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Unformatted text preview: CHAPTER 3 THE MATCHING CONCEPT AND THE ADJUSTING PROCESS CLASS DISCUSSION QUESTIONS 1. a. Under cash-basis accounting, revenues are reported in the period in which cash is received and expenses are reported in the period in which cash is paid. b. Under accrual-basis accounting, reven- ues are reported in the period in which they are earned and expenses are re- ported in the same period as the reven- ues to which they relate. 2. a. 2006 b. 2005 3. a. 2006 b. 2005 4. The matching concept is related to the ac- crual basis. 5. Yes. The cash amount listed on the trial bal- ance is normally the amount of cash on hand and needs no adjustment at the end of the period. 6. No. The amount listed on the trial balance, before adjustments, normally represents the cost of supplies on hand at the beginning of the period plus the cost of the supplies purchased during the period. Some of the supplies have been used; therefore, an ad- justment is necessary for the supplies used before the amount for the balance sheet is determined. 7. Adjusting entries are necessary at the end of an accounting period to bring the ledger up to date. 8. Adjusting entries bring the ledger up to date as a normal part of the accounting cycle. Correcting entries correct errors in the ledger. 9. Five different categories of adjusting entries include deferred expenses (prepaid ex- penses), deferred revenues (unearned rev- enues), accrued expenses (accrued li- abilities), accrued revenues (accrued assets), and fixed assets (depreciation). 10. 11. Statement (b): Increases the balance of an expense account. 12. Statement (a): Increases the balance of a revenue account. 12. Yes, because every adjusting entry affects expenses or revenues. 13. a. The balance is the sum of the beginning balance and the amount of the insur- ance premiums paid during the period. b. The balance is the unexpired premiums at the end of the period. 14. a. The rights acquired represent an asset. b. The justification for debiting Rent Ex- pense is that when the ledger is sum- marized in a trial balance at the end of the month and statements are prepared, the rent will have become an expense. Hence, no adjusting entry will be neces- sary. 15. a. The portion of the cost of a fixed asset deducted from revenue of the period is debited to Depreciation Expense. It is the expired cost for the period. The re- duction in the fixed asset account is re- corded by a credit to Accumulated De- preciation rather than to the fixed asset account. The use of the contra asset account facilitates the presentation of original cost and accumulated depreci- ation on the balance sheet. b. Depreciation Expense—debit balance; Accumulated Depreciation—credit bal- ance....
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- Spring '07
- Revenue, ........., Generally Accepted Accounting Principles, Dr. Balance Cr