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Knowledge Check 01 Why are adjustments made to the accounting records at the en...
Sep 23, 2024
Knowledge Check 01 Why are adjustments made to the accounting records at the end of the period? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply To ensure assets and liabilities are reported at appropriate amounts To ensure the related revenues and expenses are reported in the proper period To better match the recording of revenue with the receipt of cash To better match the recording of expenses with the payments of cash To record the recurring daily transactions
Adjustments to accounting records at the end of the period are essential for accurate financial reporting. Here are the reasons you should consider: 1. To ensure assets and liabilities are reported at appropriate amounts: This is correct. Adjustments help reflect the true value of assets and liabilities on the balance sheet. 2. To ensure the related revenues and expenses are reported in the proper period: This is also correct. Adjustments are necessary to adhere to the accrual basis of accounting, which states that revenues and expenses should be recognized when they are earned or incurred, not necessarily when cash is received or paid. 3. To better match the recording of revenue with the receipt of cash: This is incorrect. While cash basis accounting matches revenue with cash received, adjustments are made under accrual accounting to match revenue with the period it is earned, regardless of cash flow. 4. To better match the recording of expenses with the payments of cash: This is incorrect for the same reason as above. Adjustments are made to match expenses with the period they are incurred, not when cash is paid. 5. To record the recurring daily transactions: This is incorrect. Recurring daily transactions are typically recorded as they occur, and adjustments are more about correcting or updating the records at the end of the period. So, the correct answers to check are the first two options.
On September 1, Year 1, a tenant of Bloomington Company business paid its rent in advance for the months of October, November, and December. On December 31, Year 1, Bloomington made the required adjustment to adjust its accounts. How does this year-end adjustment impact the amounts reported on the company’s financial statements? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply It decreases an asset. unanswered It increases an asset. unanswered It decreases a liability. unanswered It increases a liability. unanswered It increases a revenue. unanswered It increases an expense.
To understand how the year-end adjustment impacts Bloomington Company's financial statements, let's analyze the situation: When the tenant paid rent in advance for October, November, and December, Bloomington Company initially recorded this payment as a liability (unearned revenue) because the service (rental period) had not yet been provided. As time passes and the months of October, November, and December occur, the company needs to adjust its accounts to recognize the revenue earned. Here are the impacts of the year-end adjustment: 1. It decreases an asset: This is incorrect. The adjustment does not decrease an asset; rather, it affects the liability. 2. It increases an asset: This is incorrect. The adjustment does not increase an asset. 3. It decreases a liability: This is correct. The adjustment reduces the unearned revenue liability as the company recognizes the revenue earned for the months that have passed. 4. It increases a liability: This is incorrect. The adjustment does not increase a liability. 5. It increases a revenue: This is correct. The adjustment recognizes the revenue that has been earned for the months of October, November, and December. 6. It increases an expense: This is incorrect. The adjustment does not increase an expense; it is related to revenue recognition. So, the correct answers to check are: - It decreases a liability. - It increases a revenue.
Knowledge Check 01 Which of the following statements about deferral adjustments are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply They are used to decrease balance sheet accounts and increase corresponding income statement accounts. unanswered They are used to increase balance sheet accounts and increase corresponding income statement accounts. unanswered Every deferral adjustment involves one asset and one expense account. unanswered Each deferral adjustment involves one asset and one expense account or one liability and one revenue account.
To determine which statements about deferral adjustments are true, let's analyze each option: 1. They are used to decrease balance sheet accounts and increase corresponding income statement accounts. This statement is true. Deferral adjustments typically involve reducing an asset or liability on the balance sheet while increasing an expense or revenue on the income statement. 2. They are used to increase balance sheet accounts and increase corresponding income statement accounts. This statement is false. Deferral adjustments do not increase both balance sheet and income statement accounts simultaneously. 3. Every deferral adjustment involves one asset and one expense account. This statement is false. While many deferral adjustments do involve an asset and an expense, some involve a liability and a revenue account instead. 4. Each deferral adjustment involves one asset and one expense account or one liability and one revenue account. This statement is true. Deferral adjustments can involve either of these combinations. Based on this analysis, the correct answers to check are: - They are used to decrease balance sheet accounts and increase corresponding income statement accounts. - Each deferral adjustment involves one asset and one expense account or one liability and one revenue account.
Knowledge Check 01 Accrual adjustments are needed when the business: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply pays cash after the expense has been incurred. pays cash before the expense has been incurred. receives cash after the revenue has been generated. receives cash before the revenue has been generated.
To determine which statements about accrual adjustments are true, let's analyze each option: 1. Pays cash after the expense has been incurred. This statement is true. Accrual adjustments are necessary when expenses are recognized before cash is paid. This ensures that expenses are recorded in the period they are incurred. 2. Pays cash before the expense has been incurred. This statement is false. This situation typically involves deferral adjustments, not accrual adjustments, as the expense is recognized when incurred, not when cash is paid. 3. Receives cash after the revenue has been generated. This statement is true. Accrual adjustments are needed when revenue is recognized before cash is received, ensuring that revenue is recorded in the period it is earned. 4. Receives cash before the revenue has been generated. This statement is false. This situation usually involves deferral adjustments, as the revenue is recognized when earned, not when cash is received. So, the correct answers to check are: - Pays cash after the expense has been incurred. - Receives cash after the revenue has been generated.
