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34 Cards in this Set

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Which one of the following statements regarding the debit/credit processing of revenues and expenses is true?

-Debits reduce expenses.
-The total credits recorded in revenue accounts must equal the total debits recorded in expense accounts.
-Across all revenue accounts, the total value of all debits must equal the total value of all credits.
-Credits increase revenues.

Credits increase revenues.

Net Income refers to:

-The difference between what was earned and the costs incurred during a period.
-The difference between the cash received and the cash paid out during a period.
-The difference between what is owned and what is owed at a point in time.
-The change in the value of the company during a period.

The difference between what was earned and the costs incurred during a period.

During June, the Grass is Greener Company mows 100 lawns a week; the company was paid in advance during May by those customers. The company uses the accrual basis of accounting. How will these events affect the company's financial statements?

-The income statement shows the effects of the transactions in May.
-The income statement shows the effects of the transactions in June.
-The balance sheet shows no effect from the transactions in May.
-The transactions have no effect on the balance sheet.

The income statement shows the effects of the transactions in June.

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. The cost of fertilizer is recorded:

-immediately as an expense.
-as a liability, which will later be reduced as the fertilizer used.
-partially as an expense and partially as a liability.
-as an asset, which will later be reduced as the fertilizer is used.

as an asset, which will later be reduced as the fertilizer is used.

Company A receives $10,000 in advance this month for work to be performed next month. This month, the company should:




-Debit Cash $10,000 and credit Service Revenue $10,000.
-Debit Cash $10,000 and credit Unearned Revenue $10,000.
-Debit Cash $10,000 and credit Accounts Receivable $10,000.
-Debit Prepaid Expense $10,000 and credit Cash $10,000.

Debit Cash $10,000 and credit Unearned Revenue $10,000.

In January, a company pays for advertising space in the local paper for ads to be run during the months of January, February, and March at $1,500 a month. The payment would be recorded in January as a:

-debit of $4,500 to Cash, a credit of $1,500 to Advertising Expense, and a credit of $3,000 to Prepaid Advertising.
-debit of $4,500 to Accounts Payable and a credit of $4,500 to Cash.
-debit of $4,500 to Accounts Payable and a credit of $4,500 to Stockholders' Equity.
-debit of $1,500 to Advertising Expense, a debit of $3,000 to Prepaid Advertising, and a credit of $4,500 to Cash.

debit of $1,500 to Advertising Expense, a debit of $3,000 to Prepaid Advertising, and a credit of $4,500 to Cash.

Which of the following is not true about the Income Statement?

-Amounts received from customers for services performed in the current month would be revenues on the income statement.
-Costs incurred in the current month but not paid as of the end of the month would be expenses on the income statement for the current month.
-Amounts received from customers in payment of their accounts arising from service in the prior period would be revenues in the income statement for the current period. -Amounts received from customer as deposits for services to be rendered next month will not be recorded as revenues on the income statement for the current month.

Amounts received from customers in payment of their accounts arising from service in the prior period would be revenues in the income statement for the current period.

A company received a bill of $3,500 for utilities used in the current month. The journal entry to record this would include:

-a debit to Accounts receivable for $3,500.
-a credit to Accounts payable for $3,500.
-a credit to Utilities expense.
-No entry would be made until the utilities are paid.

a credit to Accounts payable for $3,500.

The December 31, 2013, adjusted trial balance of a company, where all accounts have normal balances is:

Cash $ 1,620
Supplies 3,120
Service revenue 6,600
Retained earnings, January 1 560
Accounts Payable 460
Dividends declared 2,120
Unearned revenue 3,000
Wages expense 3,200
Supplies expense 560

Given this information, after all closing entries are made, the balance in the retained earnings account is:

1280

Which of the following statements regarding the need for adjustments is not true?

-Without adjustments, the financial statements present an incomplete and misleading picture of the company.
-Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.
-Adjustments help the financial statements to present the best picture of whether the company's activities were profitable for the period. -Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period.

Adjustments help the financial statements to present the best picture of whether the company's activities were profitable for the period.

Which of the following statements regarding the presentation of a trial balance is correct?

-The adjusted trial balance shows the end-of-year balance for Retained Earnings.
-An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements.
-The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues and expenses.
-The adjusted trial balance shows all the debit and credit postings to all the ledger accounts.

