Which of the following is true about adjusting entries?

A) Entries are necessary due to the conservatism principle.

B) Entries can be done at the beginning or end of the accounting period.

C) They zero the balance of all income statement accounts.

D) They are a necessary part of accrual-basis accounting.

Answer: D

Adjusting entries are primarily needed for:

A) Cash-basis accounting.

B) Accrual-basis accounting.

C) Current value accounting.

D) Manual accounting systems.

Answer: B

Which of the following regarding adjusting entries is correct?

A) Adjusting entries are recorded for all external transactions.

B) Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period.

C) Adjusting entries are needed because we use accrual-basis accounting.

D) After adjusting entries, all temporary accounts should have a balance of zero.

Answer: C

Consider the following events for Betterment Incorporated:

Consider the following events for Betterment Incorporated:

January 1 Betterment purchases gasoline for $200 on account.

January 7 Betterment advertises lawn mowing services for $100 per lawn.

January 9 Betterment signs up 8 customers who pay a total of $800 cash.

January 12 Betterment mows the lawns of the 8 customers and all gasoline purchased on January 1 is used.

January 13 Betterment pays for the gasoline purchased on January 1.

Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services?

A) January 1.

B) January 7.

C) January 9.

D) January 12.

Answer: D

The following information pertains to Sooner Company:

The following information pertains to Sooner Company:

May 1 Customer ordered an installation service to be done by Sooner Company on May 15.

May 2 Customer paid cash for the installation job to be done on May 15.

May 8 The Sooner Company purchased installation supplies on account for the job.

May 15 The installation job was started and completed.

May 20 Amount owed for supplies purchased on May 8 is paid.

Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies?

A) May 2.

B) May 8.

C) May 15.

D) May 20.

Answer: C

Consider the following transactions:

The company uses supplies purchased in the previous period, $1,500.

The company pays cash for rent in advance, $6,000.

The company repays a loan to the bank, $10,000 (ignore any interest cost).

The amount of accrual-basis expense is ________ while the amount of cash-basis expense is ________.

A) $6,000; $11,500

B) $6,000; $16,000

C) $1,500; $16,000

D) $1,500; $6,000

Answer: D

A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June

A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

A) (1) No effect, (2) No effect, (3) Decrease.

B) (1) Decrease, (2) Decrease, (3) No effect.

C) (1) Decrease, (2) Decrease, (3) Decrease.

D) (1) Decrease, (2) No effect, (3) No effect.

Ch3 answer: A

A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual basis net income?

A) (1) No effect, (2) No effect, (3) Increase.

B) (1) No effect, (2) No effect, (3) No effect.

C) (1) Increase, (2) Increase, (3) Increase.

D) (1) Increase, (2) Increase, (3) No effect.

Ch3 answer: A