Deck 3: Adjusting the Accounts

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

Expense recognition is tied to revenue recognition.

Question 7

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

Question 8

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

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

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

Many business transactions affect more than one time period.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

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 35

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

Question 36

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 37

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

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

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

Question 40

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

Question 41

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

Question 42

Monthly and quarterly time periods are called

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

Question 43

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

Question 44

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 45

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

Question 46

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 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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 52

Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.

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

Question 53

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 54

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

Question 55

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 56

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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 62

Expenses sometimes make their contribution to revenue in a different period than when the expense is paid.When wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

A)Due from Employees.
B)Due to Employer.
C)Wages Payable.
D)Wages Expense.

Question 63

Which statement is correct?

A)As long as a company consistently uses the cash basis of accounting, IFRS allow its use.
B)The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
C)The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D)As long as management is ethical, there are no problems with using the cash basis of accounting.

Question 64

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.

Question 65

The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2011. $\begin{array}{lr}\text { Cash received from customers } & \$ 300,000 \\\text { Revenue earned } & 350,000 \\\text { Cash paid for expenses } & 170,000 \\\text { Cash paid for computers on November 1, 2010 that will be used } & \\\quad \text { for 3 years (annual depreciation is } \$ 16,000 \text { ) } & 48,000 \\\text { Expenses incurred, not including any depreciation } & 200,000\\\text { Proceeds from a bank loan, part of which was used to pay for }\\\text { the computers }&100,000\end{array}$ Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2011?

A)$114,000.
B)$134,000.
C)$82,000.
D)$150,000.

Question 66

The time period assumption is also referred to as the

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

Question 67

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 68

A company spends $10 million dollars for an office building.Over what period should the cost be written off?

A)When the $10 million is expended in cash.
B)All in the first year.
C)Over the useful life of the building.
D)After $10 million in revenue is earned.

Question 69

A flower shop makes a large sale for $1,000 on November 30.The customer is sent a statement on December 5 and a check is received on December 10.The flower shop follows IFRS and applies the revenue recognition principle.When is the $1,000 considered to be earned?

A)December 5.
B)December 10.
C)November 30.
D)December 1.

Question 70

The expense recognition principle matches

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

Question 71

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

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

Question 72

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 73

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 74

Adjusting entries are required

A)yearly.
B)quarterly.
C)monthly.
D)every time financial statements are prepared.

Question 75

The expense recognition principle states that expenses should be matched with revenues.Another way of stating the principle is to say that

A)assets should be matched with liabilities.
B)efforts should be matched with accomplishments.
C)dividends to shareholders should be matched with shareholders' investments.
D)cash payments should be matched with cash receipts.

Question 76

Under accrual-basis accounting

A)cash must be received before revenue is recognized.
B)net income is calculated by matching cash outflows against cash inflows.
C)events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
D)the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under IFRS.

Question 77

Which is not an application of revenue recognition?

A)Recording revenue as an adjusting entry on the last day of the accounting period.
B)Accepting cash from an established customer for services to be performed over the next three months.
C)Billing customers on June 30 for services completed during June.
D)Receiving cash for services performed.

Question 78

Which of the following are 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 79

The fiscal year of a business is usually determined by

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

Question 80

A candy factory's employees work overtime to finish an order that is sold on February 28.The office sends a statement to the customer in early March and payment is received by mid-March.The overtime wages should be expensed in

A)February.
B)March.
C)the period when the workers receive their checks.
D)either in February or March depending on when the pay period ends.