Adjusting Entries
Which two statements should always be involved in an adjusting entry?
Income Statement and Balance Sheet
When an expense is incurred before it is paid, it is classified as....
accrued expense
Accounting fraud requires these 3 things....
incentive, opportunity, rationalization
Cash comes after the recognition of revenue or expense is classified as....
Accrural
A process that controls the amount paid to others by limiting the total amount of money available for making payments to others.
Imprest System
dr. Insurance Expense 4,000
cr. Prepaid Insurance 4,000
Name 3 accounts that will be closed at the end of the year
Sales Revenue, service revenue, cost of goods sold, supplies expense, rent expense, interest expense, etc.
A process for approving and documenting all purchases and payments on account
Voucher system
Which statement's accounts are permanent?
Balance Sheet
Cash
What is the journal entry that goes with a deferred revenue? (be sure to include debit, credit, increase, decrease)
Decrease unearned revenue
Increase Revenue
Where are all temporary accounts closed into?
Retained Earnings
The annual records of ABC Company showed beginning inventory of $8,000; purchases of $16,000; and cost of goods sold of $14,000. What amount of ending inventory was reported for the year?
10,000
Are dividends permanent or temporary?
Temporary
What is the journal entry that goes with a deferred expense?
Increase expense
Decrease asset
On September 31 of the current year, unearned service revenue of $6,000 was recognized representing one year of services to be performed over the following 12 months. The adjusting entry on December 31 will include:
dr. Unearned Service Revenue 1,500
cr. Service Revenue 1,500
What is a contra-account? Give an example.
cr. Accumulated Depreciation (c-a)
What 3 categories does employee fraud usually fall into?
1. corruption
2. asset misappropriation
3. financial statement fraud
Which statement's accounts are temporary?
Income Statement
ABC employees have earned $6,000 of wages not yet paid at year-end. The correct adjusting entry related to these wages will:
cr. Wages Payable 6,000
At the beginning of the quarter, World Company had supplies of $20,000 recorded. During the quarter, World purchased an additional $15,000 in supplies. At the end of the quarter, World had $5,000 of supplies on hand. The correct adjusting entry at the end of the quarter is:
dr. Supplies Expense 30,000
cr. Supplies
On October 31st a tenant pays us for 12 months of rent at the rate of $500 a month. What is the adjusting entry at year end?
dr. Unearned rent revenue 500
cr. Rent revenue 500
Name the 5 principles of control activities
1. Establish responsibility
2. Segregate duties
3. Restrict access
4. Document procedures
5. Independently verify
Explain why adjusting entries are needed
ABC Company borrowed $10,000 from a local bank on October 1 of this year at a rate of 12%. The principal amount and the interest will both be paid on April 1 of next year. The adjusting entry related to this loan made on December 31 this year will:
dr. Interest Expense 300
cr. Interest Payable 300