Supplies:
  • Deferred expenses occur when an asset that will be used up or will expire is purchased.
  • when insurance is paid in advance of the period covered, its cost is recorded as an asset. As the policy expires, an adjusting entry must be made to transfer the cost of the insurance to an expense account.
  • In this case, the cash cannot be recorded as revenue since it has not yet been earned. Instead it is recorded as a liability until the obligation is fulfilled, then it is revenue.
  • recorded as an asset when they are purchased. As the supplies are used an adjusting entry is made to transfer the cost of the supplies to an expense account.
Depreciation Expense
  • DEBIT
  • Net Income
  • asset, debit
  • assets
If a business wants to know its true expenses for the month:
  • debit Depreciation Expense; credit Accumulated Depreciation
  • it must compare revenues earned to all expenses incurred in providing services.
  • it must determine the value of services provided, not just the cash received in payment for services rendered.
  • it must consider all expenses incurred, not just expenses paid that month
Fees receivable would appear on the balance sheet as a(n)
  • asset
  • True
  • Assets, Liabilities, Capital
  • CREDIT
A deferred expense
  • occurs when you receive payment before earning it (Unearned fees, unearned rent)
  • Accumulated depreciation (how much worth has the asset worn out)
  • occurs when you pay for an item before it is used (Supplies, Prepaid Ins)
  • use of utilities before receiving a bill; wages owed to employees at end of accounting period; interest owed on unpaid loans
Accrued revenue
  • occurs when you have earned the revenue but have not received payment (lawyer fees; interest on savings acct)
  • occurs when you pay for an item before it is used (Supplies, Prepaid Ins)
  • after the fact
  • Accumulated depreciation (how much worth has the asset worn out)
Which of the following is not a characteristic of accrual basis of accounting?
  • Depreciation expense reflects the decrease in market value each year.
  • Revenues and expenses are reported in the period in which cash is received or paid
  • preparing financial statements
  • Depreciation Expense
What accts will appear on a post closing trial balance?
  • asset
  • Assets, Liabilities, Capital
  • revenue, expense, drawing
  • asset, debit
Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as a(n)
  • assets
  • asset, debit
  • asset
  • True
Steps in the Accounting Cycle:
  • 1. Transactions analyzed & recorded in journal2. Transactions posted in ledger3. Unadjusted trial balance prepared4. Adjustment data assembled & analyzed5. Work sheet prepared6. Adjusting entries journalized & posted to ledger7. Adjusted trial balance prepared8. Financial statements prepared9. Closing entries journalized and posted to ledger10. Post-closing trial balance prepared
  • when insurance is paid in advance of the period covered, its cost is recorded as an asset. As the policy expires, an adjusting entry must be made to transfer the cost of the insurance to an expense account.
  • In this case, the cash cannot be recorded as revenue since it has not yet been earned. Instead it is recorded as a liability until the obligation is fulfilled, then it is revenue.
  • determines when revenue is credited to a revenue account
If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?
  • increases the balance of a liability account
  • determines when revenue is credited to a revenue account
  • Interest Income and Interest Expense
  • when the cash payment is received from customers.
Prepaid insurance:
  • recorded as an asset when they are purchased. As the supplies are used an adjusting entry is made to transfer the cost of the supplies to an expense account.
  • when insurance is paid in advance of the period covered, its cost is recorded as an asset. As the policy expires, an adjusting entry must be made to transfer the cost of the insurance to an expense account.
  • states that the revenues and related expenses should be reported in the same period
  • 1. Close revenue acct to Income Summary2. Close expense accts to Income Summary3. Balance in Income Summary equals Net Income (if not correct entries from top 2)4. Close income summary to Capital5. Close drawing acct to Capital
Prior to the adjusting process, accrued revenue has
  • preparing financial statements
  • Interest Income and Interest Expense
  • revenue, expense, drawing
  • been earned and not recorded as revenue
The closing entries
  • states that the revenues and related expenses should be reported in the same period
  • 1. Close revenue acct to Income Summary2. Close expense accts to Income Summary3. Balance in Income Summary equals Net Income (if not correct entries from top 2)4. Close income summary to Capital5. Close drawing acct to Capital
  • 1. Transactions analyzed & recorded in journal2. Transactions posted in ledger3. Unadjusted trial balance prepared4. Adjustment data assembled & analyzed5. Work sheet prepared6. Adjusting entries journalized & posted to ledger7. Adjusted trial balance prepared8. Financial statements prepared9. Closing entries journalized and posted to ledger10. Post-closing trial balance prepared
  • when insurance is paid in advance of the period covered, its cost is recorded as an asset. As the policy expires, an adjusting entry must be made to transfer the cost of the insurance to an expense account.
