Chapter 3 Recharge

• The expense recognition (matching) principle aims to record  (expenses/assets/liabilities) in the same accounting period as the  (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the  (timing/adjusting/estimating) process.?

  • Field 1: expenses
  • Field 2: revenues
  • Field 3: adjusting
• Place the steps in the adjusting process in the correct order in which they would be performed.?
• A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:?

  • debit to Insurance expense for $400.
  • credit to Prepaid insurance for $400.
• A calendar year-end reporting period is defined as a  (1 / 3 / 12) -month period which ends on  (December/January/March) 31st.?

  • Field 1: 12
  • Field 2: December
• Which of the following statements describes why accrual accounting better reflects a business's performance??

  • Comparability of financial statements is improved.
  • Expenses are always recognized in the period in which they are incurred.
  • Revenues are always recorded in the period in which they are earned.
• The revenue recognition principle states that revenue:should be recorded when goods or services are provided to customers at an amount expected to be received
• $800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?Supplies expense would be debited for $600.
• Describe the final step in the adjusting process.The final step is to create an adjusting journal entry to get from step 1 to step 2.
• Which of the following accounts is considered a prepaid expense?Supplies
• A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.Insurance expense would be debited for $300.
• A calendar year-end reporting period is defined as a 12-month period which ends on December 31st
• What is a plant asset?A plant asset refers to a long-term tangible asset used to produce and sell products or services.
• On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires $ (100/3,600) of insurance expense be reported on the income statement ending December 31. However, if cash basis accounting is used, $ (100/3,600) of insurance expense would be reported at the time of purchase.

  • Field 1: 100
  • Field 2: 3,600 or 3600
• Explain what unearned revenues are by choosing the correct statement below.Unearned revenues refer to cash received in advance of providing a service or product.
• $1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. 

  • Supplies would be credited for $300.
  • Supplies expense would be debited for $300.
• Which of the following accounts would be considered a prepaid expense or prepaid asset account?

  • Supplies
  • Prepaid insurance
  • Prepaid rent
• $1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below.

  • Unearned revenue would be debited for $700.
  • Service revenue would be credited for $700.
• A plant asset can be defined by which of the following statements?

  • It has a life within the business more than one year.
  • It is a tangible long-term asset.
  • It is reported on the balance sheet.
  • Its original cost is expensed over its useful life.
• Explain what unearned revenues are by selecting the statements below which are correct.

  • They refer to cash received in advance of performing a service or product.
  • They are also called deferred revenues.
  • They are a liability.
  • They are reported on a balance sheet.
• Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

  • They refer to costs that are incurred in a period, but are both unpaid and unrecorded.
  • Examples of accrued expenses are wages expense and interest expense.
  • Adjustments involve increasing both an expense and a liability account.
  • They are reported on an income statement.
• An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below.Debit Unearned revenues for $400.
• A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.Insurance expense would be debited for $300.
• By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence.

  The required adjusting entry would be to debit the Salaries _ (expense/payable) account and _ (debit/credit) the Salaries _ (expense/payable/unearned) account.

  • Field 1: expense or expenses
  • Field 2: credit
  • Field 3: payable
• Which of the accounts below are considered accrued expenses?Wages expense, Interest expense
• A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

  • credit to Prepaid insurance for $400.
  • debit to Insurance expense for $400.
• By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry?Debit Salaries expense for $500.
• Explain what unearned revenues are by selecting the statements below which are correct.

  • They are reported on a balance sheet.
  • They are a liability.
  • They refer to cash received in advance of performing a service or product.
  • They are also called deferred revenues.
• A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable)  account and (debit/credit) the Interest  (expense/payable/receivable) account.

  • Field 1: expense or expenses
  • Field 2: credit or credits
  • Field 3: payable
• Explain your understanding of what an accrued expense is by selecting the statements below which are correct.

  • Adjustments involve increasing both an expense and a liability account.
  • Examples of accrued expenses are wages expense and interest expense.
  • They are reported on an income statement.
  • They refer to costs that are incurred in a period, but are both unpaid and unrecorded.