Financial Accounting Quiz: Adjusting Entries Accruals
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Adjusting Entries AccrualsQuestion 1 of 20

On December 31, a company determines that its weekly payroll of $70,000 is paid every Friday for a five-day work week. December 31 falls on a Wednesday. The unadjusted trial balance shows a balance of $2,000 in the Salaries Payable account from a prior payroll correction. What is the correct ending balance of Salaries Payable on the adjusted trial balance at December 31?

$40,000
$42,000
$44,000
$72,000
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Financial Accounting Quiz

Financial Accounting Quiz: Adjusting Entries Accruals

Practice Adjusting Entries Accruals in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Adjusting Entries Accruals, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

On December 31, a company determines that its weekly payroll of $70,000 is paid every Friday for a five-day work week. December 31 falls on a Wednesday. The unadjusted trial balance shows a balance of $2,000 in the Salaries Payable account from a prior payroll correction. What is the correct ending balance of Salaries Payable on the adjusted trial balance at December 31?

  1. $40,000
  2. $42,000
  3. $44,000 (correct answer)
  4. $72,000
Explanation: The adjusting entry is for the wages earned but not yet paid. The daily salary expense is (70,000 / 5\) days = \(14,000. Since December 31 is a Wednesday, three days of salary have been earned (Monday, Tuesday, Wednesday). The accrued salary expense is (3 * 14,000=14,000 = 42,000). This amount is added to the existing credit balance in Salaries Payable. The correct ending balance is (2,000+2,000 + 42,000 = $44,000).

Question 2

A company has a note payable with a face value of $200,000 and a stated annual interest rate of 6%. The note was issued on November 1. Interest is payable semi-annually on May 1 and November 1. The company's fiscal year-end is December 31. If the company fails to make the required adjusting entry for accrued interest, what will be the effect on its year-end financial statements?

  1. Net income will be overstated by $2,000, and liabilities will be understated by $2,000. (correct answer)
  2. Net income will be understated by $2,000, and liabilities will be overstated by $2,000.
  3. Net income will be overstated by $6,000, and liabilities will be understated by $6,000.
  4. Net income will be overstated by $2,000, but liabilities will be correctly stated.
Explanation: The company has incurred interest expense for two months (November and December) that has not been paid. The accrued interest is calculated as Principal × Rate × Time: (200,000×6200,000 × 6% × (2/12)\) = \(2,000. The adjusting entry would be a debit to Interest Expense and a credit to Interest Payable. Omitting this entry means Interest Expense is understated, causing Net Income to be overstated by ($2,000. It also means Interest Payable (a liability) is understated by ($2,000.

Question 3

On October 1, a company began a consulting project for a client. The contract is for $24,000 and is expected to take four months to complete. The company bills the client upon project completion. As of the December 31 year-end, the project is 75% complete. No entries have been made other than the receipt of a $2,000 advance payment from the client on October 1, which was credited to Unearned Revenue. What amount should be debited to Accounts Receivable in the year-end adjusting entry?

  1. $16,000 (correct answer)
  2. $18,000
  3. $22,000
  4. $24,000
Explanation: By December 31, the project is 75% complete, so total revenue earned is 75% × $24,000 = $18,000. However, the company already received $2,000 as an advance payment. The amount that needs to be accrued (recorded as a receivable) is the earned revenue not yet billed: $18,000 - $2,000 = $16,000. The adjusting entry would debit Accounts Receivable $16,000, debit Unearned Revenue $2,000, and credit Service Revenue $18,000.

Question 4

A company receives its monthly electricity bill on the 15th of the following month. The December bill, received on January 15, was $4,500. The November bill was $4,000. As part of its year-end procedures on December 31, the company's accountant made an adjusting entry to accrue $4,200 for electricity expense. Which of the following statements is true regarding this accrual?

