Exam 3: Adjusting Accounts for Financial Statements

A company prepays rent of $500 and receives a $3,000 payment for services not yet rendered. Under accrual basis accounting, these two transactions will:

A contra account is an account the balance of which is added to the balance of an associated account to show a more proper amount for the item recorded in theassociated account.

Failure to record depreciation expense will overstate the asset and understate the expense.

The accrual basis of accounting

Companies with little seasonal variation in sales often choose the calendar year as theirfiscal year.

The two main accounting principles used in the adjusting process are matching and fulldisclosure.

If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on January 5 would include:

Discuss the types of adjusting entries used for accrued expenses and accruedrevenues.

External business transactions are transactions between the business entity and some 5)other (outside)party.

On Oct. 1, 2017, 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, 2018. Bianca's year-end is December 31. In its 2017 financial statements Bianca will record interest expense of:

On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month.The entry to be made at the December 31 month end to adjust the accounts is:

All items of plant and equipment, including land, eventually wear out or lose their usefulness.

Explain how accounting adjustments affect financial statements

The Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of officesupplies was purchased during the year?

Gallery Corp. owes its employees $7,000 for the week ended March 31. The company will pay the employees on April 5. The adjusting journal entry prepared on March 31 will include a debit to Salaries Expense and a credit to Cash.

The following journal entry (incorrectly)recorded the purchase of office supplies for$1,200 on credit: What entry or entries best correct and document the correction of this error?

Accrued expenses at the end of one period result in cash payments in a subsequent period.

Generally, accrual basis accounting results in a more accurate measurement of profit the period than does cash basis accounting.

An account the balance of which is subtracted from the balance of a related account sothat more complete information than simply the net amount is provided is a(n):