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Exam 3: The Adjusting Process

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Question 21

Multiple Choice

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The cash basis of accounting records revenues and expenses when the cash is exchanged, while the accrual basis of accounting

A) records revenues when they are earned and expenses when they are paid
B) records revenues and expenses when they are incurred
C) records revenues when cash is received and expenses when they are incurred
D) records revenues and expenses when the company needs to apply for a loan

E) All of the above
F) A) and B)

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Question 22

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Deferrals are recorded transactions that delay the recognition of an expense or revenue.

A) True
B) False

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Question 23

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Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded.

If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated.

For the year ending June 30, Island Clinical Services mistakenly omitted adjusting entries for (1) $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. What is the combined effect of these errors on (a) revenues, (b) expenses, and (c) net income for the year ending June 30?

The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the adjusted trial balance is prepared.

Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.

The balance in the unearned fees account, before adjustment at the end of the year, is $10,250. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $3,125.

The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed

The net book value of a fixed asset is determined by the original cost

Deferred revenue is revenue that is

A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to Depreciation Expense of $500 and a credit to Equipment of $500.

The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is

The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.

Adjusting entries are

The supplies account had a balance of $4,400 at the beginning of the year and was debited during the year for $2,400, representing the total of supplies purchased during the year. If $400 of supplies are on hand at the end of the year, the supplies expense to be reported on the income statement for the year is

When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income.

Prepaid expenses have

Using accrual accounting, revenue is recorded and reported only

At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?