As this asset (deferred expense) is used,
  • it must consider all expenses incurred, not just expenses paid that month
  • use of utilities before receiving a bill; wages owed to employees at end of accounting period; interest owed on unpaid loans
  • its cost must be recorded as an expense. Therefore you defer recording the cost of the asset as an expense until it is used.
  • In this case, the cash cannot be recorded as revenue since it has not yet been earned. Instead it is recorded as a liability until the obligation is fulfilled, then it is revenue.
Using accrual accounting, revenue is recorded and reported only
  • Depreciation expense reflects the decrease in market value each year.
  • when the services are rendered without regard to when cash is received
  • it must consider all expenses incurred, not just expenses paid that month
  • when the cash payment is received from customers.
Which accts do not appear on a post closing trial balance?
  • Assets, Liabilities, Capital
  • been earned and not recorded as revenue
  • revenue, expense, drawing
  • Interest Income and Interest Expense
Accrued revenues:
  • been earned and not recorded as revenue
  • fees earned by a lawyer that have not been received;
  • occurs when you have earned the revenue but have not received payment (lawyer fees; interest on savings acct)
  • use of utilities before receiving a bill; wages owed to employees at end of accounting period; interest owed on unpaid loans
Normal Balance is accumulated depreciation is always a
  • asset, debit
  • asset
  • CREDIT
  • DEBIT
The accrual basis of accounting dictates that all revenues be recorded when they are earned instead of
  • Expenses are matched against the revenue they generate.
  • when the cash payment is received from customers.
  • debit Depreciation Expense; credit Accumulated Depreciation
  • Deferred expenses occur when an asset that will be used up or will expire is purchased.
Revenues are deferred when cash is received before the job is completed.
  • it must determine the value of services provided, not just the cash received in payment for services rendered.
  • its cost must be recorded as an expense. Therefore you defer recording the cost of the asset as an expense until it is used.
  • Revenues and expenses are reported in the period in which cash is received or paid
  • In this case, the cash cannot be recorded as revenue since it has not yet been earned. Instead it is recorded as a liability until the obligation is fulfilled, then it is revenue.
Prior to the adjusting process, accrued expenses have
  • preparing financial statements
  • been earned and not recorded as revenue
  • been incurred, not paid, and not recorded
  • Depreciation expense reflects the decrease in market value each year.
The balance in the office supplies account on June 1 was $7,500, supplies purchased during June were $3,100, and the supplies on hand at June 30 were $2,The amount to be used for the appropriate adjusting entry is
  • $8300
  • CREDIT
  • True
  • $54,500
The matching concept states that all the expenses incurred must be recorded in the same period that the revenue is recorded.
  • Expenses are matched against the revenue they generate.
  • increases the balance of a liability account
  • Interest Income and Interest Expense
  • determines when revenue is credited to a revenue account
The matching concept
  • occurs when you have earned the revenue but have not received payment (lawyer fees; interest on savings acct)
  • states that the revenues and related expenses should be reported in the same period
  • Accumulated depreciation (how much worth has the asset worn out)
  • occurs when you receive payment before earning it (Unearned fees, unearned rent)
The adjusting entry to record the depreciation of equipment for the fiscal period is
  • it must compare revenues earned to all expenses incurred in providing services.
  • Expenses are matched against the revenue they generate.
  • debit Depreciation Expense; credit Accumulated Depreciation
  • when the cash payment is received from customers.
Accrued revenues would appear on the balance sheet as
  • True
  • CREDIT
  • asset, debit
  • assets
Which of the accounting steps in the accounting process below would be completed last?
  • Revenues and expenses are reported in the period in which cash is received or paid
  • Interest Income and Interest Expense
  • Depreciation Expense
  • preparing financial statements
All expenses are to be recorded when they are incurred
  • when the cash payment is received from customers.
  • not when they are paid.
  • been incurred, not paid, and not recorded
  • been earned and not recorded as revenue
Deferrals adjust accounts that are already a part of a company's accounting records.
  • Revenues and expenses are reported in the period in which cash is received or paid
  • debit Depreciation Expense; credit Accumulated Depreciation
  • occurs when you receive payment before earning it (Unearned fees, unearned rent)
  • Deferred expenses occur when an asset that will be used up or will expire is purchased.
The account type and normal balance of Prepaid Expense is
  • asset, debit
  • assets
  • Assets, Liabilities, Capital
  • revenue, expense, drawing
A deferred revenue
  • occurs when you receive payment before earning it (Unearned fees, unearned rent)
  • occurs when you use an item before paying for it (wages, utilities)
  • occurs when you pay for an item before it is used (Supplies, Prepaid Ins)
  • occurs when you have earned the revenue but have not received payment (lawyer fees; interest on savings acct)
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