Question

Which of the following breaks down company financial information into specific time spans, and can cover a month, quarter, half-year, or full year?

1. accounting period
2. yearly period
3. monthly period
4. fiscal period

On which two financial statements would the Retained Earnings account appear?

1. Balance Sheet
2. Income Statement
3. Retained Earnings Statement
4. Statement of Cash Flows

What adjusting journal entry is needed to record depreciation expense for the period?

1. a debit to Depreciation Expense; a credit to Cash
2. a debit to Accumulated Depreciation; a credit to Depreciation Expense
3. a debit to Depreciation Expense; a credit to Accumulated Depreciation
4. a debit to Accumulated Depreciation; a credit to Cash

Which of these transactions requires an adjusting entry (debit) to Unearned Revenue?

1. revenue earned but not yet collected
2. revenue collected but not yet earned
3. revenue earned before being collected, when it is later collected
4. revenue collected before being earned, when it is later earned

What critical purpose does the adjusted trial balance serve?

1. It proves that transactions have been posted correctly
2. It is the source document from which to prepare the financial statements
3. It shows the beginning balances of every account, to be used to start the new year’s records
4. It proves that all journal entries have been made correctly.

Answer 1

1.A. Accounting period

Accounting periods are the periods in which financial statement are prepared. This is responsible for breaking the financial statements into various timeframes for specific reporting purposes. This makes it convenient for the users of accounting.

2.A.Balance Sheet

Financial statements consist of balance sheet, income statement and statement of cash flows. Retained earnings statement is not financial statement. Retained earnings appear under Reserves and Surplus heading under liabilities side of Balance sheet.

3.C. a debit to Depreciation Expense; a credit to Accumulated Depreciation

Depreciation is charged to income statement. However, each year adjustment needs to be made where depreciation amount is added to accumulated depreciation. Accumulate depreciation is reduced from assets value to show current book value,

4. B. revenue collected but not yet earned

Unearned revenue are basically advance revenue received from clients for which no services has been provided yet. Hence, it shall require adjusting entry to unearned revenue.

5.B. It is the source document from which to prepare the financial statements

All the ledgers are posted to prepare trial balance. Trial balance must have equal balance on debit and credit side so as to be sure that books have followed double entry system of book-keeping. After preparation of trial balance, each of these individual accounts are to be posted in financial statements. These are used to prepare income statement, balance sheet and statement of cash flows.