CHAPTER 3: THE ADJUSTING PROCESS
1.
The system of accounting where revenues are recorded when they are earned and expenses are recorded when
they are incurred is called the cash basis of accounting.
a.
True
b.
False
2.
Generally accepted accounting principles require accrual-basis accounting.
a.
True
b.
False
3.
The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.
a.
True
b.
False
Chapter 3: The Adjusting Process
4.
The matching concept requires expenses be recorded in the same period that the related revenue is recorded.
a.
True
b.
False
5.
For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.
a.
True
b.
False
6.
An example of deferred revenue is Unearned Rent.
a.
True
b.
False
7.
Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.
a.
True
b.
False
Chapter 3: The Adjusting Process
8.
If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.
a.
True
b.
False
9.
Proper reporting of revenues and expenses in a period is due to the accounting period concept.
a.
True
b.
False
10.
The revenue recognition concept requires that the reporting of revenue be included in the period when cash for
the
service is received.
a.
True
b.
False
Chapter 3: The Adjusting Process
11.
Revenues and expenses should be recorded in the same period to which they relate.
a.
True
b.
False
12.
The matching concept supports matching expenses with the related revenues.
a.
True
b.
False
13.
Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis
of
accounting.
a.
True
b.
False
Chapter 3: The Adjusting Process
14.
The updating of accounts is called the adjusting process.
a.
True
b.
False
15.
Adjusting entries affect balance sheet accounts at the exclusion of income statement accounts.
a.
True
b.
False
16.
Adjusting entries affect only expense and asset accounts.
a.
True
b.
False
Chapter 3: The Adjusting Process
17.
An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.
a.
True
b.
False
18.
An adjusting entry would adjust an expense account so the expense is reported when incurred.
a.
True
b.
False
19.
An adjusting entry to accrue an incurred expense will affect total liabilities.
a.
True
b.
False
Chapter 3: The Adjusting Process
20.
The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and
needs adjusting and deferred revenue has never been recorded.
a.
True
b.
False
21.
Deferrals are recorded transactions that delay the recognition of an expense or revenue.
a.
True
b.
False
22.
Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been
incurred but not recorded.
a.
True
b.
False
Chapter 3: The Adjusting Process
23.
Unearned revenue is a liability.
a.
True
b.
False
24.
The systematic allocation of land’s cost to expense is called depreciation.
a.
True
b.
False
25.
The difference between the balance of a fixed asset account and the balance of its related accumulated
depreciation account is termed the book value of the asset.
a.
True
b.
False
Chapter 3: The Adjusting Process
26.
The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in
past
periods.
a.
True
b.
False
27.
Accumulated depreciation accounts are liability accounts.
a.
True
b.
False
28.
Accumulated depreciation is reported on the income statement.
a.
True
b.
False
Chapter 3: The Adjusting Process
29.
A contra asset account for Land will normally appear on the balance sheet.
a.
True
b.
False
30.
Depreciation Expense is reported on the balance sheet as an addition to the related asset.
a.
True
b.
False
31.
A company pays $36,000 for twelve month’s rent on October 1, recording the prepayment as an asset. The
adjusting entry on December 31 is a debit to Rent Expense, $9,000, and a credit to Prepaid Rent, $9,000.
a.
True
b.
False
Chapter 3: The Adjusting Process
32.
A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry
on
December 31 is a debit to Unearned Subscription Revenue, $150, and credit to Subscription Revenue,
$150.
a.
True
b.
False
33.
A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to
Depreciation
Expense, $500, and a credit to Equipment, $500.
a.
True
b.
False
34.
A company pays an employee $3,000 for a five-day work week, Monday–Friday. The adjusting entry on December
31, which is a Wednesday, is a debit to Wages Expense, $1,800, and a credit to Wages Payable, $1,800.
a.
True
b.
False
Chapter 3: The Adjusting Process
35.
A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31,
the
adjusting entry made at that time is a debit to Cash, $2,500, and a credit to Ticket Revenue, $2,500.
a.
True
b.
False
36.
