Ch 3: Adjusting Accts for Financial Statements

Question 1

the value of info is often linked to..

Answer 1

its timeliness

Question 2

time period assumption

Answer 2

presumes a business activities can be divided into specific time periods

Question 3

annual financial statements

Answer 3

reports covering a 1 year period

Question 4

interim financial statements

Answer 4

report covering 1,3,6 month period

Question 5

fiscal year fnan statement

Answer 5

consisting of 12 consecutive months or 52 weeks

Question 6

natural business year fnan statement

Answer 6

12 month period that ends when sales are at lowest

Question 7

accrual basis accounting

Answer 7

records revenue when services/goods are delivered and records expenses when incurred

required by gaap

(goes month by month(cost/months))

Question 8

cash basis accoutning

Answer 8

records revenue when cash is recieved and record expenses when cash is paid

*all at once

Question 9

what are the 4 types of adjustments

Answer 9

-deferral expense
-deferral of revenue
-accrued expense
-accrued revenue

Question 10

what is the 3 step process for adjustments

Answer 10

1-determine what the current acc balance equals

2- determine what the current balance acc should equal

3- record an adjustment entry that shows process of going from step 1 to step 2

Question 11

every adjusting entry affects???

Answer 11

One or more balance sheet accounts and one or more income statement accounts

Question 12

adjusting entries do not affect what account

Answer 12

the cash account

Question 13

when assets such as prepaid get used what does it become

Answer 13

it becomes an expense

Question 14

prepaid expenses reflect transactions when cash is paid…

Answer 14

before the related expense is recognized

Question 15

plant assets

Answer 15

-refer to long term tangible assets that are used to produce/ sell goods/services.

-Are expected to provide benefits for more than 1 acct period.

-eventually deprecitate

-ex machine

Question 16

depreciation

Answer 16

allocation of the costs of these assets over their life

Question 17

contra asset

Answer 17

acc linked w another acc and has an opposite normal balance

Question 18

book value

Answer 18

net amount-acc depreciation

Question 19

straight line depreciation

Answer 19

(cost of asset-salvage value)
/
useful life months or years

Question 20

journal entry for depreciation

Answer 20

debit-depreciation expense
credit-accumulated depreciation

Question 21

deferred expeses accounts

Answer 21

-supplies
-prepaid insurance
-depreciation

Question 22

deferred revenue definition + adj entry

Answer 22

unearned revenue-when you receive money in advance but have not provided the service yet

D-unearned revenue
C-revenue

Question 23

accrued expenses definition + adj entry

Answer 23

costs that are incurred but have not been paid for

D-salaries expense
C-salaries payable

Question 24

accrued expenses accounts

Answer 24

-salaries payable
-affect the payable

Question 25

accrued revenue defenition + adj entry

Answer 25

when you have provided the goods or service but have not received payment D-accts recievable C- revenue

Question 26

accrued revenue accounts

Answer 26

-accounts receivable

Question 27

Before the adjusting entry for a deferral of an expense, the expenses will be _________ and the assets will be _________

Answer 27

understated, overstated

Question 28

deferred expenses is also refered to as

Answer 28

prepaid expenses

Question 29

deferred expense definition + adj entry

Answer 29

prepayment of assets such as supplies or insaurance that are expensed over time as they are used up D- supplies expense C- supplies

Question 30

what acct should be used when a questions states "for which cash will be received in the following period"

Answer 30

accounts recievable

Question 31

adjusting entry to reflect expiration of the insurance

Answer 31

D- insurance Expense C- Prepaid Insurance

Question 32

adjusting entry to reflect expiration of supplies

Answer 32

D- Supplies Expense C- Supplies

Question 33

when an asset is expected to last forever- what do we put as they entry

Answer 33

no journal entry required

Question 34

Unadjusted trial balance

Answer 34

list of ledger accts before adj are recorded

Question 35

adjusted trial balance

Answer 35

a list of accs and balances after adjusting entries have been recorded and posted to the ledger

Question 36

closing process

Answer 36

occurs at period end after fnan statements have been prepared -revenues, expenses, dividends reset to 0

Question 37

temporary accounts

Answer 37

closed at period end consists of revenue, expense, dividends, income summary

Question 38

permanent accts

Answer 38

not closed at period end-doesnt reset to 0 assets, liability, common stock, and retained earnings

Question 39

income summary account

Answer 39

temporary account used only for the closing processes that has a. credit total for revenues and a debit for expenses

Question 40

4 step closing process

Answer 40

1-close revenue accs 2-close expense accs 3-close inc summary acc 4-close dividends

Question 41

post closing trial balance

Answer 41

a list of all permanent accts and their balances after closing entries

Question 42

current vs long term classification

Answer 42

current- to be collected or owed within 1 year long term- expected after 1 year

Question 43

current assets

Answer 43

assets to be sold, collected, or used iwthin one year ex-prepaid, acc rec

Question 44

long term investments

Answer 44

assets to be held for more than 1 year -ex notes rec, stocks

Question 45

intangiable assets

Answer 45

long term assets that lack physical form ex- trademarks, patents

Question 46

current liabilities

Answer 46

liabilities to be paid/settled within 1 ear ex- accts pay, unearned rec

Question 47

long term liabilities

Answer 47

liabilities not due within one year ex- notes payable, motgage payable

Question 48

new balance sheet layout

Answer 48

ASSETS -current assets -long term investments -plant assets LIABILITIES -current liabilities -long term liabilities EQUITY -common stock -retained earnings

Question 49

accrued interest formula

Answer 49

principle amt owed X annual interest rate X fraction of year since last payment

Question 50

steps in the closing process

Answer 50

1- identify accs for closing 2-record and post closing entries 3-prepare a post closing trial balance

Question 51

what goes in cash vs what goes in accrual

Answer 51

cash - cash received -cash paid -prepaid cash accrual -earned -incurred

Question 52

accounting cycle in order

Answer 52

1-Analyzing transactions/events 2-Journalizing transactions and events 3-Posting journal entries to the ledger 4-Preparing the unadjusted trial balance 5-Journalizing and posting adjusting entries 6-Preparing the adjusted trial balance 7-Preparing the financial statements 8-Journalizing and posting closing entries 9-Preparing the post-closing trial balance