1.

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses:

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In the same period as related revenue

2. Under cash-basis accounting,

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- Revenues are recorded when cash is received
- Expenses are recorded when cash is paid

3. A primary purpose of adjusting entries is to record events that

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Have occurred but that have nor yet been recorded.

4. A prepayment that is originally recorded as as asset will be

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Allocated to future accounting periods based on the cost of the asset used during the period

5. After the adjusting entries have been completed, the adjusted balance in the Supplies Expense
account represents the cost of supplies:

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Used during the accounting period

6. There is a cause-and-effect relationship between revenues and expenses that dictates

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When costs are recognised as expenses in the income statement

7. Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses
when

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Paid

8. Adjusting entries help to ensure that all ____ are recorded in the period in which they are incurred

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Expenses

9. The process of allocating the cost of an asset to expense over the useful life of the asset is called

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Depreciation

10. Prepaid rent appears in the ____

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Balance sheet because it is an asset
11. After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue
account represents

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The amount of the sales or services still owed to the customer

12. When should supplies be recorded as an expense

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In the period the supplies are used, regardless of when they were purchased

13. The adjusting entry for a deferred revenue includes a debit to a(n) ____ account and a credit to a(n)
_____ account

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- Liability
- Revenue

14. Consistent with accrual-basis accounting, expenses should be recognised

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In the period when the related revenue is generated

15. Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ____ at the
end of the accounting period

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Owed

16. Reporting revenues only when cash is received and expenses only when cash is paid called the ____
basis of accounting

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Cash

17. If an adjusting entry’s debit is to an expense account, then the credit must be to

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- Liability
- Prepaid expense

Explanation:
The credit is to a liability, not revenue, when the debit is to an expense. This type of adjusting entry
records the expenses incurred during the period that have not been paid, i.e., are owed

18. Depreciation is an allocation of the ____ of buildings, vehicles, and equipment to expense over time
as they are used.

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Cost

19. An adjusting entry is necessary to record interest expense at year-end because the interest

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Has already been incurred
20. Deferred revenue is a(n)

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Liability

21. To complete the measurement process, companies need to update balances of assets, liabilities,
revenues and expenses for changes created by ____ entries

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Adjusting

22. On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that
date. On December 31, Katie Inc. should credit

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Service revenue for $1,800

23. In an adjusting entry for expenses incurred but not yet paid ____

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A liability is increasing sin cash will be paid in the future due to the expense incurred

24. An adjusting entry for accrued expenses involves

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- Debit to an expense
- Credit a liability

25. Which of the following statements is correct regarding the adjusting entry to record interest accrued
on a note payable

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Inertest on the note payable is classified as an expense since it is a cost of borrowing

Explanation:
Interest on note payable relates to interest expense. Interest revenue is the account used to record
interest earned on investment.

26. At year-end, companies that utilise accrual-based accounting systems complete the measurement
process through

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Recording of adjusting entries

27. When a company records an adjusting entry for services previously recorded as Deferred Revenue, it
records

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- Debit to Deferred Revenue
- Credit to Revenue

28. Revenues and expenses are reported in the

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Income statement
29. Which of the following statement describes the effect that adjusting entries may have in liabilities

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Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of
the period

30. If an adjusting entry’s credit is to a liability account, then the debit must be to ___

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Expense

Explanation:
The debit is to expense, not revenue, when the credit is to a liability. This type of adjusting entry
records the expenses incurred during the period that have not been paid, i.e., are owed

31. An adjusting entry is necessary to record interest expense at year-end because the interest

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Has already been incurred

32. Revenue in the income statement for the year ended December 31, 2021 equals the

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Amount earned by selling goods or services to customers during 2021

33. To complete the measurement process, companies need to update balances of assets, liabilities,
revenues and expenses for changes crated by ____ entries

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Adjusting

34. The statement of stockholders’ equity includes these amounts

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- Ending balance retained earnings
- Net income
- Dividends for the period

35. The 2 major categories reported in the income statement are

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- Revenue
- Expense

36. A classified balance sheet shows subtotals for current ____ and current ____

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- Assets
- Liabilities
37. Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ____ at the
end of the accounting period

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Owed

38. An adjusting entry for accrued expenses involves

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- Debit to an expense
- Credit to a liability

39. The information reported in the statement of cash flows is organised by

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- Operating
- Investing
- Financing

40. ____ is the amount earned from selling goods or services to customers

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Revenue

41. How do temporary accounts differ from permanent accounts

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Only temporary accounts are cleared out at the end of the accounting period

42. Which financial statement would report all of the following information: beginning balances for
common stock and retained earnings; current period net income or loss; current period dividends;
common stock issued during the year; ending balances of common stock and retained earnings

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Statement of stockholders’ equity

43. A classified balance sheet

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Groups asset and liabilities into current and long-term categories

44. Closing entries move the balances from the ___ accounts into the Retained Earnings accounting

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Temporary

45. How do adjusting entries for accrued expenses affect liabilities and e openness

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Adjusting entries for accrued expenses can increase liabilities and increase expenses
46. The post-closing trial balance helps to verify that

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- We prepared and posted closing entries correctly
- The accounts are ready for next period’s transactions

47. Which of the following financial statements typically is prepared last

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Statement of cash flow

48. The statement of stockholders’ equity includes these amounts:

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- Ending balance retained earnings
- Net income
- Dividends for the period

49. The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

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Closing entries

50. At the beginning of the accounting period, the balances of temporary accounts

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Are zero

51. The post-closing trial balance checks that total ___ equal total ____ at the end of the period

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- Debit
- Credit

52. Which financial statement would report all following information: beginning balances for common
stock and retained earnings; current period net income or loss; current period dividends; common
stock issued during the year; ending balances of common stock and retained earnings

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Statement of stockholders’ equity

53. Which of the following statement is true

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Income statement accounts are temporary accounts, while balance sheet accounts are permanent
accounts

54. The information reported in the statement of cash flow is organised by these activities

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- Operating
- Investing
- Financing