Chap 3. Adjusting Entries

Question 1

Adjusting entries are required for: (3)

Answer 1

1. Recognizing revenue for the period
2. Matching expenses with revenues they helped generate
3. Adjusting entries are required every time financial statements are prepared to comply with GAAP

Question 2

New Revenue Recognition Principle

Answer 2

Recognize revenue in the accounting period when the performance obligation is satisfied

Question 3

When cash flow precedes the expense recognition (ie. prepaid rent)

Answer 3

Prepaid Expenses

Question 4

When cash flow precedes the revenue recognition (ie. unearned rent revenue)

Answer 4

Unearned Revenue

Question 5

the expense recognition precedes the cash flow (interest payable)

Answer 5

Accrued Expense

Question 6

the revenue recognition precedes the cash flow (interest receivable)

Answer 6

Accrued revenue

Question 7

when accounts are updated based on estimates (bad debt expense)

Answer 7

Estimated items

Question 8

Inventory Related accounts are adjusted based on an end of period count

Answer 8

Periodic Inventory

Question 9

Types of Adjusting entries (4)

Answer 9

Prepayments (Deferrals)
Accruals
Estimated Items
Periodic Inventory

Question 10

Closing Entries are used to: (2)

Answer 10

Update RE

Reset all temporary accounts