Financial Accounting - Adjusting Accounts for Financial Statemen

Adjusting entries are designed primarily to correct errors made by bookkeepers.

• True

• False

The timeliness principle assumes that an organization's activities can be divided into specific periods.

• True

• False

The economic effect of an expense is incurred when the benefit expires or is used up, not when cash is paid.

• True

• False

Gallery Corp. paid $6,000 for a six-month insurance policy for the company van. The policy coverage began on January 1. On January 31, $1,000 of insurance expense must be reported.

• True

• False

Before an adjusting entry for accrued salaries is made, the amount in Salaries Expense is understated and the amount in Salaries Payable is also understated.

• True

• False

During August, Gallery Corp. purchased $4,000 worth of supplies. At August 31 the adjusted balance in the Supplies account was $2,800. The adjusting entry included a $1,200 debit to Supplies Expense.

• True

• False

On January 8, Gallery Corp. records $5,000 of accrued salaries. On January 15, $10,000 of salaries are paid. The entry on January 15 includes a debit to the Salaries Payable account.

• True

• False

The main purpose of adjusting entries is to:

• Record external transactions and events

• Record internal transactions and events

• Recognize revenues received during the period

• Recognize expenses paid during the period

• Adjust assets to their market value

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

• Accrual basis accounting

• The operating cycle of a business

• Cash basis accounting

• The revenue recognition principle

• The matching principle

The expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

• Accumulated depreciation

• The cash basis of accounting

• The matching principle

• Depreciation

• Allowance for depreciation