Chapter 1
A company earns $5,000 in revenue on account. What is the journal entry
Debit Accounts Receivable 5,000
Credit Service Revenue 5,000
A company buys equipment for $10,000 cash. What is the journal entry?
Debit Equipment 10,000
Credit Cash 10,000
At month-end, $500 of supplies have been used but not recorded. What is the adjusting entry?
Debit Supplies Expense 500
Credit Supplies 500
A company buys equipment for $8,000: pays $3,000 cash and signs a note payable for $5,000. What is the journal entry?
Debit Equipment 8,000
Credit Cash 3,000
Credit Notes Payable 5,000
Assets increase $8,000, cash decreases, liability increases.
In Stranger Things, what is the name of the shopping mall where many key Season 3 events take place?
Starcourt Mall
A company pays $1,200 cash for rent. What is the journal entry and which statement is affected immediately?
Debit Rent Expense 1,200
Credit Cash 1,200
The income statement (expense) and balance sheet (cash decreases) are affected.
A company receives $3,000 cash from a customer for services to be done next month. What is the journal entry?
Debit Cash 3,000
Credit Unearned Revenue 3,000
A company owes $1,200 in wages but hasn’t paid yet. What is the adjusting entry?
Debit Wages Expense 1,200
Credit Wages Payable 1,200
A company performs services for $4,500 on account. Later, it collects $2,000 cash from the customer. Record both entries.
At time of service:
Debit Accounts Receivable 4,500
Credit Service Revenue 4,500
When cash is collected:
Debit Cash 2,000
Credit Accounts Receivable 2,000
Revenue is recognized first; later, only asset accounts change.
In the MCU, which Infinity Stone was hidden inside Loki’s scepter before being revealed?
The Mind Stone
If revenue is accidentally overstated, what happens to net income and equity?
Net income is overstated, and retained earnings (equity) is overstated.
If the company incorrectly records the $3,000 above as Revenue instead of Unearned Revenue, what is overstated or understated?
Revenue overstated
Net income overstated
Equity overstated
Liabilities understated
If depreciation is not recorded, what happens to assets and net income?
Assets overstated
Expenses understated
Net income overstated
Equity overstated
A company pays $12,000 for one year of insurance on January 1. At the end of January, one month has expired. Record the initial entry and the adjusting entry.
At purchase:
Debit Prepaid Insurance 12,000
Credit Cash 12,000
End of January adjustment:
Debit Insurance Expense 1,000
Credit Prepaid Insurance 1,000
This moves one month from asset to expense.
This movie features dreams within dreams, a spinning top, and a main character named Cobb.
Inception
If expenses are understated, what happens to net income and total assets?
Net income is overstated.
Assets may be overstated if the expense should have reduced an asset (like prepaid expenses or supplies).
A company forgets to record a $2,000 accounts payable for supplies received. What is misstated?
Liabilities understated
Expenses understated
Net income overstated
Equity overstated
If accrued expenses are not recorded, how are the financial statements wrong?
Liabilities understated
Expenses understated
Net income overstated
Equity overstated
A company receives $6,000 cash in advance for services to be performed over 3 months. After one month, record the original entry and the adjusting entry.
When cash is received:
Debit Cash 6,000
Credit Unearned Revenue 6,000
After one month is earned:
Debit Unearned Revenue 2,000
Credit Service Revenue 2,000
Liability decreases, revenue increases.
In Harry Potter, what object must be destroyed to permanently defeat Voldemort, and there are multiple of them?
Horcruxes
If net income is overstated this year, which financial statements are wrong and how?
Income statement: Net income overstated
Statement of retained earnings: Ending retained earnings overstated
Balance sheet: Equity overstated
One transaction increases assets and equity; another increases assets and liabilities. Which creates more financial risk and why?
The transaction that increases liabilities creates more risk because the company now owes money and must repay it, increasing future cash obligations.
Why do adjusting entries make financial statements more reliable for decision-makers?
Because they ensure revenues and expenses are recorded in the correct period, preventing income, assets, and liabilities from being overstated or understated, which leads to better decisions.
At month-end, a company owes employees $1,800 in wages not yet paid. The company pays the wages the next week. Record the adjusting entry and the payment entry.
At month-end adjustment:
Debit Wages Expense 1,800
Credit Wages Payable 1,800
When wages are paid:
Debit Wages Payable 1,800
Credit Cash 1,800
This records the expense in the correct period and clears the liability when paid.
This TV show follows a chemistry teacher who turns to making illegal products and has a partner named Jesse Pinkman.
Breaking Bad