On December 31, Year 1, Chaco made the required adjustment to adjust its accounts to accrue salaries and wages expense. How does this year-end adjustment impact the amounts reported on the company’s financial statements? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply It decreases an asset. It increases an asset. It decreases a liability. It increases a liability. It increases a revenue. It increases an expense.
To analyze how the year-end adjustment to accrue salaries and wages expense impacts Chaco's financial statements, let's consider the nature of the adjustment: 1. Accruing salaries and wages expense means that the company recognizes the expense incurred for work performed by employees, even if the cash has not yet been paid. Now, let's evaluate the options: - It decreases an asset. This statement is false. Accruing salaries does not directly affect asset accounts. - It increases an asset. This statement is false. There is no increase in assets from this adjustment. - It decreases a liability. This statement is false. The adjustment does not decrease a liability; instead, it may increase a liability if the salaries payable account is affected. - It increases a liability. This statement is true. By accruing salaries and wages, the company recognizes a liability (salaries payable) for the amount owed to employees. - It increases a revenue. This statement is false. The adjustment does not affect revenue accounts. - It increases an expense. This statement is true. The adjustment increases the salaries and wages expense on the income statement. So, the correct answers to check are: - It increases a liability. - It increases an expense.
Knowledge Check 01 Which of the following statements about accrual adjustments are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply They are used to decrease balance sheet accounts and increase corresponding income statement accounts. They are used to increase balance sheet accounts and increase corresponding income statement accounts. Everyaccrual adjustment involves one liability and one expenseaccount. Each accrual adjustment involves one asset and one revenue account or one liability and one expense account.
To determine which statements about accrual adjustments are true, let's analyze each option: 1. They are used to decrease balance sheet accounts and increase corresponding income statement accounts. This statement is not true. Accrual adjustments typically involve increasing balance sheet accounts (like assets or liabilities) and increasing corresponding income statement accounts (like revenues or expenses). 2. They are used to increase balance sheet accounts and increase corresponding income statement accounts. This statement is true. Accrual adjustments often increase balance sheet accounts (for example, increasing accounts receivable for earned revenue not yet received) and also increase income statement accounts (like recognizing revenue or expenses). 3. Every accrual adjustment involves one liability and one expense account. This statement is not true. While some accrual adjustments do involve a liability and an expense (like accrued wages), others can involve an asset and revenue (like accrued revenue). 4. Each accrual adjustment involves one asset and one revenue account or one liability and one expense account. This statement is true. Accrual adjustments can either increase an asset and revenue account (for earned revenue not yet received) or increase a liability and expense account (for expenses incurred but not yet paid). Based on this analysis, the true statements are: - They are used to increase balance sheet accounts and increase corresponding income statement accounts. - Each accrual adjustment involves one asset and one revenue account or one liability and one expense account. Feel free to ask if you have more questions or need further clarification
Solution by Steps
step 1
To determine the cost of supplies used during April, we need to calculate the difference between the supplies purchased and the supplies on hand at the end of the month. The formula is: Supplies Used=Supplies Purchased−Supplies on Hand \text{Supplies Used} = \text{Supplies Purchased} - \text{Supplies on Hand}
step 2
Substituting the values from the problem: Supplies Used=2500−1000 \text{Supplies Used} = 2500 - 1000
step 3
Calculating the supplies used: Supplies Used=1500 \text{Supplies Used} = 1500
step 4
The journal entry to record the cost of supplies used will be: Debit Supplies Expense for 1500 and Credit Supplies for 1500
Answer
Debit Supplies Expense 15001500, Credit Supplies 15001500
Key Concept
Adjusting entries in accounting are necessary to accurately reflect the expenses incurred during a period.
Explanation
The adjustment reflects the actual supplies used, ensuring that the financial statements accurately represent the company's expenses for the month.
Which of the following statements about the Accumulated Depreciation account are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) check all that apply This contra-account is subtracted when determining total assets on the balance sheet. unanswered It is a balance sheet account. unanswered It is an income statement account. unanswered Its balance increases each year. unanswered It includes the depreciation of only the current accounting year. unanswered Its balance decreases each year.
Let's analyze the statements about the Accumulated Depreciation account one by one: 1. This contra-account is subtracted when determining total assets on the balance sheet.True. Accumulated Depreciation is a contra-asset account, which means it is subtracted from the total assets on the balance sheet to reflect the net book value of fixed assets. 2. It is a balance sheet account.True. Accumulated Depreciation appears on the balance sheet as a contra-asset account. 3. It is an income statement account.False. Accumulated Depreciation does not appear on the income statement; instead, depreciation expense for the period is recorded there. 4. Its balance increases each year.True. The balance of Accumulated Depreciation increases each year as more depreciation is recorded for the assets. 5. It includes the depreciation of only the current accounting year.False. Accumulated Depreciation includes the total depreciation expense for all prior years as well as the current year. 6. Its balance decreases each year.False. The balance of Accumulated Depreciation does not decrease; it continues to accumulate over time. So, the true statements are: - This contra-account is subtracted when determining total assets on the balance sheet. - It is a balance sheet account. - Its balance increases each year. Feel free to ask if you have more questions or need further clarification!
