that has been earned but not yet recorded
D. They are liabilities on the balance sheet
C. They recognize income that has been earned but not yet recorded
Which of the following best describes the effect of failing to record an adjusting entry for an accrued expense?
A. Assets will be overstated and revenue understated
B. Expenses will be understated and net income overstated
C. Liabilities will be overstated and equity understated
D. Revenue will be overstated and liabilities understated
B. Expenses will be understated and net income overstated
Which of the following is an example of an accrued expense?
a. depreciation on equipment
b. rent paid in advance
c. wages earned by employees but not yet paid
d. supplied purchased for future use
c. wages earned by an employee but not yet paid
A company receives cash from a customer before performing the service. What type of account is initially affect?
a. accounts receivable
b. unearned revenue
c. service revenue
d. prepaid expense
unearned revenue
What is the main purpose of an estimated adjusting entry?
a. to record expenses when cash is paid
b. to defer revenue to a future period
c. to recognize items based on an approximate amount
d. to reverse previously recorded transactions
c. to recognize items based on an approximate amount
Whick adjusting entry is required for prepaid insurance that has expired during the period?
a. Debit insurance expense; credit prepaid insurance
b. Debit prepaid insurance, credit insurance expense
c. debit insurance expense; credit cash
d. debit cash, credit insurance expense
a. debit insurance expense; credit prepaid insurance
Which of the following is not an example of an estimated adjusting entry?
a. bad debt expense
b. warranty expense
c. accrued interest
d. depreciation expense
c. accrued interest
Accrued revenues are revenues:
a. collected in advance from customers
b. earned but not yet recorded
c. that were estimated based on historical data
d. earned and received during the same period
b. earned but not yet recorded
Prepaid expenses are initially recorded as:
a. liabilities
b. revenues
c. assets
d. expenses
c. assets
Which adjusting entry is needed when services have been provided but not yet billed to the customer?
a. debit cash, credit service revenue
b. debit unearned revenue, credit service revenue
c. debit accounts receivable, credit service revenue
d. debit prepaid revenue, credit service revenue
c. debit accounts receivable, credit service revenue
Which of the following best distinguishes prepaid from accrued items?
a. prepaid items always relate to liabilities, while accrued items relate to assets
b. prepaid items involve cash after service, while accrued items involve cash before service
c. prepaid items are paid in advance, accrued items are paid after use
d. there is no difference
c. prepaid items are paid in advance, accrued items are paid after use
