The Two Accounts Affected By The Adjustment For Insurance

The Two Accounts Affected By The Adjustment For Insurance Are

1. T/F The two accounts affected by the adjustment for insurance are prepaid insurance and insurance expenses.

2. T/F The two accounts affected by the adjustment for supplies are supplies and supplies expense.

3. T/F The work sheet is a temporary accounting form and can be prepared in pencil.

4. A net loss results when the total revenue is greater than the total expenses.

5. T/F The account balance for cash account is recorded in the Trial Balance Credit column and extended to the Balance Sheet Credit columns.

6. T/F The sales account balance is recorded in the Trial Balance Credit column and extended to the Balance sheet credit columns.

7. T/F All financial statements have three-line headings.

8. T/F To determine the net income, this calculation is used: TOTAL REVENUE - TOTAL EXPENSES = NET INCOME.

9. T/F The amount of current capital is calculated as follows: CAPITAL ACCOUNT BALANCE + NET INCOME - DRAWING ACCOUNT BALANCE = CURRENT CAPITAL.

10. T/F The two kinds of equities reported on the income statement are liabilities and owner’s equity.

11. T/F The balance sheet reports information about the elements in the accounting equation.

12. T/F The owners' drawing account is closed to the owners' capital account.

13. T/F A balance sheet is a financial statement that reports assets, liabilities, and owners' equity on a specific date.

14. T/F The income summary account is a temporary account that does not have a normal balance.

15. T/F The temporary accounts are reduced to zero at the end of each fiscal period.

16. T/F Temporary accounts with zero balances are listed on the post-closing trial balance.

17. T/F All balance sheet accounts are closed to the income summary account.

18. T/F The information needed to prepare a balance sheet is obtained from a worksheet’s Account Title column and the Balance Sheet columns.

19. T/F Reporting revenue earned and the expenses incurred to earn that revenue in the same fiscal period is an application of the accounting concept "Matching Expenses with Revenue."

20. T/F Expense accounts are closed by posting a credit to each expense account and debiting the income summary for the total of all expense account balances.

Paper For Above instruction

The accounting process involves multiple steps to ensure that financial information accurately reflects a company's financial position and performance. One fundamental aspect of this process is the proper adjustment of accounts to reflect transactions and events that have occurred but are not yet recorded. Among these adjustments, the accounts affected by insurance and supplies are particularly crucial. Additionally, understanding the structure and preparation of financial statements such as the worksheet, trial balance, income statement, and balance sheet is essential for maintaining accurate financial records.

The Adjustment for Insurance Accounts

Adjusting entries are necessary to match expenses with the period in which they are incurred. The two primary accounts affected by insurance adjustments are prepaid insurance and insurance expense. Prepaid insurance is an asset account representing insurance premiums paid in advance. Over time, as the insurance coverage is used, a portion of the prepaid insurance is expensed. The adjusting entry transfers the appropriate amount from prepaid insurance to insurance expense to reflect the usage of the insurance coverage accurately. This adjustment ensures that the financial statements reflect the true cost of insurance incurred during the period, aligning with the matching principle of accounting (Kieso, Weygandt, & Warfield, 2019).

Adjustments for Supplies

Similar to insurance, supplies require adjusting entries at period-end. Supplies are initially recorded as an asset when purchased. Over time, as supplies are used in operations, their cost must be recognized as an expense. The adjustment involves debiting supplies expense and crediting supplies for the amount of supplies used. This process ensures that the supplies expense accurately reflects consumption during the period, maintaining the integrity of financial reporting (Wild, Subramanyam, & Heder, 2019).

The Role of the Work Sheet and Financial Statements

The worksheet serves as a tool to facilitate the preparation of financial statements by organizing adjusting entries and trial balances. It is a temporary accounting form, often prepared in pencil for ease of adjustments and corrections. The worksheet helps accountants compile data necessary for preparing the income statement, balance sheet, and statement of owner’s equity. Notably, the worksheet's Account Title column and balance columns provide the essential information required, emphasizing its role in the closing process and financial reporting.

Understanding the Income Statement and Balance Sheet

The income statement reports revenues and expenses to determine net income or net loss for the period. The calculation involves subtracting total expenses from total revenue (Kieso et al., 2019). A net loss occurs when expenses exceed revenue, whereas a net income is recorded when revenue surpasses expenses. The balance sheet, on the other hand, reports assets, liabilities, and owner’s equity as of a specific date, providing a snapshot of the company's financial position.

Closing Accounts and the Concept of Temporary Accounts

The closing process involves transferring the balances of temporary accounts such as revenues, expenses, and owner’s drawings to the permanent owner’s equity account, often called the capital account. Expense accounts are closed by crediting each expense and debiting the income summary, which accumulates the total expenses. Conversely, revenue accounts are closed by debiting the revenue accounts and crediting the income summary. The income summary, a temporary account, consolidates the net income or loss, which is then transferred to the owner’s capital account (Wild et al., 2019).

The Matching Principle and Accurate Financial Reporting

The matching principle requires that revenues earned and expenses incurred to earn those revenues are reported in the same period. This principle underpins the need for adjustments to ensure that financial statements reflect economic reality. Proper adjustments for insurance and supplies, along with accurate closing procedures, uphold this principle and enhance the reliability of financial reporting (Kieso et al., 2019).

Conclusion

In sum, understanding the adjustments for accounts like insurance and supplies is fundamental to accurate financial reporting. These adjustments ensure expenses are recognized in the correct period, aligning with accounting principles. Moreover, the processes involved in preparing financial statements, including worksheet adjustments, closing entries, and the preparation of the balance sheet and income statement, are vital for providing stakeholders with truthful and timely financial information. Mastery of these concepts supports sound financial management, compliance, and informed decision-making in business environments.

References

• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
• Wild, J. J., Subramanyam, K. R., & Heder, J. M. (2019). Financial Statement Analysis (12th ed.). McGraw-Hill Education.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting: A Business Process Perspective. Cengage Learning.
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