Accounting - March 2

Prepaid Expenses refer to:

• Assets paid for in cash

• Expenses that are incurred immediately when purchased

• Costs paid for in advance of receiving their benefits

• Adjusting entries that debit cash and credit expenses when recognized

Depreciation is

• The cost of storing inventory and supplies

• The process of calculating expenses to match the cost of plant and equipment over their expected useful lives

• Calculated by dividing the asset cost by 10 years

• Items that are paid for in advance of receiving their benefits

Straight-line depreciation is calculated by the cost of an asset minus the estimated value of the asset at the end of its useful life

• True

• False

Which of the following is correct about adjusting entries

• Adjusting entries never affect cash

• Adjusting entries always affect cash

• Both are correct

• Both are incorrect

Every adjusting entry will have at least one income statement account and one balance sheet account.

• True

• False

When preparing financial statements from an accrued trial balance, which of the following statements should be prepared first?

• Statement of Changes in Equity

• Balance Sheet

• Cash Flow Statement

• Income Statement