Solution by Steps
step 1
The annual depreciation expense is given as 2,4002,400. To find the monthly depreciation, we divide this amount by 12 months:
\frac{2400}{12} = 200
step 2
The journal entry for recording depreciation involves debiting the Depreciation Expense account and crediting the Accumulated Depreciation account. The amounts for both accounts will be 200200
\text{Debit: Depreciation Expense} \quad 200 \quad \text{Credit: Accumulated Depreciation} \quad 200
step 3
The completed journal entry will look like this:
\begin{array}{|c|l|l|l|} \hline Event & General Journal & Debit & Credit \\ \hline 1 & Depreciation Expense & 200 & \\ \hline & Accumulated Depreciation & & 200 \\ \hline \end{array}
Answer
The journal entry for the depreciation of cleaning equipment for April is: Debit Depreciation Expense 200200 and Credit Accumulated Depreciation 200200.
Key Concept
Depreciation is the allocation of the cost of an asset over its useful life.
Explanation
This entry reflects the reduction in value of the cleaning equipment due to usage, ensuring accurate financial reporting.
To complete the journal entry for the realization of deferred revenue due to the fulfillment of the obligation for cleaning carpets, you need to recognize the revenue earned and reduce the deferred revenue liability. Given that you have $2,000 of service revenue recognized, the journal entry will be as follows: 1. Debit the Deferred Revenue account for $2,000 to decrease the liability, as you have fulfilled part of your obligation. 2. Credit the Service Revenue account for 2,000 to recognize the revenue earned from the service provided. Here’s how the journal entry will look in your worksheet: \[ \begin{tabular}{|c|c|c|c|} \hline Event & General Journal & Debit & Credit \\ \hline 1 & Deferred Revenue & 2,000 & \\ \hline 2 & Service Revenue & & 2,000 \\ \hline \end{tabular} \] So, in the first row, you will debit the Deferred Revenue account by 2,000, and in the second row, you will credit the Service Revenue account by $2,000. This entry reflects the recognition of revenue as you have completed the service. Make sure to record the entry in the correct order, debits before credits, as indicated in your worksheet. If you have any further questions or need clarification, feel free to ask!
what is deferred revenue
Deferred revenue, also known as unearned revenue, refers to money received by a business for goods or services that have not yet been delivered or performed. It represents a liability on the balance sheet because it reflects an obligation to provide those goods or services in the future. Here's how it works: 1. Recognition: When a company receives payment in advance, it records this amount as deferred revenue. For example, if a customer pays $1,000 for a subscription service that will be provided over the next year, the company will initially record this as deferred revenue. 2. Journal Entry: The journal entry at the time of receiving the payment would be: Debit: Cash1,000Credit: Deferred Revenue1,000 \text{Debit: Cash} \quad 1,000 \\ \text{Credit: Deferred Revenue} \quad 1,000 3. Revenue Recognition: As the company delivers the service or product over time, it will recognize the revenue. For instance, if the service is provided monthly, the company would recognize $83.33 as revenue each month (assuming a 12-month subscription): \[ \text{Debit: Deferred Revenue} \quad 83.33 \\ \text{Credit: Revenue} \quad 83.33 \] 4. Impact on Financial Statements: Deferred revenue affects the balance sheet by increasing liabilities and does not impact the income statement until the revenue is earned. Once the service is provided, it will increase revenue on the income statement. Understanding deferred revenue is crucial for accurately reflecting a company's financial position and ensuring compliance with accounting principles. If you have any more questions or need further clarification, feel free to ask!
To complete the necessary adjustment for the provision of $500 carpet cleaning services to a customer with payment to be received in May, you need to recognize the revenue earned in April, even though the cash will be received later. This situation involves an accrual adjustment. Here’s how you should record the journal entry: 1. Debit the Accounts Receivable account to reflect the amount owed by the customer. 2. Credit the Service Revenue account to recognize the revenue earned. The journal entry would look like this: Dateamp;General Journalamp;Debitamp;CreditApril 30amp;Accounts Receivableamp;500amp;amp;Service Revenueamp;amp;500 \begin{array}{|c|c|c|r|} \hline \text{Date} & \text{General Journal} & \text{Debit} & \text{Credit} \\ \hline \text{April 30} & \text{Accounts Receivable} & 500 & \\ \hline & \text{Service Revenue} & & 500 \\ \hline \end{array} This entry reflects that you have provided the service and are expecting payment in the future, thus adhering to the accrual basis of accounting. If you have any further questions or need clarification on any part of this process, feel free to ask!
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