Exam 3: Adjusting Accounts for Financial Statements

During the year ended December 31, 2020, clients paid fees in advance for legal services amounting to $5,000. These fees were recorded in an account called Unearned Accounting Service Revenue. If $3,000 of these fees are still unearned on December 31, 2020, what is the required December 31 adjusting entry?

The 12 consecutive months (or 52 weeks) selected as an organization's accounting period is called the fiscal year.

Correcting entries are a specialized type of adjusting entry.

External business transactions are transactions between the business entity and some other (outside) party.

Adjusting entries are posted to the general ledger.

Since the revenue recognition principle requires that revenues be earned, there is no such thing as unearned revenues in accounting.

Lang leased a portion of its store to Pang for 12 months beginning on November 1, at a monthly rate of $400. Pang paid the entire $4,800 on November 1, which Lang recorded as unearned revenue. The journal entry made by Lang at year-end, December 31, would include

The main purpose of adjusting entries is to

Which of the following assets is not depreciated?

Adjusting entries may affect only balance sheet accounts.

During August, Gallery Corp. purchased $4,000 worth of supplies. At August 31 the adjusted balance in the Supplies account was $2,800. The adjusting entry included a $1,200 debit to Supplies Expense.

Before an adjusting entry for accrued salaries is made, the amount in Salaries Expense is understated and the amount in Salaries Payable is also understated.

Internal transactions often include cash payments.

On Oct. 1, 2021 Bianca Inc. signed a 1-year $75,000 note payable from Prime National Bank. The loan plus 4% interest is to be repaid on Sept. 30, 2022. Bianca's year-end is December 31. In its 2021 financial statements, Bianca will record an interest expense of

On January 1, 2022, a 12-month insurance policy was purchased. Give the adjusting entry that must be made for June.

On January 1, 2022, NEW Company purchased a new building for $9,000,000. It is estimated that the Building will have a useful life of 12 years and have a salvage value of $1,000,000. At the end of the year, a similar warehouse across the street from NEW's building sold for $10,000,000. NEW's bookkeeper decides not to record any depreciation expense on the new building in the financial statements for the year ended December 31, 2022 because the building has not declined in value. Required - Identify and explain which accounting principle has been violated by not reporting depreciation expense on the new warehouse for the year ended December 31, 2022. How would this omission affect the credibility of the financial statements? Name two user groups that would be impacted by the omission?

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of

Prepaid expenses may be recorded as debits to expense accounts.

Expenses incurred during an accounting period but that, before end-of-period adjustments, remain unrecorded because payment is not due are referred to as accrued expenses.

The cash basis of accounting commonly results in financial statements that are not comparable from period to period.