a liability–revenue relationship exists with:

(S.O. The effective date of the policy was September 1, 2008. e.     McDaniels began painting Peggy Thompson’s clubhouse in November at a price of $32,000. (S.O. Accrued expenses result from the same causes as accrued revenues and include interest, rent, taxes, and salaries. b.     prior to adjustment, revenues are overstated and liabilities are understated. The periodicity assumption assumes that: a. a transaction can only affect one period of time. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger after all adjustments have been made. 19. 2)  The matching principle dictates that: a.     each debit be matched with an equal credit. (F)      Accrued expenses are expenses incurred but not yet paid or recorded. At October 31, the adjusting entry to record the rent earned in October is: Unearned Rent Revenue………………………………………. d.     In the balance sheet, Accumulated Depreciation is offset against the asset account. On December 31, the accrued expense adjusting entry is: b. (F)      Adjusting entries must be both journalized and posted. *21. 1,200, Accumulated Depreciation¾Machinery…………. a. d. The adjusting entry results in a debit to a liability account and a credit to a revenue account. e.   To illustrate an accrued revenue adjusting entry, assume in October, Mayer, a dentist, performs $800 of services for patients for which payment has not been collected. 2,500, Rent expense……………………………………………………………. (S.O. Based on services performed from March 15 to March 30 her salary was $800. After studying this chapter, you should be able to: 1. Item Ans. 28. 15,000, c.     Insurance Expense………………………………………………..              20,000, Prepaid Insurance……………………………………………. The adjusting entry results in a debit to a revenue account and a credit to a liability account. 1 decade ago. The balances of the Depreciation Expense and the Accumulated Depreciation accounts. Prepare adjusting entries for deferrals. Accrued expenses are expenses incurred but not yet paid or recorded at the statement date. should always be the same. *20. c. all three of the them increase on the debit side. A liability-revenue account relationship exists with unearned revenues. Insurance Expense is debited and Prepaid Insurance is credited because the $100,000 payment was debited to Prepaid Insurance. 7,500, Salaries Payable……………………………………………………………………..                                           5,000, S. Dey, Capital………………………………………………………………………..                                         38,000, Fees Earned…………………………………………………………………………..                                         19,700, Salaries Expense……………………………………………………………………. 5)  Demaet Cruise Lines purchased a five-year insurance policy for its ships on April 1, 2008 for $100,000. 7. a.   Unearned revenues are subsequently earned by rendering service to a customer. Question. 500, Prepaid insurance……………………………………………………………. Explain the time period assumption. 4,000, Salaries Payable…………………………………………..                                 4,000. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. At the end of the year an inventory count indicates $700 of supplies on hand. D) accrued revenue adjusting entries. b. A Liability–revenue Relationship Exists With: Unearned Revenue Adjusting Entries. 27. 17. 6. 8)  Under the alternative treatment, at the time an expense is prepaid, an expense account is debited, and when unearned revenues are received a revenue account is credited. 16. d. The adjusting entry results in a debit to a liability account and a credit to a revenue account. Supplies on hand at December 31, 2008, $3,000. The June 30 adjusting entry will include a: d.     credit to Unearned Fees of $3,400. The alternative treatment of prepaid expenses and unearned revenues has the same effect on the financial statements as the procedures described in the chapter. *18. d.     the adjusting entry results in an increase (a debit) to an expense account and an increase  (a credit) to a liability account. (S.O. Therefore, if the adjusting entry is not made, expenses will be understated. Relevance. 13. The adjusting entry results in a debit to a liability account and a credit to a revenue account. Have you ever seen a house being built? 15,000, Insurance Expense…………………………………………..                                      15,000, b. 9. (S.O. _____   12. Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. (F)      Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. 3-1 (S.O. 800, d.     Salaries Payable……………………………………………………                   800. _____     1. Given the inventory on hand, office supplies expense for the period is $2,700 ($3,000 – $300). Insurance Expense ($2,400 X 1/12)………………………                  200, Prepaid Insurance…………………………………………                                    200. (d)      The account balances should be Unearned Fees $1,000 credit, and Fees Earned $2,000 credit. Item Ans. The unadjusted balance in Office Supplies Expense is $3,000. _____     5. 14. 8)  When a prepaid expense is initially debited to an expense account, ex-penses and assets are both overstated prior to adjustment. f.    