  1. The adjusting entry understated net income by $300.
  2. The adjusting entry overstated liabilities by $4,200.
  3. A correcting entry on December 31 should debit Utilities Expense for $300 and credit Utilities Payable for $300. (correct answer)
  4. The December 31 financial statements will be misstated because the actual amount of the bill was unknown at year-end.
Explanation: The actual expense incurred in December was (4,500. The accountant's estimate was \(4,200. Therefore, at December 31, both Utilities Expense and Utilities Payable are understated by (4,500−4,500 - 4,200 = 300\). To correct this before closing the books, an additional adjusting entry is needed to debit Utilities Expense for \(300 and credit Utilities Payable for ($300. This brings the total accrued expense to the correct amount of ($4,500.

Question 5

At the beginning of the year, a company's Salaries Payable account had a balance of $15,000. At the end of the year, the balance was $12,000. During the year, the company paid $450,000 in salaries. Assuming all salary payments were debited to Salaries Expense, what was the Salaries Expense for the year?

  1. $447,000 (correct answer)
  2. $450,000
  3. $453,000
  4. $477,000
Explanation: This problem requires a T-account analysis for Salaries Payable. The formula is: Ending Balance = Beginning Balance + Salaries Expense - Cash Paid. Rearranging to solve for Salaries Expense: Salaries Expense = Ending Balance - Beginning Balance + Cash Paid. Therefore, Salaries Expense = (12,000−12,000 - 15,000 + 450,000=450,000 = 447,000). Alternatively, think of the change in the payable: the liability decreased by (3,000, which means cash paid exceeded the expense for the period by \(3,000. So, (450,000 (paid) - \(3,000 = ($447,000 (expense).

Question 6

A company has a policy of paying its employees a bonus equal to 3% of the company's annual net income. The net income for the year, before deducting the bonus expense and income tax expense, is $500,000. The bonus is to be calculated on net income after deducting the bonus itself. What is the amount of the accrued bonus expense that should be recorded at year-end?

  1. $14,563 (correct answer)
  2. $15,000
  3. $15,450
  4. $14,125
Explanation: This requires an algebraic calculation. Let B = Bonus Expense. The bonus is 3% of net income after the bonus. The formula is: B = 0.03 × ((500,000 - B). To solve for B: B = \(15,000 - 0.03B. Then, 1.03B = (15,000. Finally, B = \(15,000 / 1.03 ≈ ($14,563. This is the amount of bonus expense that has been incurred and should be accrued at year-end.

Question 7

On December 31, a company failed to record an adjusting entry for $10,000 of services it had performed for a client but had not yet billed. The company also failed to record an adjusting entry for $6,000 of salaries that employees had earned but had not yet been paid. As a result of these two omissions, what is the net effect on the company's working capital?

  1. Working capital is understated by $4,000. (correct answer)
  2. Working capital is overstated by $4,000.
  3. Working capital is understated by $10,000.
  4. Working capital is understated by $16,000.
Explanation: Working capital is calculated as Current Assets - Current Liabilities. Omitting the accrued revenue means Accounts Receivable (a current asset) is understated by (10,000. Omitting the accrued salaries means Salaries Payable (a current liability) is understated by \(6,000. The net effect on working capital is (Understated Current Assets of ($10,000) - (Understated Current Liabilities of ($6,000), which results in an understatement of working capital by (4,000. The reported working capital is \(4,000 lower than it should be.

Question 8

A company pays property taxes annually. The government's fiscal year runs from July 1 to June 30. The company's estimated property tax bill for the government's current fiscal year is $24,000, which will be paid in April of next year. The company's own fiscal year ends on December 31. What is the amount of Property Tax Expense that should be reflected in the adjusting entry on December 31?

  1. $6,000
  2. $12,000 (correct answer)
  3. $18,000
  4. $24,000
Explanation: The (24,000 tax bill covers a 12-month period from July 1 to June 30. The monthly tax expense is \(24,000 / 12 = (2,000. The company's year-end is December 31. The adjusting entry must account for the expense incurred from July 1 to December 31, which is a period of six months. Therefore, the accrued property tax expense is 6 months × \(2,000/month = ($12,000. The entry would be a debit to Property Tax Expense and a credit to Property Tax Payable for this amount.

