Financial Accounting Adjustments Quiz

Adjustment to allocate the cost of fixed assets over their useful life.

Prepaid expenses represent payments made in advance for future benefits.

Accrued revenue represents revenue earned but not yet received.

Contra revenue accounts like Sales Discounts reduce gross revenue to reflect discounts given to customers.

Contra asset accounts like Accumulated Depreciation reduce the carrying amount of related assets.

To match revenues and expenses with the period they occurred, adhering to accrual accounting principles.

Adjusting entries impact the income statement by updating revenue and expense accounts.

Closing entries reset temporary accounts to zero and transfer their balances to permanent accounts.

The balance sheet does not include temporary accounts that require closing entries.

The allowance method predicts the portion of accounts receivable likely to be uncollectible.

Accrued expenses increase both expense accounts and liability accounts.

Contra asset accounts reduce the carrying amount of related assets to reflect their net value.

Expense accounts are closed by transferring their balances to the Income Summary account.

Post-closing trial balance confirms that all temporary accounts have been closed correctly.

Debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts records the estimated bad debts.