Deck 3: Adjusting the Accounts

Question 1

An adjusting entry always involves two statement of financial position accounts.

Answer 1

False

Question 2

The cash basis of accounting is not in accordance with IFRS.

Answer 2

True

Question 3

Expense recognition is tied to revenue recognition.

Answer 3

True

Question 4

Accounting time periods that are one year in length are referred to as interim periods.

Question 5

Under International Financial Reporting Standards (IFRS) the time period assumption means companies must issue financial statements using a calendar year time period.

Question 6

Adjusting entries are often made because some business events are not recorded as they occur.

Question 7

International Financial Reporting Standards (IFRS) include a revenue recognition principle that states that "let the revenues follow the expenses."

Question 8

A company must make adjusting entries every time it prepares an income statement and a statement of financial position.

Question 9

Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.

Question 10

Adjusting entries are needed to enable financial statements to conform to International Financial Reporting Standards (IFRS).

Question 11

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Question 12

The time period assumption states that the economic life of a business entity can be divided into artificial time periods.

Question 13

A company's calendar year and fiscal year are always the same.

Question 14

Under International Financial Reporting Standards (IFRS) the cash-basis of accounting requires companies to record transactions in the period in which the events occur.

Question 15

Under International Financial Reporting Standards (IFRS) revenues occur when assets are used up or when liabilities are incurred to generate revenue.

Question 16

Many business transactions affect more than one time period.

Question 17

The expense recognition principle requires that efforts be matched with accomplishments.

Question 18

The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received.

Question 19

The time period assumption is often referred to as the expense recognition principle.

Question 20

Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.

Question 21

Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.

Question 22

An adjusting entry that increases an expense on the income statement and decreases an asset on the statement of financial position is the result of prepaid expenses that expire with the passage of time.

Question 23

An adjusting entry for accrued revenues increases an asset account on the statement of financial position and increases a revenue account on the income statement.

Question 24

Adjusting entries impact at least one income statement and at least one statement of financial position account.

Question 25

Accrued revenues are revenues which have been received but not yet earned.

Question 26

Unearned revenue is reported on the income statement whereas deferred revenue is reported on the statement of financial position.

Question 27

Types of adjusting entries include deferral of unearned revenue, which requires the company to record a liability on the statement of financial position.

Question 28

Accrued revenues are revenues that have been earned and received before financial statements have been prepared.

Question 29

Accrued expenses result in an adjustment to both the income statement and the statement of financial position.

Question 30

When a company receives cash for future service, it debits unearned revenue on the income statement and credits cash on the statement of financial position.

Question 31

The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.

Question 32

Unearned revenue on the books of Chocolate Company, the landlord, can be a prepaid asset on the statement of financial position of its tenant, Cupcake, Inc.

Question 33

A contra asset account is subtracted from a related account in the statement of financial position.

Question 34

Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

Question 35

If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.

Question 36

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

Question 37

A liability-revenue account relationship exists with an unearned rent revenue adjusting entry.

Question 38

A contra account found on the statement of financial position behaves contrary to accounting rules by being debited on the right and credited on the left.

Question 39

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Question 40

Accumulated Depreciation is a liability account and has a credit normal account balance.

Question 41

For accounting purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business.

Question 42

The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.

Question 43

Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.

Question 44

The economic entity assumption states that economic events can be identified with a particular unit of accountability.

Question 45

The expense recognition principle requires that expenses be matched with revenues.

Question 46

The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.

Question 47

The periodicity assumption states that the business will remain in operation for the foreseeable future.

Question 48

The quality of consistency pertains to the use of the same accounting principles by firms in the same industry.

Question 49

Under GAAP revaluation to fair value of items such as land and building is permitted, which is not permitted under IFRS.

Question 50

A common application of materiality is weighing the factual nature of cost figures versus the relevance of fair value.

Question 51

Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.

Question 52

In general, adjusting entries are required each time financial statements are prepared.

Question 53

To be faithfully representative, accounting information should predict future events, confirm prior expectations, and be reported on a timely basis.

Question 54

An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account.

Question 55

Financial statements can be prepared from the information provided by an adjusted trial balance.

Question 56

Consistency in accounting means that a company uses the same accounting principles from one accounting period to the next accounting period.

Question 57

The accounts in the adjusted trial balance contain all the data the company needs to prepare its statement of financial position.

Question 58

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

Question 59

The total amount of debits on the adjusted trial balance will equal the amount of assets on the statement of financial position.

Question 60

In an adjusted trial balance, all assets and liabilities reported on the statement of financial position are properly stated.

Question 61

An accounting time period that is one year in length, but does not begin on January 1, is referred to as

A) a fiscal year.
B) an interim period.
C) the time period assumption.
D) a reporting period.

Question 62

Management usually desires ________ financial statements and the taxing authorities require all businesses to file _________ tax returns.

A) annual, annual
B) monthly, annual
C) quarterly, monthly
D) monthly, monthly

Question 63

The revenue recognition principle dictates that revenue should be recognized in the accounting records

A) when cash is received.
B) when the performance obligation is satisfied.
C) at the end of the month.
D) in the period that income taxes are paid.

Question 64

The Accumulated Depreciation account is a contra asset account that is reported on the statement of financial position.

Question 65

When a prepaid expense is initially debited to an expense account, expenses and assets are both overstated prior to adjustment.

Question 66

Every adjusting entry affects one statement of financial position account and one income statement account.

Question 67

Monthly and quarterly time periods are called

A) calendar periods.
B) fiscal periods.
C) interim periods.
D) quarterly periods.

Question 68

Which of the following is not a common time period chosen by businesses as their accounting period?

A) Daily
B) Monthly
C) Quarterly
D) Annually

Question 69

The fiscal year of a business is usually determined by

A) a government agency.
B) Share holders.
C) the business.
D) the IASB.

Question 70

Which of the following time periods would not be referred to as an interim period?

A) Monthly
B) Quarterly
C) Semi-annually
D) Annually

Question 71

Adjustments would not be necessary if financial statements were prepared to reflect net income from

A) monthly operations.
B) fiscal year operations.
C) interim operations.
D) lifetime operations.

Question 72

The time period assumption is also referred to as the

A) calendar assumption.
B) cyclicity assumption.
C) periodicity assumption.
D) fiscal assumption.

Question 73

Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Ron on August 5. Ron receives the check in the mail on August 6. When should Ron show that the revenue was earned?

A) July 31
B) August 1
C) August 5
D) August 6

Question 74

The time period assumption states that

A) a transaction can only affect one period of time.
B) estimates should not be made if a transaction affects more than one time period.
C) adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
D) the economic life of a business can be divided into artificial time periods.

Question 75

Which of the following is in accordance with IFRS?

A) Accrual basis accounting
B) Cash basis accounting
C) Both accrual basis and cash basis accounting
D) Neither accrual basis nor cash basis accounting

Question 76

An adjusted trial balance should be prepared before the adjusting entries are made.

Question 77

Accrued revenues are amounts recorded and received but not yet earned.

Question 78

The expense recognition principle matches

A) customers with businesses.
B) expenses with revenues.
C) assets with liabilities.
D) creditors with businesses.

Question 79

In general, the shorter the time period, the difficulty of making the proper adjustments to accounts

A) is increased.
B) is decreased.
C) is unaffected.
D) depends on if there is a profit or loss.

Question 80

In a service-type business, revenue is considered earned

A) at the end of the month.
B) at the end of the year.
C) when the service is performed.
D) when cash is received.