Question 9

A company's unadjusted trial balance at year-end includes Commissions Expense of $82,000 and Commissions Payable of $0. The company determines that an additional $11,000 in commissions has been earned by its sales staff for sales made in the fourth quarter but will not be paid until January. After the adjusting entry is made, what will be the balances in the Commissions Expense and Commissions Payable accounts?

  1. Commissions Expense $82,000; Commissions Payable $11,000.
  2. Commissions Expense $93,000; Commissions Payable $11,000. (correct answer)
  3. Commissions Expense $71,000; Commissions Payable $11,000.
  4. Commissions Expense $93,000; Commissions Payable $0.
Explanation: An adjusting entry is needed to record the expense incurred but not yet paid. The entry is to debit Commissions Expense for (11,000 and credit Commissions Payable for \(11,000. This increases the Commissions Expense balance from (82,000 to \(82,000 + 11,000=11,000 = 93,000). It also increases the Commissions Payable balance from (0 to \(11,000.

Question 10

A company provided services to a customer in December. The agreed-upon price was $10,000. On December 31, the company's year-end, the customer had not been invoiced. The company's bookkeeper, aiming to be conservative, decided not to record the revenue until the invoice was sent in January. Under GAAP, what is the consequence of this decision?

  1. The decision is acceptable under the conservatism principle.
  2. It violates the revenue recognition principle, understating current period revenue and receivables. (correct answer)
  3. It violates the matching principle by delaying revenue recognition to the next period.
  4. It correctly applies cash-basis accounting, which is a permissible alternative to accrual accounting.
Explanation: Under GAAP's revenue recognition principle, revenue should be recognized when it is earned, regardless of when cash is received or an invoice is sent. The services were performed in December, so the revenue was earned in December. Failing to record an adjusting entry to accrue this revenue understates revenue and net income for the period, and also understates assets (Accounts Receivable). While conservatism is a concept in accounting, it does not permit the violation of core principles like revenue recognition.

Question 11

A company signs a contract on December 15 to provide continuous security services for one year for a total fee of $36,000. The client will be billed in a single invoice on January 15 of the following year. Using a 360-day year for proration, what amount of revenue should the company accrue at its December 31 year-end?

  1. $1,000
  2. $1,500 (correct answer)
  3. $3,000
  4. $0, because the client has not yet been billed.
Explanation: The $36,000 contract covers 360 days (one year), so the daily revenue rate is $36,000 ÷ 360 = $100 per day. The service period from December 15 through December 31 represents 17 calendar days (December 31 - December 15 + 1 = 17 days). However, using the 360-day year convention where each month has 30 days, the period from December 15 to December 31 represents 15 days (half of a 30-day month). Therefore, the accrued revenue is 15 days × $100 per day = $1,500. Revenue should be recognized when earned, regardless of when the client is billed.

Question 12

A company's year-end is December 31. On this date, the company has completed a project for a customer and earned $20,000. The accountant makes the following adjusting entry: Debit Unearned Revenue $20,000; Credit Service Revenue $20,000. Which of the following scenarios is consistent with this adjusting entry being correct?

  1. The company had received no cash from the customer prior to year-end.
  2. The company had received $20,000 cash from the customer prior to year-end and credited Cash.
  3. The company had received $20,000 cash from the customer prior to year-end and credited Unearned Revenue. (correct answer)
  4. The company billed the customer $20,000 before year-end but has not yet received cash.
Explanation: The adjusting entry debits Unearned Revenue. This account is a liability that represents cash received from a customer for services that have not yet been performed. A debit to this account reduces its balance. For this entry to be correct, the company must have previously received cash and credited the Unearned Revenue account. The adjusting entry now recognizes that the revenue has been earned, so the liability is reduced and revenue is increased. This is an adjustment for a deferral, not an accrual, but tests the student's ability to distinguish between them based on the entry provided.

