Adjusting the Accounts

An adjusting entry

• a.   affects two balance sheet accounts.

• b.         affects two income statement accounts

• c.   affects a balance sheet account and an income statement account.

• d.   is always a compound entry.

If a resource has been consumed but a bill has not been received at the end of the accounting period, then

• a.   an expense should be recorded when the bill is received.

• b.   an expense should be recorded when the cash is paid out.

• c.   an adjusting entry should be made recognizing the expense.

• d.   it is optional whether to record the expense before the bill is received.

   

Accounts often need to be adjusted because

• a.   there are never enough accounts to record all the transactions.

• b.   many transactions affect more than one time period.

• c.   there are always errors made in recording transactions.

• d.   management can’t decide what they want to report.

Adjusting entries are

• a.   not necessary if the accounting system is operating properly.

• b.   usually required before financial statements are prepared.

• c.   made whenever management desires to change an account balance.

• d.   made to balance sheet accounts only.

Expenses incurred but not yet paid or recorded are called

• a.   prepaid expenses.

• b.   accrued expenses.

• c.   interim expenses.

• d.   unearned expenses.

A law firm received $5,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

• a.   expenses to be overstated.

• b.         net income to be overstated

• c.   liabilities to be understated.

• d.   revenues to be understated.

Adjusting entries can be classified as

• a.   postponements and advances.

• b.   accruals and deferrals.

• c.   deferrals and postponements.

• d.   accruals and advances.

Accrued revenues are

• a.   cash received and a liability recorded before services are performed.

• b.   revenue for services performed and recorded as liabilities before they are received.

• c.   revenue for services performed but not yet received in cash or recorded.

• d.   revenue for services performed and already received in cash and recorded.

Prepaid expenses are

• a.         paid and recorded in an asset account before they are used or consumed

• b.   paid and recorded in an asset account after they are used or consumed.

• c.   incurred but not yet paid or recorded.

• d.         incurred and already paid or recorded

Accrued expenses are

• a.   paid and recorded in an asset account before they are used or consumed.

• b.   paid and recorded in an asset account after they are used or consumed.

• c.   incurred but not yet paid or recorded.

• d.   incurred and already paid or recorded.