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Flashcards in Chapter Three L.S. Deck (36)
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Identify the accounts below that would be classified as current liabilities on a classified balance sheet:
-Taxes Payable
-Unearned Rent
-Mortgage payable
-Notes payable (due in three years)
-Notes payable (due in three months)
-Accounts Receivable
-Accounts Payable

-Unearned rent
-Taxes Payable
-Notes payable (due in three months)
-Accounts payable


Current assets are...

Cash and other resources that are expected to be sold, collected or use within one year


Long-term liabilities...

Debts of a business that are not due to be settled within one year.


Current asset's contain...

-Accounts receivable
-Prepaid rent
-Office supplies


Current liabilities:

-Are usually settled by paying out current assets such as cash
-Are reported in the order of those to be settled first
-Are obligations due to be paid within one year


The journal entry to close all of a company's expenses accounts would include a ____ to each of the expense accounts and a corresponding ____ to the Income _____ account.

1- Credit
2- Debit
3- Summary


List the order in which financial statements are prepared:

1- Income statement
2-Statement of retained earnings
3-Balance Sheet
4-Statement of cash flows


List the steps in the closing process:

1-Identify accounts to be closed
2- Journalize and post closing entries
3- Prepare a post closing trial balance


Permanent account examples:

-Retained earnings
-Accounts payable
-Accumulated depreciation


Describe the general ledger after adjusting and closing entries have been posted:

-The income summary account will show three closing entries
-The dividends account will have a $0 balance after closing
-The abbreviations "adj." and "clos." have been entered in the explanation column on the ledger
-All expenses accounts will show a $0 balance after closing


Describe a post-closing trail balance

A listing of all permanent accounts and their balances after closing


Purposes for a post-closing trail balance

-To verify that all temporary accounts have zero balances
-To verify that total debits equal credit for permanent accounts


A post-closing trail balance is a list of ____ accounts and their balances from the ___ ____ all ____ entries have been journalized and posted.

1- permanent
2- ledger
3- after


Post-closing trail balance account examples:

-Asset accounts
-Permanent accounts
-Liability accounts
-expense accounts
-revenue accounts
-income summary accounts


Statements about the accounting cycle:

-Refers to steps followed by a company to prepare its financial statements
-Contains steps for adjusting and closing accounts
-Is repeated each reporting period
-Contains 10 steps


A 12-month insurance policy was purchased on Dec. 1st for $3,600 and the Prepaid insurance account was increased for the payment.
Demonstrate the required adjusting journal entry on Dec. 31st.

Insurance expense would be debited for $300


$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. What would happen to the adjusting entry.

Supplies expense would be debited for $600


$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s).

-Increase expenses, so net income would reduce.
-Reduce assets, so total assets would be lower.


A plant asset can be defined by:

-Has a life within the business greater than one year
-Is a tangible long-term asset
-Its original cost (minus any salvage value) is expensed over its useful life
-Is reported on the balance sheet


Examples of plant assets:




is the process of allocating the costs of long-term, plant assets over their expected useful life.


$21,000 of equipment is purchased on Dec. 1st. It is estimated that it will have a life of 5 years. Calculate depreciation expense as of Dec. 31st of the first year using the straight-line method.



A depreciation adjustment would include a debit to the ___ account and a ___ to the ____ account.

1- Depreciation expense
2- credit
3- Accumulated Depreciation


Contra Account:

-Has an opposite normal balance than its paired account
-Is linked with another account
-would be subtracted from another account
-Accumulated Depreciation is an example of a contra account


The purpose of the Accumulated Depreciation account is to...

Allow both the original cost of plant assets and the total depreciation taken so far to be shown simultaneously


What is the book value of an asset?

The original cost of an asset minus its accumulated depreciation


Unearned revenues:

-are a liability
-are reported on a balance sheet
-also called deferred revenues
-refer to cash received in advance of performing a service


Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet.

-A revenue account is increased
-Net income is increased
-Total liabilities are reduced
-A liability (unearned revenue) will be reduced


Accrued expenses:

-Are reported on an income statement
-Refer to costs that are incurred in a period, but are both unpaid and unrecorded
-Adjustments involve increasing both an expense and a liability account
-Examples include: wages expense and interest expense


What is the effect of an accrued expense (such as salaries expense) adjustment on the income statement and the balance sheet?

-A liability (such as salaries payable) will be increased
-Expenses are increased
-Net income is reduced