FAR II CHAPTER 1 ADJUSTING ENTRIE

Accrual-basis accounting involves recording revenues when earned and recording expenses with their related revenues.

• True

• False

Prepaid expenses involve payment of cash for the purchase of an asset before the expense is incurred.

• True

• False

Unearned revenues occur when cash is received after the revenue is earned.

• True

• False

Accrued expenses involve the payment of cash before recording an expense and a liability.

• True

• False

The adjusting entry for an accrued expense always includes a debit to an expense account and a credit to a liability account.

• True

• False

The revenue recognition concept

• States that revenue is not recorded until the cash is received.

• Determines when revenue is credited to a revenue account.

• Controls all revenue reporting for the cash basis of accounting.

• Is in conflict with accrual accounting.

The matching principle

• Addresses the relationship between the journal and the ledger.

• Determines the normal balance of an account.

• Requires that expenses related to revenue and revenue be reported at the same time.

• Requires that the dollar amount of debits equal the dollar amount of credits in a journal entry.

The primary difference between deferred and accrued expenses is that deferred expenses have:

• Been recorded and accrued expenses have not been incurred

• Been incurred and accrued expenses have not

• Not been incurred and accrued expenses have been incurred

• Not been recorded and accrued expenses have been incurred

The year-end balance in the prepaid rent account before adjustment is $18,000, representing three months’ rent paid on December 1. The adjusting entry required on December 31 is:

• Debit Rent Expense, $6,000; credit Prepaid Rent, $6,000

• Debit Prepaid Rent, $6,000; credit Rent Expense, $6,000

• Debit Rent expense, $12,000; credit Prepaid Rent, $12,000

• Debit Prepaid Rent, $12,000; credit Rent expense, $12,000

A business enterprise pays weekly salaries of $45,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is:

• Debit Salaries Payable, $36,000; credit Cash, $36,000

• Debit Salary Expense, $36,000; credit Dividends, $36,000

• Debit Salary Expense, $36,000; credit Salaries Payable, $36,000

• Debit Dividends, $36,000; credit Cash, $36,000