Accounting Chapter 4 - Adjustments, Financial Statements and Financial Results
Terms in this set (40)
The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.
A deferral adjustment may involve one asset and one expense account
When a company pays its rent in advance, an asset is reported on the balance
As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account.
A contra account is added to the account it offsets
Depreciation is a measure of the decline in market value of an asset.
The carrying value of an asset is an approximation of the asset's market value.
The amount charged for a good or service provided to a customer on account is recorded only after the payment is received
Corporate income taxes cannot be calculated until all other adjustments are
Adjusting entries often involve cash.
If a contra account of $20,000 is mistakenly included in the same column of the trial balance as the account it offsets, the error will cause the debit and credit column totals to differ by $40,000
An adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.
The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.
One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.
The asset, liability, and stockholders' equity accounts are referred to as permanent accounts.
the closing process includes a transfer of the Dividends account balance to the Retained Earnings account.
The temporary accounts will have zero balances in a post-closing trial balance
If a company forgot to record depreciation on equipment for a period, Total Assets would be overstated and Total Stockholders' Equity would be understated on the balance sheet.
If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period, Total Liabilities would be understated and Retained Earnings would be overstated on the Balance Sheet.
Which of the following statements about the need for adjustments is not correct?
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
Adjusting entries are typically prepared
at the end of the accounting period.
If certain assets are partially used up during the accounting period, then:
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):
. A company makes a deferral adjustment that decreased a liability. This must mean that a(n):
revenue account was increased by the same amount
When existing assets are used up in the ordinary course of business:
an expense is recorded.
When a deferral adjustment is made to an asset account, that asset becomes a(n):
At the end of the year, accrual adjustments could include a:
debit to an expense and a credit to a liability
Accrual adjustments involve increasing
assets and revenues or increasing liabilities and expenses
Accrued revenues recorded at the end of the current year
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
An accrual adjustment
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
. An example of an account that could be included in an accrual adjustment for expense is
If an expense has been incurred but will be paid later, then
a liability account is created or increased and an expense is recorded.
Which of the following statements about adjustments is correct
A deferral adjustment that decreases an asset will include an increase in an expense
One major difference between deferral and accrual adjustments is that deferral adjustments
involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities
One major difference between deferral and accrual adjustments is that
accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions (one account is increased and one account is decreased).
Affect both income statement and balance sheet accounts.
Supplies Expense and a credit to Supplies
At the end of the month, the adjusting journal entry to record the use of supplies would include a debit to:
During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in a(n):
decrease in an asset and an equal increase in expenses