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Exam 3: Adjusting Accounts for Financial Statements

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Question 121

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Explain the difference between temporary and permanent accounts.

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Temporary,or nominal,accounts accumulate...

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Question 122

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The accrual basis of accounting recognizes expenses when cash is paid.

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Question 123

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The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

A company's month-end adjusting entry for Insurance Expense is $1,000.If this entry is not made then expenses are understated by $1,000 and net income is overstated by $1,000.

A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below.What amount will be posted to Retained earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)

An expense account is normally closed by debiting Income Summary and crediting the expense account.

The unadjusted trial balance and the adjustment data for Porter Business Institute are given below along with adjusting entry information.What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments.Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made? Additional information items: a.The Prepaid Insurance account consists of a payment for a 1 year policy.An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b.A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c.Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

Reversing entries overcome the disadvantage of more complex entries to pay accrued liabilities from the previous accounting period.

Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

The closing process takes place before financial statements have been prepared.

Journal entries recorded at the end of each accounting period to prepare the revenue,expense,and dividends accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:

The Dividends account is normally closed by debiting it.

Prior to recording adjusting entries at the end of an accounting period,some accounts may not show correct balances even though all transactions were properly recorded.

Each adjusting entry affects one or more income statement account,one or more balance sheet account,and never cash.

Adjusting entries always affect the cash account.

An adjusting entry could be made for each of the following except:

The length of time covered by a set of periodic financial statements,primarily a year for most companies,is referred to as the:

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

A company purchased new furniture at a cost of $14,000 on September 30.The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000.The company uses the straight-line method of depreciation.How much depreciation expense will be recorded for the furniture for the first year ended December 31?