Exam 3: Measuring Business Income: Adjusting the Accounts

Quality Heating Company has the following liabilities at year end: a.Which of these accounts probably was/were created at the end of the fiscal year as a result of an accrual? Which probably was/were adjusted at year end? Explain your answer. b.Which adjustments probably reduced net income? Which probably increased net income? Explain your answers.

Financial statements may be prepared from an adjusted trial balance.

What is the purpose of adjusting entries?

In the space below,state whether each situation is a deferral or an accrual. ______a.Depreciation on machinery is $7,200 for the accounting period. ______b.Interest that has been incurred on a loan but that has not yet been paid or recorded is $675. ______c.Office supplies of $965 were on hand at the beginning of the period.Purchases of office supplies during the period totaled $640.At the end of the period,$120 in office supplies remained. ______d.Commissions amounting to $975 were earned but not yet collected by year end. ______e.Prepaid Rent had a $2,500 balance prior to adjustment.By year end,50 percent had expired.

The adjustment for estimated property taxes would include a

Failure to record depreciation at year end will result in all of the following except

A customer's promise to pay for goods or services

Depreciation Expense-Equipment is an example of a contra account.

The matching rule is applied

Which of the following accounts could increase as a result of adjusting entries?

Direct cause-and-effect relationships between revenues and expenses can usually be demonstrated.

Which of the following accounts most likely would be found on both a trial balance and an adjusted trial balance?

The general rule for determining the cash flow received from any revenue or paid for any expense (except depreciation,which is a special case)is to determine the potential cash payments or cash receipts and add the amount not paid or not received.

The adjusting entry for the expiration of prepaid advertising,originally recorded as an asset,

Expenses are incurred

Which of the following is an example of a deferral?

Recording incurred but unpaid expenses is an example of an accrual.

A net loss results in a decrease in

An adjusting entry includes at least one balance sheet account and at least one income statement account.

The matching rule relates the least to