F1 - M8 - Adjusting Journal Entries

Question 1

_________ accounting matches revenues with expenses. In order to properly match revenues with expenses in the periods in which they occur, it is sometimes necessary to defer or accrue revenues or expenses.

Answer 1

Accrual basis

Question 2

Accrual basis accounting matches revenues with expenses. In order to properly match revenues with expenses in the periods in which they occur, it is sometimes necessary to _______ revenues or expenses.

Answer 2

defer or accrue

Question 3

If revenue has been ______, the company must calculate the amount of revenue that can be recognized through year-end and make the appropriate adjusting journal entry.

Answer 3

deferred

Question 4

If expenses have been _______, the company must calculate the amount of expenses that have been incurred through year-end and make the appropriate adjusting journal entry.

Answer 4

deferred (prepaid)

Question 5

An entity must assess whether the performance obligation has been met and revenue can be recognized prior to the cash being received. If so, revenues must be accrued by recording a ________.

Answer 5

receivable.

Question 6

An entity must also assess whether expenses have been incurred prior to the cash being paid. If so, expenses must be accrued by recording ______________.

Answer 6

accrued liabilities, accounts payable, or other payable (e.g., wages payable).

Question 7

In some instances, an entity may record receipts to a revenue/expense account when they should have been recorded to an________ account. An adjusting entry may be required to ensure that the financial statements are in accordance with the accrual basis of accounting.

Answer 7

asset/liability

Question 8

What are the three rules for adjusting Journal Entries

Answer 8

1) Adjusting journal entries must be recorded by the end of the entity’s fiscal year, before the
preparation of the financial statements. 2) Adjusting journal entries never involve the cash account. 3) All adjusting journal entries will hit one income statement account and one balance sheet account.

Question 9

How do you calculate Royalty Expense

Answer 9

Larger of Minimum of royalties or Set royalties % X Sales