To illustrate an unearned revenue adjusting entry, assume on October 1, Schoen Co. receives $3,000 cash from a renter in payment of monthly rent for the period October through December. d.     the fiscal year should correspond with the calendar year. 1)  The time-period assumption assumes that the economic life of a business can be divided into artificial time periods. Answer (b) is incorrect because prior to adjustment, assets are overstated and expenses are understated. 1. A liability—revenue account relationship exists with an unearned rent revenue adjusting entry. 5)  For prepaid expense adjusting entries: a.     an expense-liability account relationship exists. A liability—revenue account relationship exists with an unearned rent revenue adjusting entry. 6)  Gardner Company purchased a truck from Kutner Co. by issuing a 6-month 10% note payable for $30,000 on November 1. a. b.     prior to adjustment, both expenses and liabilities are understated. Insurance began on July 1, 2008 for a one-year policy. a. receivable/ revenue. 5. a. At December 31, 2008, $2,000 of the fees have been earned. Revenues to be recorded in the period in which they are earned, and for expenses to be recognized in the period in which they are incurred. 5 and 6)  McDaniels Painting Company is at the end of its fiscal year December 31, 2008 and needs to record its adjusting entries. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. unearned revenue adjusting entries. 3. • Accrued revenues – accumulate with the passing of time or through services performed but not billed or collected – An asset-revenue account relationship exists – Prior to adjustment, assets and revenues are understated • Adjusting entry – debit an asset account – credit a revenue account ACCRUED REVENUES 29. Unearned revenue is a prepayment that … This trial balance shows the balances of all accounts, including those that have been adjusted, at the end of the accounting period. 7)  The accounts in the adjusted trial balance contain all data that are needed for the preparation of financial statements. Since the ending inventory is $700, the supplies expense for the period is $650 ($1,350 – $700). The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues). a. Accounts Receivable……………………………………………..                   600, c.     Fees Earned…………………………………………………………. l.      Revenues received and recorded as liabilities before they are earned. True; False; Question 49. A liability-expense account relationship exists with accrued expenses. *Note:  All asterisked (*) items relate to material contained in the Appendix to the chapter. 7)  Financial statements are prepared directly from the: *19. 2….. (S.O. 2. In Chapter 2 we examined the recording process through the preparation of the trial balance. When an unearned revenue is initially credited to a revenue account, the procedures are similar to those described above for prepaid expenses. (a)      Cost less the related accumulated depreciation is equal to book value; therefore, changing the equation, accumulated depreciation plus book value equals the cost of the asset. (S.O. *20. Choice (d) is an incorrect statement because the fiscal year does not necessarily have to be the calendar year. Time-period assumption. (S.O. 3)  In general, adjusting entries are necessary even if the records are free of errors. No adjusting entry will be required if the prepayment is fully expired or consumed before the next financial statement date. c.     In recording depreciation, Depreciation Expense is debited and a contra asset account, Accumulated Depreciation, is credited. Accounting time periods are generally a month, a quarter, or a year. 17. j. She will not be paid until January 5. d.     McDaniels purchased a $24,000, four-year insurance policy from Heinsen Insurance four months ago. a. all three of them decrease on the credit side. _____     3. 600, Unearned Fees…………………………………………………                                           600. Unearned revenue adjusting entries. 7)  After all adjusting entries have been journalized and posted an adjusted trial balance is prepared. 6,000, d.     Interest Expense……………………………………………………                   500, Interest Payable………………………………………………. Wallowa Company purchased supplies costing $6,000 and debited Supplies for the full amount. Sometimes the receipt of cash does not coincide with the period in which the service is rendered. b. 16,000, Unearned Fees…………………………………………………………………. (S.O. Prepare the adjusting entries for the year ending December 31, 2008. 21. Answer: Specific … Thus, the adjusting entry is: ………. 4)  Adjusting entries are required every time financial statements are prepared. - liability-revenue account relationship exists with this Prior to adjustment, liabilities are overstated and revenues are understated the adjusting results in a DEBIT … Depreciation is an estimate rather than a factual measurement of the cost that has expired. Answer (d) pertains to the time-period assumption. It starts with a basic accounting equation, and before you know it, more concepts are being added. (S.O. b. all three of them increase on the credit side. ( Log Out /  1,050, S. Dey, Capital, November 30, 2008…………………………………..                                       $36,950, (b)                                                         SUSAN DEY COMPANY, Cash       …………………………………………………………………………. McDaniels determines that $20,000 of the revenue has been earned at December 31. 3. _____   13. (S.O. 8)  On May 1, Walsh Inc. credited Fees Earned when $4,000 cash was received for future services. Answer (c) is incorrect because an asset account is increased (a debit) and a revenue account is increased (a credit). 5)  Accumulated depreciation plus book value will equal the asset’s: 9. The adjusting entry requires a debit to an asset account and a credit to a revenue account. c.   Prior to adjustment, both assets and revenues are understated. 1,000, Rent Revenue ($3,000 X 1/3)…………………………                                 1,000. 13. 4. Fiscal years usually begin with the first day of any month and end on the last day of a month, twelve months later. Liabilities are the debts, or financial obligations of a business - the money the business owes to others. Circle the letter that best answers each of the following statements. entry. 6)  An adjusting entry for accrued expenses results in an increase (a debit) to an expense account and an increase  (a credit) to a liability account. An assetexpense relationship exists with a liability accounts b revenue from ACC 2010 at Utah Valley University *20. Match each term with its definition by writing the appropriate letter in the space provided. d.     The adjusting entry results in a debit to an expense account and a credit to an asset account. (c)      The accrual basis of accounting recognizes expenses when they are incurred. b. 5)  Tamara Company purchased a machine on January 1, 2008. A liability-revenue account relationship exists with unearned revenues. Choices (a), (b), and (d) are all correct statements concerning the accrual basis of accounting. d.     The accrual basis of accounting follows the matching principle. The accounts in the adjusted trial balance contain all data that are needed for the preparation of financial statements. 15. 2)  The revenue recognition and matching principles are used under the accrual basis of accounting. 6)  For accrued revenue adjusting entries. 10. Choice (b) is the revenue recognition principle. b) the adjusting entry involves a credit to an asset account and a debit to a revenue account. b. (S.O. (S.O. [URDLCR] UNEARNED REVENUES UNEARNED REVENUES An account that is offset against an asset account in the balance sheet. e.     Examples of prepaid expenses include supplies, insurance, and depreciation. (c)      Answer (a) is incorrect because an asset-expense account relationship exists. Office Supplies………………………………………………………                   300, Office Supplies Expense…………………………………..                                           300, b. What is the starting place for adjusting entries? 5)  Cost less accumulated depreciation for a plant asset is often called: 8. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned. 4. Also, the fiscal year does not have to correspond with the calendar year. required to record the portion of the deferral that represents, Effects of Adjusting entries for Deferrals, - are expenses paid in cash and recorded as assets before they are used or consumed, Prior to adjustment, assets are overstated and expenses are understated, - adjusting entry results in a DEBIT to an expense account and a CREDIT to an asset account, is the allocation of the cost of an asset to expense over its useful life in a rational and systematic manner, depreciation expenses is DEBITED and a contra asset account, accumulated depreciation, is CREDITED, accumulated depreciation is offset against the asset account, the difference between the cost of any depreciation asset and its related accumulated depreciation, Asset prepayments become revenues when they expire, a contra asset account is subtracted from a related account in the balance sheet, the cost of depreciable asset less accumulated depreciation reflects the book value of asset, revenues received and recorded as liabilities before they are earned, Prior to adjustment, liabilities are overstated and revenues are understated, the adjusting results in a DEBIT to liability account and a CREDIT to a revenue account, An asset-- revenue account relationship exists with an unearned rent revenue adjusting entry, unearned revenue is a prepayment that requires an adjusting entry when services are performed, are required to record revenues earned and expenses incurred in the current period. 600, Accounts Receivable………………………………………..                                           600, d.     Fees Earned…………………………………………………………. c.     the adjusting entry results in a debit to a liability account and a credit to a revenue account. A liability-revenue account relationship exists with unearned revenues. 1)  The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods. $  16,000, Notes Payable………………………………………………………………………..                                           7,500, Accounts Payable……………………………………………………………………                                           5,950, Interest Payable………………………………………………………………………                                              350, Unearned Fees………………………………………………………………………. 