BA 99.1 - Midterms Review #1

fundamental accounting theory and practice 1

the entry to record an accrued expense results in which of the following types of accounts being debited and credited.

expense and liability

accrued revenues

increase assets

the adjusting entry to accrue salaries expense

debits salaries expense and credits salaries payable

accrued expenses

increase liabilities

adjusting entries involve

at least one real and one nominal account

from the perspective of the company that has received payment, any amount collected in advance for services not yet rendered to the customer is classified as?

unearned revenue

if xyz company omitted an adjustment, which of the following would result in an understatement of net income at the end of the accounting period?

overstatement of unearned revenue

when a company records an adjusting entry for salaries that have been earned by employees but remain unpaid at the end of the accounting period, what type of accounting concept does this represent?

recognizing expenses that were incurred but not yet recorded

which of the following best describes the accounting treatment for income received in advance and expenses paid in advance?

deferral

entries required at the end of an accounting period to bring the accounts up to date and to ensure the proper matching of income and expenses and to split mixed accounts are called?

adjusting entries

the cost of doing business is also known as?

an expense

why might a company allocate the cost of a service vehicle over a five-year period?

the vehicle is expected to contribute to the company’s revenue generation over the next five years

if an adjustment for depreciation is omitted, which of the following financial statement errors will occur?

owner’s equity will be overstated

the key distinction between depreciation and most other expense categories lies in the fact that depreciation-

does not involve a direct cash outflow

if a company initially records office supplies as an asset upon purchase but fails to conduct a physical inventory and record an adjusting entry at period-end, what financial reporting error will occur?

overstatement of owner’s equity

when a company utilizes its property and equipment in operations, the company is required to?

recognize part of the asset’s cost as an expense

the journal entry to record accrued revenue results in which of the following types of accounts being debited and credited?

asset and income

an adjusted trial balance is prepared to?

both test that the ledger is still in balance after the accounts have been adjusted and facilitate preparation of the financial statements

xyz company began the year with a supplies account balance of P56,000. throughout the year, it acquires additional supplies amounting to P4,500, recorded under the asset method. as of december 31, a physical count revealed that P28,400 worth of supplies remained unused. accordingly, adjusting journal entry at year-end is:

debit - supplies expense, P32,100; credit - supplies, P32,100

failure to adjust for accrued salaries at the end of the period will result in which of the following?

the reported profit will be higher than it should be

an accounting method in which revenues are reported in the period in which they are earned, and expenses are reported in the period in which they are incurred

accrual basis

the entry to record expired insurance is omitted. this error causes?

assets to be overstated

accumulated depreciation equipment is shown as?

a contra account on the balance sheet

the adjusting entry to record depreciation of equipment is?

debit depreciation expense, credit accumulated depreciation

which of the following account is not adjusted?

owner’s equity

which of the following pairs of account could not be included in the same adjusting entry?

interest expense and interest receivable

which of the following accounts could not be credited in an adjusting entry?

interest receivable

a customer promises to pay for goods or services

increases asset

a business received cash of P30,000 in advance for revenue that will be earned later. the cash receipt entry debited cash and credited unearned revenue for P30,000. at the end of the period, P11,000 is still unearned. the adjusting entry for this situation will

debit unearned revenue and credit revenue P19,000

if the income statement debit and credit columns are not equal after adding the respective columns,

the company either generated a profit or incurred a loss

the amount of profit will appear on the debit side of the income statement column on a worksheet if

total revenue exceeds total expenses for the period

if total credits exceed total debits in the balance sheet columns of a worksheet

a loss has occurred

which of the following terms refers to the process of verifying that the totals of the debit and credit columns match the totals of the individual account rows in a worksheet?

cross-footing

the only step in the accounting cycle that is optional

reversing entries

failure to prepare closing entries will produce a misstated

owner’s capital account balance

a reversing entry is acceptable for which of the following

accrual of interest

which of the following types of entries is made primarily to help conform to the matching principle?

adjusting entries

when using the asset method to record a prepaid expense, which portion is adjusted at the end of the period through an adjusting journal entry?

the expired portion

when using the liability method to record unearned revenue, which portion is adjusted at the end of the period through an adjusting journal entry?

the earned portion

when using the income method to record unearned revenue, which portion is adjusted at the end of the period through an adjusting journal entry?

the unearned portion

an expense could not possibly result in

from an increase in assets

which of the following is a correct computation?

equity, beg + profit = equity, end

what is the effect on an entity’s financial statement elements when an owner invests money in the business?

total assets and total equity both increase

what is the effect on an entity’s financial statement elements when an owner pays its liabilities in relation to business?

total assets and total liabilities both decrease

what is the effect on an entity’s financial statement elements when an owner borrows money in relation to business?

total assets and total liabilities both increase