Adjusting Accounts for Financial Statements

Recognizing revenue when cash is received and recognizing expenses when they are paid in cash is adherence to the accrual basis of accounting.

True / False
False
Because of its simplicity and ease of use, most businesses keep their accounting records on the cash basis of accounting.

True / False
False
Cash basis accounting matches revenues and expenses and is consistent with accepted accounting principles.

True / False
False
The purpose of an adjusting entry in which insurance expense is debited and prepaid insurance is credited, is to remove the expired portion of the prepaid expense.

True / False
True
Recording amortization is a cost allocation process.

True / False
True
Amortization expense is an example of a contra account.

True / False
False
For every accrued expense there is an offsetting and equal amount of liability.

True / False
True
Accounts receivable represent accrued revenue.

True / False
True
A balance sheet prepared on one page in a vertical format that shows the assets above the liabilities and the liabilities above the owner's equity is called an account form or balance form balance sheet.

True / False
False
Revenue recognition and matching are two of the main features of cash basis accounting.

True / False
False
When cash is received in advance, the most common entry would be to credit a revenue account.

True / False
False
Before the adjusting entries are recorded, prepaid expense accounts are overstated and expense accounts are understated.

True / False
True
Before the adjusting entries for accrued revenues are recorded, assets are overstated and revenues are overstated.

True / False
False
Unearned revenues are also called deferred revenues.

True / False
True
Accumulated Amortization, Equipment is classified as an expense account.

True / False
False
Salaries were accrued for the last few days in March. They are now being paid in the month of April. This entry will debit Salaries Expense and credit Cash.

True / False
False
An _______________ balance sheet lists assets on the left and liabilities and owner's equity on the right side of the balance sheet.
ACCOUNT FORM
A _______________ balance sheet lists items vertically with assets above the liabilities and owner's equity.
REPORT FORM
Another term for reporting period is _______________ period.
ACCOUNTING
The approach to preparing financial statements that uses the adjusting process to recognize revenues when earned and expenses when incurred, not when cash is paid or received, is called _______________ accounting.
ACCRUAL BASIS
Costs incurred in a period that are both unpaid and unrecorded are called _______________ expenses.
ACCRUED
Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets) are called _______________ revenues.
ACCRUED
The _______________ trial balance is prepared after adjustments are recorded and posted to the ledger.
ADJUSTED
A journal entry at the end of an accounting period to bring asset and liability account balances to its proper amount while also updating the related expense or revenue account is called an _______________ entry.
ADJUSTING
Revenues are recognized when cash is received and expenses are recorded when cash is paid when using a _______________ basis accounting system.
CASH
The Accumulated Amortization account is an example of a _______________ account.
CONTRA
_______________ is an expense created by allocating the cost of plant and equipment to the periods in which they are used.
AMORTIZATION
When a company with a fiscal year that ends on December 31 prepares financial reports for the month of March, the reports are called _______________ financial reports or statements.
INTERIM
The _______________ principle is a broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
MATCHING
Plant and equipment are examples of _______________ long-lived assets used to produce goods or services.
TANGIBLE
Items paid for in advance of receiving their benefits are called _______________ expenses.
PREPAID
A company that is amortizing an asset at $3,000 per year for five years is using the _______________ amortization method.
STRAIGHT-LINE
The _______________ principle is a broad principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.
TIME PERIOD
A listing of accounts and balances prepared before adjustments are recorded and posted to the ledger is called an _______________ trial balance.
UNADJUSTED
When cash is received prior to providing the products or services to the customer, the amount received is called _______________ revenue.
UNEARNED
A balance sheet that lists assets on the left and liabilities and owner's equity on the right side of the balance sheet.
Account form balance sheet
Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording these types of expenses involve increasing (debiting) expenses and increasing (crediting) liabilities.
Accrued expenses
A listing of accounts and balances prepared after adjustments are recorded and posted to the ledger.
Adjusted trial balance
A journal entry at the end of an accounting period to bring asset and liability account balances to their proper amounts while also updating the related expense or revenue account.
Adjusting entry
Include long-term tangible assets, such as plant and equipment, and intangible assets, such as patents. These assets are expected to provide benefits for more than one period.
Capital assets
An account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance so that more complete information than simply the net amount is provided.
Contra account
Financial reports covering less than one year; usually based on one- or three- or six-month periods.
Interim financial reports
A balance sheet that lists items vertically with assets above the liabilities and owner's equity.
Report form balance sheet
Allocates equal amounts of an asset's cost to amortization expense in each accounting period during its useful life.
Straight-line amortization
A broad principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.
Time period principle
A listing of accounts and balances prepared before adjustments are recorded and posted to the ledger.
Unadjusted trial balance
The length of time covered by financial statements and other reports; also called reporting periods.
Accounting period
The approach to preparing financial statements that uses the adjusting process to recognize revenues when earned and expenses when incurred, not when cash is paid or received; the basis for generally accepted accounting principles.
Accrual basis accounting
Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording these types of revenues involve increasing (debiting) assets and increasing (crediting) revenues.
Accrued revenues
The expense created by allocating the cost of capital assets to the periods in which they are used; represents the cost of using assets.
Amortization
Revenues are recognized when cash is received and expenses are recorded when cash is paid.
Cash basis accounting
Long lived (capital) assets which have no physical substance but convey a right to use a product or process.
Intangible assets
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
Matching principle
The cost of an asset less its accumulated amortization.
Net Book Value
Tangible long-lived assets used to produce goods or services.
Plant and equipment
Items paid for in advance of receiving their benefits; classified as assets.
Prepaid expenses