ACCT2121 - Midterm 2 Exam Questions with Correct Answers Rated A+
Accrual basis accounting - Answers reporting income when it is earned and expenses when they are
incurred
Prepaid Expense Deferrals (JEs) - Answers When a company pays for something in advance (e.g.,
insurance, rent), it is initially recorded as an asset (e.g., Prepaid Insurance).
As time passes and the benefit is consumed, an adjusting entry is made to recognize the expense. Ex.
Initial payment (January 1):
Dr. Prepaid Insurance $12,000
Cr. Cash $12,000
Monthly adjustment (end of January):
Dr. Insurance Expense $1,000
Cr. Prepaid Insurance $1,000
Accrued Revenues (JEs) - Answers Revenue earned but not yet recorded (e.g., services performed, but
not yet billed). Ex.
Dr. Accounts Receivable $5,000
Cr. Consulting Revenue $5,000
Accrued Expenses (JEs) - Answers Expenses incurred but not yet recorded or paid (e.g., wages, utilities).
Ex.
Dr. Wages Expense $2,000
Cr. Wages Payable $2,000
Unearned Revenue Deferrals (JEs) - Answers When a company receives payment in advance for goods or
services it has not yet delivered. Ex. Initial receipt (January 1):
Dr. Cash $6,000
Cr. Unearned Revenue $6,000
Monthly adjustment (end of January):
Dr. Unearned Revenue $500
, Cr. Service Revenue $500
Adjusted trial balance - Answers Adjusted Trial Balance: A list of all accounts and their adjusted balances
after adjusting entries are posted. It is used to prepare the income statement, balance sheet, and cash
flow statement.
DEAD CLIC - Answers Debits (increase)
Expenses
Assets
Dividends
Credits (increase)
Liabilities
Income
Capital
Closing entries - Answers Include transferring the balances of:
Revenue accounts to Retained Earnings.
Expense accounts to Retained Earnings.
Dividends to Retained Earnings (if applicable)
Purpose: To reset temporary accounts to zero for the next period.
Closing Entries (JEs) - Answers Close Revenue Accounts:
Dr. Revenue $100,000
Cr. Retained Earnings $100,000
Close Expense Accounts:
Dr. Retained Earnings $80,000
Cr. Expenses $80,000
post-closing trial balance - Answers includes only the permanent accounts (assets, liabilities, and equity).
Accrual basis accounting - Answers reporting income when it is earned and expenses when they are
incurred
Prepaid Expense Deferrals (JEs) - Answers When a company pays for something in advance (e.g.,
insurance, rent), it is initially recorded as an asset (e.g., Prepaid Insurance).
As time passes and the benefit is consumed, an adjusting entry is made to recognize the expense. Ex.
Initial payment (January 1):
Dr. Prepaid Insurance $12,000
Cr. Cash $12,000
Monthly adjustment (end of January):
Dr. Insurance Expense $1,000
Cr. Prepaid Insurance $1,000
Accrued Revenues (JEs) - Answers Revenue earned but not yet recorded (e.g., services performed, but
not yet billed). Ex.
Dr. Accounts Receivable $5,000
Cr. Consulting Revenue $5,000
Accrued Expenses (JEs) - Answers Expenses incurred but not yet recorded or paid (e.g., wages, utilities).
Ex.
Dr. Wages Expense $2,000
Cr. Wages Payable $2,000
Unearned Revenue Deferrals (JEs) - Answers When a company receives payment in advance for goods or
services it has not yet delivered. Ex. Initial receipt (January 1):
Dr. Cash $6,000
Cr. Unearned Revenue $6,000
Monthly adjustment (end of January):
Dr. Unearned Revenue $500
, Cr. Service Revenue $500
Adjusted trial balance - Answers Adjusted Trial Balance: A list of all accounts and their adjusted balances
after adjusting entries are posted. It is used to prepare the income statement, balance sheet, and cash
flow statement.
DEAD CLIC - Answers Debits (increase)
Expenses
Assets
Dividends
Credits (increase)
Liabilities
Income
Capital
Closing entries - Answers Include transferring the balances of:
Revenue accounts to Retained Earnings.
Expense accounts to Retained Earnings.
Dividends to Retained Earnings (if applicable)
Purpose: To reset temporary accounts to zero for the next period.
Closing Entries (JEs) - Answers Close Revenue Accounts:
Dr. Revenue $100,000
Cr. Retained Earnings $100,000
Close Expense Accounts:
Dr. Retained Earnings $80,000
Cr. Expenses $80,000
post-closing trial balance - Answers includes only the permanent accounts (assets, liabilities, and equity).