Question 13

A law firm began the year with $4,000 in its Legal Services Payable account. During the year, the firm incurred $55,000 in legal services expense from an outside contractor. The firm made cash payments of $52,000 to the contractor during the year. No other adjustments or transactions affected this account. What adjusting entry is required at year-end to properly state the Legal Services Payable account?

  1. Debit Legal Services Expense $7,000; Credit Legal Services Payable $7,000.
  2. Debit Legal Services Payable $3,000; Credit Legal Services Expense $3,000.
  3. No adjusting entry is needed as the expense has already been incurred. (correct answer)
  4. Debit Legal Services Expense $3,000; Credit Legal Services Payable $3,000.
Explanation: This question tests the understanding of when an accrual is necessary. An adjusting entry for an accrual records an expense that has been incurred but not yet recorded. Here, the problem states the firm incurred (55,000 in expense. This implies the expense and related payable have already been recorded through routine transaction entries during the year. We can verify the ending balance: Beg. Payable \(4,000) + Expense Incurred (($55,000) - Cash Paid (($52,000) = End. Payable ($7,000). The accounts are already correctly stated on an accrual basis. Therefore, no adjusting entry is needed.

Question 14

A company holds a 90-day, 8% note receivable for $30,000, dated December 1. The company's fiscal year ends on December 31. When calculating the accrued interest for the year-end adjusting entry, the company uses a 360-day year. What journal entry should be made on December 31?

  1. Debit Interest Receivable $200; Credit Interest Revenue $200. (correct answer)
  2. Debit Interest Receivable $600; Credit Interest Revenue $600.
  3. Debit Cash $200; Credit Interest Revenue $200.
  4. Debit Interest Receivable $2,400; Credit Interest Revenue $2,400.
Explanation: The interest revenue must be accrued for the period the note was outstanding during the year. From December 1 to December 31 is 30 days. The accrued interest is calculated as Principal × Rate × Time. Interest = ($30,000 × 8% × (30/360)) = ($200. The adjusting entry to record this earned but uncollected revenue is a debit to Interest Receivable and a credit to Interest Revenue.

Question 15

On December 31, a company made a proper adjusting entry to accrue salary expense of $9,000. On January 1 of the next year, a reversing entry was made. The first payroll of the new year, paid on January 7, was $25,000. Which of the following is the correct journal entry to record the payment of the payroll on January 7?

  1. Debit Salaries Expense $16,000, Debit Salaries Payable $9,000; Credit Cash $25,000.
  2. Debit Salaries Expense $25,000; Credit Cash $25,000. (correct answer)
  3. Debit Salaries Expense $25,000; Credit Salaries Payable $9,000, Credit Cash $16,000.
  4. Debit Salaries Payable $9,000; Credit Cash $9,000.
Explanation: A reversing entry on January 1 reverses the December 31 adjusting entry. The reversing entry would be: Debit Salaries Payable (9,000 and Credit Salaries Expense \(9,000. This closes the payable account and creates a (9,000 credit balance in the Salaries Expense account. When the full payroll of \(25,000 is paid on January 7, the bookkeeper can make a simple entry: Debit Salaries Expense (25,000 and Credit Cash \(25,000. This results in a final debit balance of (16,000 (\(25,000 Dr - ($9,000 Cr) in Salaries Expense, which is the correct amount of expense for the new period.

Question 16

At December 31, a company's financial records showed a balance of $18,000 in its Interest Receivable account. During the year, the company had collected $22,000 of interest in cash. At the conclusion of the adjusting process, the Interest Revenue account had a credit balance of $25,000 for the year. What must have been the beginning balance of the Interest Receivable account on January 1?

  1. $15,000 (correct answer)
  2. $21,000
  3. $29,000
  4. $3,000
Explanation: This requires a T-account analysis of Interest Receivable. The formula is: Ending Balance = Beginning Balance + Interest Revenue - Cash Collected. We need to solve for the Beginning Balance. Beginning Balance = Ending Balance - Interest Revenue + Cash Collected. Plugging in the numbers: Beginning Balance = (18,000−18,000 - 25,000 + 22,000=22,000 = 15,000).