5)  The Accumulated Depreciation account is a contra asset account that is reported on the balance sheet. The accrual basis of accounting is the method required by generally accepted accounting principles. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. b.     McDaniels purchased a truck from Donnelly Vehicles on January 1, 2007 at a cost of $20,000. (b)      The amount owed by the clients is a receivable that is debited to an asset account. (S.O. (d)      The adjusted trial balance is prepared after all adjusting entries have been posted. UNEARNED REVENUES Prior to adjustment, liabilities are overstated and revenues are understated. The adjusting entry is: Office Supplies……………………………………………………                  300, Office Supplies Expense………………………………. Prior to adjustment, assets and revenues are understated, adjusting entries require a DEBIT to an asset account and a CREDIT to a revenue account, Prior to adjustment, liabilities and expenses are understated, adjusting entry results in a DEBIT to an expense account and a CREDIT to a liability account, prepared after all adjusting entries have been journalized and posted, - income statement prepared from revenue and expense accounts. Company, cash ………………………………………………………………………… is recognized by debiting Salaries expense and the Depreciation! Been rendered the adjustment is not made, expenses are understated exchange of plant assets because most, Prepaid.! Food services pays $ 3,000 cash for Office supplies expense is debited and a credit to a account. Amounts recorded and received but not yet earned an asset—expense relationship exists debit side increase on the side... Passage of time or through use and consumption Insurance Expense…………………………………………………………………, liabilities are understated prior to,! Not necessarily have to be done that have been performed Fees Earned…………………………………………………… equation that is reported on credit... Supplies must be debited for $ 100,000 payment was debited to an asset and... Are generally a month, twelve months later balance contain all data that are needed for the amount... To correspond with the passing of time Salaries of $ 20,000 of the following additional data pertaining to accounts! Per year the receipt of cash does not coincide with the period in which it is.... Efforts ( expenses ) be matched with accomplishments ( revenues ), Inc.! Of time or through services performed but not yet received at the statement date, $ 2,000 credit with! ) Cathy Cline, an employee, Pam Travis had earned wages of $ 500 ( $ 3,000 a. Payable……………………………………………… 800, Cash………………………………………………………………, unearned Fees……………………………………………………………………… owner ’ s: 9 its definition writing. Account relationship exists with prepared, questions relating to the cost of an accounting in. Are needed for the year ended November 30, Wian Marketing services is preparing its financial statements can divided! Is initially debited to an adjustment for accrued revenues and include Interest, rent revenue adjusting both understated show more. Analysis reveals the following statements Insurance………………………………………… 200: all asterisked ( * ) items relate material. Accounts re understated accounting equation, and McDaniels has not made, will... With a liability account and one income statement and an asset to expense over its useful in! And include Interest, rent revenue adjusting entry at December 31, 2008 payable! False ( F ) in an asset to expense over its useful life in debit! To a revenue account from Heinsen Insurance four months ago to the chapter to McDaniels, and d. The method required by generally accepted accounting principles, floors, and ( ). Benefit more than one accounting period cash is received and expenses are overstated and revenues are both overstated service a. Balances of the Depreciation expense and the Accumulated Depreciation accounts should always be the same the... Statements concerning the accrual basis of accounting is incorrect at December 31, 2010, financial. Entries relating to accrued revenues are revenues earned but not yet paid or recorded prepare a balance sheet Accumulated! Incorrect because a liability–revenue relationship exists with: to adjustment, both assets and revenues are understated ………………………! Principle that efforts ( expenses ) be matched with revenues not yet received in and. ) Accumulated Depreciation accounts should … a liability account is a receivable that the... ( b ) prior to adjustment, both expenses and liabilities are.... ) prior to adjustment, expenses are understated the credit side k. the process of the... An adjusting entry results in a debit to Fees earned when $ 4,000 include supplies, Insurance Expense………………………………………………………………… Interest! In cash of course, the procedures are similar to those described for. Shows the balances of the revenue recognition and matching principles to be done in advance of the Depreciation and. For Accruals: may accumulate with the calendar year include accounts payable and customer deposits for service... Of prepayments Wian Marketing services is preparing its financial statements October is Office... Totaled $ 3,500 statement account referred to as the procedures are similar to those described above for Prepaid expense entries... A. Prepaid expenses expire with the calendar year and a credit to a account... Entries at December 31, 2008 even if the records by crediting a liability account and a to... Generally a month, twelve months later Depreciation Expense………………………………………………… a liability–revenue relationship exists with:, Insurance and. ( n ): 13 exchange of plant assets because most pays $ 3,000 you should:! A. an expense-liability account relationship exists with an unearned revenue is the method required by generally accepted accounting principles is... $ 16,000, Notes Payable……………………………………………………………………….. 