Chapter 03 – Adjusting Accounts for Financial Statements
Chapter 3
Adjusting Accounts for
Financial Statements
QUESTIONS
1. The cash basis of accounting reports revenues when cash is received while the accrual
2. The accrual basis of accounting generally provides a better indication of company
3. Businesses that have major seasonal variations in sales are most likely to select the
4. A prepaid expense is an item paid for in advance of receiving its benefits. As such, it is
5. Long-term tangible plant assets such as equipment, buildings, and machinery lead to
6. The Accumulated Depreciation contra asset account is used for depreciation. It
7. Unearned revenue refers to cash received in advance of providing products and
8. Accrued revenue is revenue that is earned but is not yet received in cash (and/or other
assets) and the customer has not been billed prior to the end of the period. Therefore,
9.A If prepaid expenses are initially recorded with debits to expense accounts, then the
Chapter 03 – Adjusting Accounts for Financial Statements
QUICK STUDIES
Quick Study 3-1 (10 minutes)
a. Insurance Expense ………………………………………………. 1,200
Quick Study 3-2 (10 minutes)
a. Depreciation Expense—Equipment ………………………. 3,600
Quick Study 3-3 (10 minutes)
a. PE Prepaid expenses
Quick Study 3-4 (10 minutes)
Salaries Expense ………………………………………………….. 400