A company realizes that the last two day’s revenue for the month was billed but not recorded. The adjusting
entry
on December 31 is a debit to Accounts Receivable and a credit to Fees Earned.
a.
True
b.
False
37.
At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of
the
journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance
applicable to
future periods is $2,000.
a.
True
b.
False
Chapter 3: The Adjusting Process
38.
A fixed asset’s market value is reflected on the balance sheet.
a.
True
b.
False
39.
If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and
owner’s
equity will be understated for the period.
a.
True
b.
False
40.
If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at
the
end of the period will be understated.
a.
True
b.
False
Chapter 3: The Adjusting Process
41.
If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is
inadvertently omitted, the net income for the period will be understated.
a.
True
b.
False
42.
If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end
of
the period will be understated.
a.
True
b.
False
43.
Adjusting journal entries are dated on the last day of the period.
a.
True
b.
False
Chapter 3: The Adjusting Process
44.
By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always
be
overstated.
a.
True
b.
False
45.
The financial statements are prepared from the unadjusted trial balance.
a.
True
b.
False
46.
The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error
will
be detected when the adjusted trial balance is prepared.
a.
True
b.
False
Chapter 3: The Adjusting Process
47.
The adjusted trial balance verifies that total debits equals total credits before the adjusting entries are prepared.
a.
True
b.
False
48.
Vertical analysis compares each item in a financial statement with a total amount from the same statement.
a.
True
b.
False
49.
When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of
net
income.
a.
True
b.
False
Chapter 3: The Adjusting Process
50.
Vertical analysis is useful for analyzing financial statement changes over time.
a.
True
b.
False
51.
The revenue recognition concept
a.
is not in conflict with the cash method of accounting.
b.
determines when revenue is credited to a revenue account.
c.
states that revenue is not recorded until the cash is received.
d.
controls all revenue reporting for the cash basis of accounting.
52.
The matching concept
a.
addresses the relationship between the journal and the balance sheet.
b.
determines whether the normal balance of an account is a debit or credit.
c.
requires that the dollar amount of debits equal the dollar amount of credits on a trial balance.
d.
states that the revenues and related expenses should be reported in the same period.
Chapter 3: The Adjusting Process
53.
Using accrual accounting, revenue is recorded and reported only
a.
when cash is received without regard to when the services are rendered.
b.
when the services are rendered without regard to when cash is received.
c.
when cash is received at the time services are rendered.
d.
if cash is received after the services are rendered.
54.
Using accrual accounting, expenses are recorded and reported only
a.
when they are incurred, whether or not cash is paid
b.
when they are incurred and paid at the same time
c.
if they are paid before they are incurred
d.
if they are paid after they are incurred
55.
The accounting concepts upon which deferrals and accruals are based is
a.
matching
b.
cost
c.
price-level adjustment
d.
conservatism
Chapter 3: The Adjusting Process
56.
If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of
the
following describes the effect of the credit portion of the entry?
a.
decreases the balance of an owner’s equity account
b.
increases the balance of a liability account
c.
increases the balance of an asset account
d.
decreases the balance of an expense account
57.
If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of
the
following describes the effect of the debit portion of the entry?
a.
increases the balance of a contra asset account
b.
increases the balance of an asset account
c.
decreases the balance of an owner’s equity account
d.
increases the balance of an expense account
58.
Prior to the adjusting process, accrued expenses have
a.
not yet been incurred, paid, or recorded
b.
been incurred, not paid, but have been recorded
c.
been incurred, not paid, and not recorded
d.
been paid but have not yet been incurred
Chapter 3: The Adjusting Process
59.
Prior to the adjusting process, accrued revenue has
a.
been earned and cash received
b.
been earned and not recorded as revenue
c.
not been earned but recorded as revenue
d.
not been recorded as revenue but cash has been received
60.
Deferred expenses have
a.
not yet been recorded as expenses but have been paid
b.
been recorded as expenses and paid
c.
been incurred and paid
d.
not yet been recorded as expenses
61.
Deferred revenue is revenue that is
a.
earned and the cash has been received
b.
earned but the cash has not been received
c.
not earned and the cash has not been received
d.
not earned but the cash has been received