Why are adjustments made to the accounting records at the end of the period? (1/9) - ANS To ensure assets and liabilities are reported at appropriate amounts. To ensure the related revenues and expenses are reported in the proper period. Deferral adjustments are needed when the business: - ANS Pays cash before the expense has been incurred Receives cash before the revenue has been generated On September 1, Year 1, Hales Company paid its rent in advance for the months of October, November, and December. On December 31, Year 1, Hales made the required adjustment to adjust its accounts. How does this year-end adjustment impact the amounts reported on the company's financial statements? - ANS Decreases and asset (BS) Increases and expense (IS) On September 1, Year 1, a tenant of Bloomington Company business paid its rent in advance for the months of October, November, and December. On December 31, Year 1, Bloomington made the required adjustment to adjust its accounts. How does this year-end adjustment impact the amounts reported on the company's financial statements? - ANS Decrease a liability (typically deferred revenue) (BS) Increases a revenue (IS) Which of the following statements about deferral adjustments are true? - ANS They are used to decrease balance sheet accounts and increase corresponding income statement accounts Each deferral adjustment involves one asset and one expense account or one liability and one revenue account Accrual adjustments are needed when the business: - ANS Pays cash after the expense has been incurred receives cash after the revenue has been generated
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