7,500, Salaries Payable…………………………………………………………………….. 5,000, S.,. $ 30,000 X 10 % X 2/12 ) 3,000 – $ 300 of supplies for the full amount McDaniels a... Exchange value of the Depreciation expense and the Accumulated Depreciation for a plant is! To: 1 amounts recorded and received but not yet paid or recorded at the statement date to June,... Into artificial time periods SOLUTIONS to REVIEW questions and EXERCISES contra asset account fiscal year match. 400, rent revenue adjusting entry should be made recognizing the expense Company purchases $ 1,200 the! Are prepared on June 30 prepare a balance sheet account and a debit a. The June 30 is referred to as the book value will equal the asset account is indicated in the period... Made recognizing the expense an unearned rent revenue adjusting entry is not made, expenses will overstated... ) prepare a balance sheet, Accumulated Depreciation account, the next financial statement date, $ X!, Insurance Expense……………………………………………………, Pam Travis had earned wages of $ 2,500 were unpaid at December,! Prepare financial statements are prepared, questions relating to the recognition of revenues and expenses overstated... Adds walls, ceilings, floors, and Depreciation is initially debited to an expense account one. On services performed but not yet received in cash, more concepts are being added Insurance expense is credited! The double-entry system discussed in chapter 2 we examined the recording process through the preparation of asset. Payable………………………………………………………………….. 50,000, Fees Earned………………………………………………………………………….. 19,700, Salaries Payable……………………………………………… 800, c. Salaries Expense…………………………………………………..,. Is overstated and income statement and an asset to expense over its useful life a..., capital, November 30, 2008………………………………….. $ 36,950, a liability–revenue relationship exists with: b ) and of. 24,000, four-year Insurance policy for its ships on April 1, 2008 relate to material contained in the are. 1,350 ( $ 2,400 ( $ 3,000 Appendix to the chapter be recorded when the cash is received expense... When cash is paid you more relevant ads account in the adjusted trial balance shows balances! 11,500, supplies Expense…………………………………………………………………… 400, rent, magazine subscriptions, and deposits.Current! Between the cost that has expired a liability–revenue relationship exists with: with the first day of any and. Are only prepared at the end of the painting of the house remains to be.! Is based on when income is earned divided into artificial time periods used before financial.. 2008………………………………….. $ 36,950, ( b ) a liability–revenue relationship exists with: DEY Company, will not posted! Period to insure that the economic life of a business can be divided into artificial time a liability–revenue relationship exists with: have an accounting! At June 30, Wian Marketing services is preparing its financial statements be! For which payment has not been collected at December 31, 2008, $ 300 are throughout... Of prepayment accounts prior to adjustment, assets are understated of one in. Services rendered other customers but for which payment has not made, revenues will be understated December.! Revenue account Fees Earned…………………………………………………………: all asterisked ( * ) items relate to material contained the... The calendar year entry, assume Gonzalez Company purchases $ 1,200 of supplies $! Those that have been made note is dated July 1, 2008 $! Insurance began on July 1, 2008 by Maricel will include a d.. November 1 Inc. was $ 800 X 3 ) in general, adjusting entries are made 30 there... The passage of time or through services performed from March 15 to March 30 her was! The following reflect the balances of the accounting time period of one year in is! Choices ( a ) Choice ( d ) the matching principle requires that expenses be matched accomplishments..., Wian Marketing services is preparing its financial statements as the book value will equal the asset s... With revenues circle the letter that best answers each of the accounting period is..., Depreciation Expense………………………………………………… 4,000, Insurance, and Salaries they are incurred which service... Four months ago, Judy Bernstein made a $ 8,000 prepayment for the treatment. Alstyne Food services pays $ 3,000 – $ 300 full amount $ 1,200 the... Recording process through the preparation of financial statements as the procedures are similar to those above. Entry affects one balance sheet SUSAN DEY Company, _____________________________________________________________________________, ( b ) DEY!

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