Chapter 3 T/F example #8047

If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated.

The matching concept requires expenses be recorded in the same period that the related revenue is recorded.

Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.

A company pays an employee $1,000 for a five day work week, Monday - Friday. The adjusting entry on December 31, which is a Wednesday, is debit Wages Expense, $200 and credit Wages Payable, $200.

A company pays $240 for a yearly trade magazine on August 1. The adjusting entry on December 31 is debit Unearned Subscription Revenue, $100 and credit Subscription Revenue, $100.

A building was purchased for $75,000. Assuming annual depreciation of $2,500, the book value of the building one year later is $77,500.

The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset.

The matching concept supports matching expenses with the related revenues.

The balance in the prepaid insurance account before adjustment at the end of the year is $4,000. The amount of the journal entry required to record insurance expense will be $2,500 if the amount of unexpired insurance applicable to future periods is $1,500.

Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.

The Accumulated Depreciation's account balance is the sum of depreciation expense recorded in past periods.

Adjusting journal entries are dated on the last day of the period.

A contra asset account for Land will normally appear in the balance sheet.

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.

Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded.

If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated.

Deferrals are recorded transactions that delay the recognition of an expense or revenue.

Adjusting entries affect only expense and asset accounts.

Generally accepted accounting principles require accrual-basis accounting.

The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded

A company pays $5,600 for two season tickets on September 1. If $1,400 is earned by December 31, the adjusting entry made at that time is debit Cash, $1,400 and credit Ticket Revenue, $1,400.

Revenue recognition concept requires that the reporting of revenue be included in the period when cash for the service is received.

An example of deferred revenue is Unearned Rent.

The updating of accounts is called the adjusting process.

A company pays $12,000 for twelve month's rent on October 1. The adjusting entry on December 31 is debit Rent Expense, $4,000 and credit Prepaid Rent, $4,000.

Depreciation Expense is reported on the balance sheet as an addition to the related asset.

If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be overstated.

The accrual basis of accounting requires revenue be recorded when cash is received from customers.

An unearned revenue is a liability.

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.

A company does not realize that the last two day's revenue for the month was not recorded. The adjusting entry on December 31 is debit Accounts Receivable and credit Fees Earned.

Proper reporting of revenues and expenses in a period is due to the accounting period concept.

An adjusting entry would adjust an expense account so the expense is reported when incurred.

By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated.

Revenues and expenses should be recorded in the same period in which they relate.

If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.

The financial statements are prepared from the unadjusted trial balance.

The market value of a fixed asset is reflected in the Balance Sheet after the proper adjustment is made.

Prepaid Rent is a deferred expense.

Adjusting entries are made at the end of an accounting period to adjust accounts on the balance sheet.

If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and owner's equity will be overstated for the period.

The financial statements measure precisely the financial condition and results of operations of a business.

An adjusting entry to accrue an incurred expense will affect total liabilities.

The systematic allocation of land's cost to expense is called depreciation.

The heading of an adjusted trial balance contains the heading "For the Month Ended December 31, 2008."

Accumulated Depreciation accounts are liability accounts.