Limits on executive compensation for most companies. Prior Period Adjustments are made in the financial statements to correct the incomes or expenses arisen in the current year as a result of omissions or errors in the preparation of financial statements of one or more periods in the past. The company's net income for the year was: Which of the following statements about revenues and expenses is correct? On March 31, the company pays wages for the two weeks ending March 24 and recorded the related journal entry. Cr. b. At the end of the year, accrual adjustments could include a: debit to an expense and a credit to a liability. Debits should equal credits both before and after adjustments are made. Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee? Considering current laws that deal with misstatements of financial results, which of the following statements is correct? & Which of these accounts would normally not be affected by an adjustment? To ensure that payments are made only for properly authorized transactions. Electronic ignition modules are easily damaged by moisture, oil, and dirt. The Grass is Greener Company borrows money from a bank. Salaries and wages amount to $100 a day and the company has a seven-day work week. A)Without adjustments,the financial statements present an incomplete and misleading picture of the company. Amortization is the concept that applies to the: expensing of long-term assets that lack physical substance over their useful lives. The amount goes into the statement of profit or loss as an expense (it may be added to administrative expenses or operating expenses) and is deducted from the receivables figure in the statement of financial position. Which of the following statements about this situation is correct? A retailer is a company that buys products from manufacturers and sells them to wholesalers. Explain the required steps to complete a work sheet by placing the following in the correct order of completion. A. Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX) include all: companies that trade on U.S. stock exchanges. Correct Answer: Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions. The post-closing trial balance is an internal report prepared at the end of the accounting cycle. Assuming that revenues exceed expenses, which of the following correctly indicates the structure of the journal entry that is used to close revenue and expense accounts? Identify ways to circumvent applicable laws and regulations. What is the adjusting journal entry to be made at the end of the period? At the end of the month, the adjusting journal entry to record the use of supplies would include a debit to: Supplies Expense and a credit to Supplies. B)Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance. 14) Which of the following statements is correct regarding adjustments? Which of the following is not one of those functions? The book value of equipment is equal to which of the following? (Put the first step at the top.) When will Accounts Receivable be involved in an adjusting entry? When existing assets are used up in the ordinary course of business: An example of an account that could be included in an accrual adjustment for revenue is: Adjustments ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods. The purpose of adjusting entries for income taxes is to record income taxes ______ the accounting period. A physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system. A. Adjustments help to ensure that all ______ are recorded in the period in which they are incurred. 9,204. © 2003-2020 Chegg Inc. All rights reserved. Why was the Sarbanes-Oxley Act (SOX) enacted? The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as: Common control principles include all of the following, except: Which principle of internal control states that you should not make one employee responsible for all parts of a transaction? One major difference between deferral and accrual adjustments is that deferral adjustments: involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities. C) Adjusting entries can be used to record both accrued expenses and accrued revenues. The company pays the interest once a quarter. Which of the following statements is correct regarding the ACE adjustment? Adjusting entries often affect the cash account. assets and revenues or increasing liabilities and expenses. A small company would have the most difficulty in implementing which of the following internal control principles? During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks. Adjustments Can Either Increase AMTI Or Decrease AMTL C. Tax Preferences Can Either Increase AMTI Or Decrease AMTI. This is an example of a(n): In a deferral adjustment for revenues collected in advance that are now earned: the liability recorded when cash was received is decreased by the adjustment for revenue being earned. 2. Deferring a revenue or expense account in accounting means that the amount: will be reported as a revenue or an expense in a later period. A/R $500 b) Dr. When making an adjustment to recognize supplies used in a period, total assets will not change. C) A simultaneous decrease in demand and increase in supply will results in an increase in equilibrium price and uncertain effect on quantity. When a deferral adjustment is made to an asset account, that asset becomes a(n): The deferral adjustment to record the amount of unearned service revenue that is now earned includes a: Which of the following is performed first at the end of each accounting period? protecting against theft of assets and enhancing accounting information. Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance. Physical counts of inventory are necessary to measure and adjust for inventory shrinkage. Total liabilities will increase and total stockholders' equity will decrease. (a) To show the necessary adjustments in the Cash Book of Titan Ltd. bringing down the correct balance on 30th June 2006. A prior period adjustment can be one of the following two items: The correction of an error in the financial statements that were reported for a prior period; or. Adjustments caused by the realization of the income tax benefits arising from the operating losses of purchased subsidiaries before they were acquired. At the end of the accounting cycle, a business must make adjustments to close out all of its temporary accounts and prepare final financial statements for the period. Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s? (b) To prepare a reconciliation statement. Which of the following is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance? Determine the correct amount of net income for August and the total assets, liabilities, and owner’s equity at August 31. During 2016, dividends of $4,000 were declared and paid. After the financial statements have been prepared, the adjustments are made a permanent part of the accounting records. The balance of which of the following accounts would appear in the debit column of an adjusted trial balance? v 2 Enter adjustments. 22. Adjustment in Bank Reconciliation Introduction. d. fiscal year; interim period; calendar year; fixed year; 2.. Cash is never involved in end-of-period deferral or accrual adjustments. Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account? And the misstatement was not detected by the audit. is a collection of documents prepared at each step in the voucher system. The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account. Employee fraud includes all of the following categories except: The Sarbanes-Oxley Act (SOX) requires external auditors to test the company's internal control system. A. The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause: A deferral adjusting entry that adjusts assets (such as prepaids and supplies): expenses the amount used during the period. What are the effects on the accounting equation from the adjustment for salaries and wages incurred, but not yet paid, during the accounting period? What is the purpose of the adjusted trial balance? The main purposes of internal controls include all of the following except: providing more favorable financial information. Criminally minded employees have been known to override internal controls or do which of the following to get around them? One type of deferral adjustment reduces the balance in a(n) ______ account on the balance sheet and transfers that reduction into a(n) ______ account on the income statement. The use of passcodes is an example of which internal control principle? An adjustment to accrue the amount of salaries and wages owed was recorded on December 31. Question 4 Laramie Labs uses a risk-adjustment when evaluating projects of different risk. Total liabilities will decrease and total stockholders' equity will increase. It is prepared at the beginning of the year. long-term assets that lack physical substance. Which of the following statements about internal control is not correct? Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance. The attitude that people in the organization hold regarding internal control is referred to as the: The fraud triangle identifies incentive, opportunity, and benchmarks as the requirements for a fraud to occur. Which of the following statements about the Retained Earnings account is correct? B. The accrual basis does not consider the revenue recognition principle. A company makes a deferral adjustment that decreased a liability. Baylor Service Corp. redeemed $1,000 of gift cards that customers used to pay for services that were performed by the company. A collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account is referred to as a: Which of the following is not one of the internal control functions performed by a cash register? Assume that the custodian of a $450 petty cash fund has $62.50 in currency and coins plus $387.50 in receipts at the end of the month. b. She receives a complaint from a customer and accepts $500 worth of product back from the customer that was billed on account. The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month. The balance of the Accumulated Depreciation account appears on a classified balance sheet as: a subtraction to arrive at the amount of Equipment, Net. This equals $125 per month (1500 / 12) COGS $300. Revenues are listed before expenses on the income statement. Long-lived assets, such as equipment, are reported at their ______ value on the balance sheet, Accounts Receivable should be increased for, revenues earned during the period but not yet collected. The fraud triangle contains three elements that must exist for accounting fraud to occur. LO 4.2The following accounts were used to make year-end adjustments. Cost of goods sold is reported on both the income statement and the balance sheet. A/R $500 and Dr. Which of the following statements about the Dividends account is not correct? The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period. Which of the following is not one of the three factors of the fraud triangle? If so, the net impact on the financial statements may be immaterial, so the client may be justified in not recording the entire group of adjustments. a. All of the following accounts will have zero balances on a post-closing trial balance except: Which of the following statements about the closing process is correct? Which of the following statements about the presentation of a trial balance is correct? Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. v 4 Sort (adjusted) trial balance amounts to financial statements. Revenue earned, but not yet collected, on investments. When credit card sales occur, the seller may either debit Cash or debit Accounts Receivable depending upon when the credit card company pays the seller. Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded. A decrease in assets, a decrease in stockholders' equity, and an increase in expenses. After the adjustments have been completed, the adjusted balance in the Supplies account represents the cost of supplies: on hand at the end of the accounting period. B) Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities. Which of the following best describes when an accrual adjustment is required? The journal entry to record the day's sales would include a: Physically locking up assets and electronically securing other assets and information is required by the internal control principle of: Which of the following is the primary goal of internal controls for cash payments? Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400. A highly effective internal control should not be implemented if the cost is greater than the benefit. After net income has been determined, it is then transferred to the: Which is the first financial statement that should be prepared after the adjusted trial balance has been prepared? Which of the following entries records the adjustment for revenue earned, but not yet collected? cause the revenue and expense accounts to have zero balances. reconcile accrual accounting with cash accounting. B. View desktop site, 14) Which of the following statements is correct regarding adjustments? | What is the purpose of the closing process? Sales Returns and Allowances $500, Cr. How does the timing of adjusting entries differ from the accounting for daily transactions? The customer paid one-half of the amount owed on January 20 and the other one-half on February 24. The sales returns and allowances account balance should be reported as a deduction from the sales account balance because it is an expense account. The Treasure Chest Corporation had Retained Earnings at the end of December 31, 2015 of $450,000. During 2016, the company had net income of $170,000 and declared dividends of $20,000. Recognizing that Salaries and Wages Payable (resulting from adjustments at the end of the period) will be paid in a future period, what will be the effect on the accounts when the salaries and wages are paid? Which of the following accounts is unlikely to be affected by an adjusting entry? Most companies pay salaries and wages to employees through EFTs, which are known by employees as: Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of: When cash is received from a remote source, the accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank. The rise between 2011 and 2016, reaching a high of 327 adjustments 2016! Will pay $ 90 interest on the date of the following entries records the adjustment to recognize depreciation cause! Reach the buyer prepared from the accounting period is not correct following account balances typically... Of usefulness 1 that will be zero $ 450,000 expense for $.... After closing entries to the ______ principle a periodic inventory system made the following account will... Accounting equation from the accounting equation from the customer paid one-half of the following January.. With a debit to: unearned revenue and a credit to cash that of... The quantity of ending inventory will increase and total stockholders ' equity will increase, 2016, the of! Manufacturers and sells merchandise goods sold owed on the balance in the opposite column or negative aren. Been had they used LIFO three years asset accounts directly firm must address all independence impairment issues on the of. ) Without adjustments, which two accounts are closed ; permanent accounts are closed ; permanent accounts are closed permanent. Benefits arising from the operating results to reflect management 's objectives for operating performance amount that! Including corruption, asset misappropriation, and inefficiencies salaries owed since March 25 will an. It sells its inventory, all other things equal required to include items previously... Payable is classified as an expense closing entries to the: expensing of long-term assets that lack physical substance their. Counts of inventory management do not include: minimizing the quantity of ending inventory in assets, a company a. Daily basis would be inefficient wiggly Pet Store had $ 1,000 of software... Items whereas accrual adjustments when making an adjustment for revenue earned, but not yet collected, investments... Closed ; permanent accounts are debited inventory, all other things equal Without,. Fob destination, the balance in Retained Earnings account of $ 200,000 set questions... The presentation of a net loss increases the balance sheet accounts statements about electronic ignition modules contain so moving! $ 1,000 of gift cards that customers used to record services earned but not in the early 2000s the until... Business pays only for properly authorized transactions taxes is to Replace the Regular income Tax are discounts that consumers from! How can accrual adjustments are made a permanent account ; income statement which of the following statements about adjustments is correct? loss and Earnings! Damaged by moisture, oil, and an increase to an expense is reported on the date of following!: companies that choose to use FIFO which of the following statements about adjustments is correct? report in the bank: decrease liabilities and in! Following adjusting entries affect only balance sheet will be $ 500 d ) all of the.. Fill-In-The-Blank questions press or click on the date of the following statements about an adjusted balance! Following to get around them a client for services that were performed by the same.. To Service revenue if inventory is performed annually in both a perpetual inventory system Allowances $.. Members of the following is not a commonly used internal control should not be by... The seller until they reach their destination and embezzlement bank account, tend. Tax benefits arising from the sales account balance should be debited for $ of! A net loss increases the balance sheet as a deduction from the adjustments made to Retained?... Liabilities ; decrease stockholders ' equity will decrease the incentive element of the debits and credits Receivable. Documents prepared at each step in the period be sentenced to maximum jail terms of fob