Intro to Chapter 4-2-6-2024

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Multiple Choice

The income statement reports which of the following?

• Revenues and expenses for a specific period

• Assets, liabilities, and equity at a specific point in time.

• Cash flows from operating activities.

• Changes in retained earnings during a specific period.

Multiple Choice

Adjusting entries should be made

• Prior to posting to the General Journal

• Prior to posting to the General Ledger

• After posting to the General Ledger

• After Posting to the Balance Sheet

Multiple Choice

After completing adjustments the worksheet must

• Still be in balance

• Contain only negative numbers

• Have more debits than credits

• Havre credits than debits

Multiple Choice

Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period.

• adjusting entries
• adjustments
• fiscal period
• fiscal year

Multiple Choice

The difference between total revenue and total expenses when total revenue is greater.

• adjustments
• income statement
• net income
• trial balance

Multiple Choice

Reporting income when the cash is received and expenses when the cash is paid.

• accrual basis of accounting
• cash basis of accounting
• balance sheet
• income statement

Explanation Slide...

Adjustments need to be made at the end of an accounting period to (1) update amounts already recorded in the accounting records and (2) include events that occurred but had not yet been recorded. Without these adjustments, the financial statements present an incomplete and misleading picture of the company's financial performance.

Multiple Choice

Which of the following statements about the need for adjustments is not correct?

• 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 present the best picture of whether the company's activities were profitable for the period.

• Adjustments help the financial statements present the economic resources that the company owns and owes at the end of the period.

Explanation Slide...

Adjustments need to be made at the end of an accounting period to (1) update amounts already recorded in the accounting records and (2) include events that occurred but had not yet been recorded. Without these adjustments, the financial statements present an incomplete and misleading picture of the company's financial performance. Proper counting is critical to income measurement, but estimation also plays a role.

Multiple Choice

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 in which they are paid.

• provide an opportunity to manipulate the numbers to the best advantage of the reporting company.

Explanation Slide...

Companies wait until the end of the accounting period to adjust their accounts because daily adjustments would be costly and time-consuming.

Multiple Choice

Adjusting entries are typically prepared:

• at the beginning of the accounting period.

• at the end of the accounting period.

• on a daily basis.

• on a weekly basis.

Explanation Slide...

The term defer means to postpone until later. In accounting, we say an expense or revenue has been deferred if we have postponed reporting it on the income statement until a later period. A deferral exists when cash is paid in advance of recognizing an expense or when cash is received in advance of recognizing revenue.

Multiple Choice

The term deferral best describes a situation in which:

• cash is paid in advance of recognizing an expense.

• an expense is recognized before it is paid for with cash.

• an expense is recognized after cash has been received.

• a liability is established at the time an expense is recognized.

Explanation Slide...

Accrual adjustments are needed when a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period. As a result, accrual adjustments would include a debit to increase an expense account and a credit to increase a liability account or a debit to increase an asset account and a credit to increase a revenue account.

Multiple Choice

Accrual adjustments involve increasing:

• assets and revenues or increasing liabilities and expenses.

• assets and expenses or increasing liabilities and revenues.

• assets and decreasing revenues or increasing liabilities and decreasing expenses.

• assets and decreasing expenses or increasing liabilities and decreasing revenues.

Explanation Slide...

Deferral adjustments are needed when an asset (or liability) has already been recorded and it needs to be updated to show that some of its benefits have been used up (or its obligations have been fulfilled). Accrual adjustments are needed when revenue has been earned (but not yet recorded) or expenses have been incurred (but not yet recorded).

Multiple Choice

What is the main difference between accrual and deferral adjustments?

• Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded.

• Deferral adjustments are required under the cash basis of accounting whereas accrual adjustments are required under the accrual basis of accounting.

• Deferral adjustments are required to include items not previously recorded whereas accrual adjustments are required to update previously recorded items.

• Deferral adjustments are used for expenses whereas accrual adjustments are used for revenues.