Question 17

A publisher pays royalties to its authors at a rate of 10% of net sales. Royalties are paid quarterly, on January 15 for the quarter ending the preceding December 31. Net sales for the fourth quarter were $850,000. The unadjusted trial balance on December 31 shows a zero balance in the Royalties Payable account. What is the required adjusting entry on December 31?

  1. Debit Royalty Expense $85,000; Credit Cash $85,000.
  2. Debit Royalty Expense $85,000; Credit Royalties Payable $85,000. (correct answer)
  3. Debit Prepaid Royalties $85,000; Credit Royalties Payable $85,000.
  4. No entry is needed until the payment is made in January.
Explanation: The royalty expense has been incurred in the fourth quarter as the sales were made during this period. Therefore, the expense must be recognized in the same period as the revenue it helped generate (the matching principle). The amount is 10% of (850,000, which is \(85,000. Since this amount will not be paid until January, a liability must be created. The correct adjusting entry is to debit Royalty Expense for (85,000 and credit Royalties Payable for \(85,000.

Question 18

An accountant is reviewing the books of a company and finds that the year-end adjusting entry for interest on a note payable was recorded as a debit to Interest Expense for $1,200 and a credit to Notes Payable for $1,200. The calculation of the interest amount is correct. Which statement accurately describes the effect of this incorrect entry?

  1. Net income is correct, but liabilities are overstated.
  2. Net income is understated, and liabilities are overstated.
  3. Net income is correct, but the components of liabilities are misstated. (correct answer)
  4. Both net income and total liabilities are correctly stated.
Explanation: The correct entry for accrued interest is to debit Interest Expense and credit Interest Payable. The accountant correctly debited Interest Expense, so the expense and net income are correctly stated. However, the credit was posted to Notes Payable instead of Interest Payable. Both Notes Payable and Interest Payable are liabilities. Thus, total liabilities are correct, but the specific liability accounts are misstated: Notes Payable is overstated by (1,200, and Interest Payable is understated by \(1,200.

Question 19

A company leases out a portion of its building for $5,000 per month. The tenant last paid rent on December 1 for the month of December. The tenant has not paid January's rent in advance. The company's year-end is December 31. The company's accountant made the following adjusting entry: Dr. Accounts Receivable $5,000; Cr. Rent Revenue $5,000. What is the impact of this entry?

  1. The entry is correct and reflects rent earned in December.
  2. The entry incorrectly recognizes January's rent revenue in December.
  3. The entry is unnecessary as the December rent was already received. (correct answer)
  4. The entry incorrectly debits Accounts Receivable instead of Cash.
Explanation: An adjusting entry for accrued revenue is needed only when revenue has been earned but not yet recorded or received. In this case, the tenant paid on December 1 for the month of December. This transaction would have been recorded on December 1 (Dr. Cash, Cr. Rent Revenue or Unearned Rent Revenue which would be earned by Dec 31). Since the revenue for December has already been accounted for, making an additional entry to accrue ($5,000 of rent revenue for December is erroneous and overstates both revenues and receivables.

Question 20

On December 31, a company's accountant correctly accrued $5,000 of revenue for services performed but not yet billed. If this adjusting entry had been omitted, what would be the impact on the company's debt-to-equity ratio at year-end, assuming the unadjusted ratio was greater than zero?

  1. The ratio would have been understated.
  2. The ratio would have been overstated. (correct answer)
  3. The ratio would have been unaffected.
  4. The impact cannot be determined without knowing total liabilities and equity.
Explanation: The debt-to-equity ratio is Total Liabilities / Total Equity. The adjusting entry would have increased Accounts Receivable (assets) and Service Revenue (which increases Retained Earnings, a component of equity). Omitting the entry means that assets are understated and equity is understated by ($5,000. Total liabilities are unaffected. With the denominator (Equity) being smaller than it should be, and the numerator (Liabilities) being correct, the resulting calculated ratio (Liabilities / Understated Equity) would be higher, or overstated, compared to the correct ratio.