Ch 3 Adjusting Process Review

Which of the following is true of accrual basis accounting and cash basis accounting?

• Accrual accounting records revenue only when it is earned.

• Accrual accounting is not allowed under GAAP.

• Cash basis accounting records all transactions.

• All of the above

Get Fit Now gains a client who prepays $540 for a package of six physical training sessions. Get Fit Now collects the $540 in advance and will provide the training later. After four training sessions, what should Get Fit Now report on its income statement assuming it uses the accrual basis accounting method?

• Service revenue of $360

• Service revenue of $540

• Unearned service revenue of $360

• Cash of $180

The revenue recognition principle requires

• time to be divided into annual periods to measure revenue properly.

• revenue to be recorded only after the business has earned it.

• expenses to be matched with revenue of the period.

• revenue to be recorded only after the cash is received.

Adjusting the accounts is the process of

• subtracting expenses from revenues to measure net income.

• recording transactions as they occur during the period.

• updating the accounts at the end of the period.

• zeroing out account balances to prepare for the next period.

Which of the following is an example of a deferral (or prepaid) adjusting entry?

• Recording the usage of office supplies during the period.

• Recording salaries expense for employees not yet paid.

• Recording revenue that has been earned but not yet received.

• Recording interest expense incurred on a notes payable not due until next year.

Assume that the weekly payroll of In the Woods Camping Supplies is $300. December 31, end of the year, falls on Tuesday, and In the Woods will pay its employee on Friday for the full week. What adjusting entry will In the Woods make on Tuesday, December 31? (Use five days as a full workweek.)

• Debit Salaries Expense for $120; Credit Salaries Payable for $120

• Debit Salaries Payable for $300; Credit Salaries Expense for $300

• Debit Salaries Expense for $120; Credit Cash for $120

• No adjustment is needed because the company will pay the payroll on Friday

The adjusted trial balance shows

• amounts that may be out of balance.

• account balances after adjustments.

• assets and liabilities only.

• revenues and expenses only.

A & D Window Cleaning performed $450 of services but has not yet billed customers for the month. If A & D fails to record the adjusting entry, what is the impact on the financial statements?

• assets understated; equity overstated; expense understated

• liabilities overstated; equity understated; revenues understated

• assets overstated; equity understated; expenses understated

• assets understated; equity understated; revenues understated

A worksheet

• is a journal used to record transactions.

• is a financial statement that reports net income during the period.

• is an internal document that helps summarize data for the preparation of financial

  statements.

• is a ledger listing the account balances and changes in those accounts.

Under accrual basis accounting, an expense is recorded only when cash is paid.

• True

• False