The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues and expenses.

Which of the following statements regarding the effect of a net loss on the closing process is true?

-If a company has a net loss during the current accounting period, then the ending retained earnings will be smaller than the beginning retained earnings.
-When closing entries are prepared, contributed capital is debited if a company has a net loss.
-If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the expense accounts, and a credit to Retained earnings.
-If a company has a net loss, the amount of revenues to be closed will be greater than the amount of expenses to be closed in the closing process.

If a company has a net loss during the current accounting period, then the ending retained earnings will be smaller than the beginning retained earnings.

Accrual adjustments involve:

-increasing assets and revenues or increasing liabilities and expenses moving in the same direction.
-increasing assets and expenses or increasing liabilities and revenues.
-increasing assets and decreasing revenues or increasing liabilities and decreasing expenses. -increasing assets and decreasing expenses or increasing liabilities and decreasing revenues.

increasing assets and revenues or increasing liabilities and expenses moving in the same direction.

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 decrease in an asset and an equal decrease in expenses.
-an increase in an asset and an equal increase in expenses.
-a decrease in an asset and an equal increase in expenses.
-an increase in an asset and a decrease in expenses.

a decrease in an asset and an equal increase in expenses.

A company pays wages every two weeks. Wages amount to $100 a day, 7 days a week. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a

-debit to Wages Payable for $1,400 and a credit to Wages Expense for $1,400.
-debit to Wage Expense for $700 and a credit to Wages Payable for $700.
-debit to Wages Payable for $700 and a credit to Cash for $700.
-debit to Wages Expense for $1,400 and a credit to Wages Payable for $1,400.

debit to Wage Expense for $700 and a credit to Wages Payable for $700.

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.
-ensure that all estimates of future activities are eliminated from consideration.
-ensure that revenues and expenses are recognized conservatively during the period hey are paid.
-provide an opportunity to manipulate the numbers to the best effect.

ensure that revenues and expenses are recognized during the period they are earned and incurred.

Which of the following would appear in the credit column of an adjusted trial balance?

-Income tax payable.
-Depreciation expense.
-Prepaid insurance.
-Interest receivable.

Income tax payable.

Deferred expenses (prepaid expenses) are initially recorded as assets, but over time are expected to become

-liabilities.
-other assets.
-revenues.
-expenses.

expenses.

a. Borrowed $660,000 from the bank on December 1, signing a note payable, due in six months.

Cash660,000 DEBIT
Note Payable (short-term)660,000 CREDIT

b. Purchased a new snowplow for $28,750 cash on December 31.

Equipment28,750 DEBIT
Cash28,750 CREDIT

c. Purchased ski supplies for $16,800 on account.

Supplies16,800 DEBIT
Accounts Payable16,800 CREDIT

d. Incurred $24,800 in routine maintenance expenses for the chairlifts; paid cash.

Repairs and Maintenance Expense24,800DEBIT

Cash24,800 CREDIT

e. Received $96,500 for season passes (beginning in the new year).

Cash96,500 DEBIT
Unearned Revenue96,500 CREDIT

f. Daily lift passes were sold this month for a total of $94,400 cash.

Cash94,400 DEBIT
Service Revenue94,400 CREDIT

g. Received a $500 deposit on a townhouse to be rented for five days in January 2014.

Cash500 DEBIT
Unearned Revenue500 CREDIT

Paid half the charges incurred on account in (c).

Accounts Payable8,400 DEBIT
Cash8,400 CREDIT

i. Paid $21,800 in wages to employees for the month of December.

Salaries and Wages Expense21,800 DEBIT
Cash21,800 CREDIT

Payments received for goods that have not yet been delivered or services that have not yet been performed.

Unearned Revenue

Any outlay of money by a company for any purpose.

Expenditure

The concept that revenue should be recorded when earned, not necessarily when payment is received.

Revenue Recognition Principle

Revenues should be recorded when they are earned and expenses when they are incurred.

Accrual Basis

The practice of dividing the life of the business into months and years.

Time Period Assumption

Any use or sacrifice of a company's resources to generate revenue.

Expense

Total revenue minus total expenses.

Net Income