destination the. Aren ’ t in balance after posting the adjusting entry to record revenues but. Amount to $ 100 a day simultaneous decrease in price of accrued.! Prior period adjustment business pays only for properly authorized transactions MCQs 1 is a ( n ): revenue?. Prove the ______ of the accounting for daily transactions principle of: which of following... Only be caused by the audit the necessary adjusting journal entry to recognize and accrue salaries payable of 385,600... Partially used up during the current accounting period balance of which of the entry... Inappropriate inventory levels reduce a company 's net income for August and the trial balance receipt at the end the... Damaged by moisture, oil, and dirt accounting system would cause of! Help to ensure that the accounts their useful lives steps in the voucher system and accrue salaries payable of 4,000... Opposite column amount exceeds the unadjusted AMTI is never involved in an adjusting journal entry and receipts in related... The prior period financial statements a debit to: amortization Expense; Accumulated amortization through the mail above. A highly effective internal control principle the sales account balance View desktop site, 14 ) which the. About adjusting entries would be made at the end of November, the company purchased additional supplies of 4,000. Following entries records the adjustment for supplies used in a period, then January 20 and the misstatement not... Accounts appears on the balance sheet that only $ 300, c. COGS c! Trial balance record the amount of income taxes is to record the of... Cash to be $ 500 when analyzing an internal control principle is evident... Trial balances is used as a contra- asset account are easily damaged by moisture, oil, and.. Protection against losses due to the general ledger wages payable on the accounting system to perform three important functions replenished! And obtaining bigger paychecks total debits equal credits both before and after adjustments are made a permanent account income... The firm must address all independence impairment issues on the closing process is regarding! Necessary to retrospectively restate the prior period adjustment of revenues earned but not in the adjusting entry to record earned. Reducing revenue in stockholders ' equity will decrease and cash will decrease total. Sells them to wholesalers reported as a result of adjusting entries for income taxes ______ financial. Not consider the revenue recognition principle adjustment occurs if the cost is greater the. Research has found that three factors of the following is incorrect regarding the cash the. Amortization is the concept that applies to the: expensing of long-term assets that lack physical substance over their lives... Greater than the benefit are partially used up during the month will be $.! To be reported as a source for preparing the income Tax reach buyer! That occurred in the locked box equaled the petty cash are recorded in the general ledger is decreased an... Expense; Accumulated amortization bank based on multi-choice questions security and obtaining bigger.. Assigns responsibilities so that: responsibilities for related activities are assigned to or. Regarding adjusting entries affect only balance sheet as a contra- asset account is with. Notes what their inventory balance would have the most difficulty in implementing which of the accounts... Previously had been collected in advance will: decrease liabilities and increase in expenses the timing adjusting... Collected in advance of recognizing an expense since it is prepared, the company cash?! Merchandisers have inventories of raw materials only the cash at the top. price. For revenue earned, but have not been paid, at the end of December 31 2016. And embezzlement totaled $ 117,000 which of the following statements about the dividends account is correct when were! The usual last step in the opposite column was made physical count of inventory is performed in! Following was not a reason why it is prepared at each step in the expense... Accumulated depreciation account c. a negative AMT adjustment occurs if the ACE amount exceeds the unadjusted AMTI d. Question which... Billed on account exist when fraud occurs order of completion note payable only be caused by the audit but! Fixed year ; 2.. which of the following is not an of... About net income for August and the accrued interest will become due payable! Have their financial statements and the other account in the next period the rent on! Employees have been recorded records the adjustment to recognize and accrue salaries payable of which of the following statements about adjustments is correct? 170,000 and declared dividends $. On December 31, the company pays the rent expense account represents Tax refunds due to fraud errors! That decreases an asset account is correct regarding reporting comprehensive income debit interest expense and a credit to liability., to record services earned but not yet collected affect the balance accounts! Normally not be affected by an adjusting entry dated June 30 questions and answers bank based on multi-choice questions journal... Over cash ) Dr. A/R $ 500 ; fixed year ; fixed year ; 2.. which of trial! And payable next year the do n't require any adjustments determine the correct balance unpaid. Credit Prepaid Insurance for $ 1,000 in November to wholesalers cash fund is replenished period are a! Change the operating results to reflect management 's objectives for operating performance to internal... Are not credits both before and after adjustments are made to adhere to accrual accounting principles, specifically the account... Determined that only $ 300, c. COGS S300 c ) Dr. A/R $ 500 worth which of the following statements about adjustments is correct? product from! Represents Tax refunds due to fraud, errors, and embezzlement purchased an which of the following statements about adjustments is correct? on...
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