Deck 3: Measuring Business Income

Question 1

When preparing financial statements,the accountant assumes that the business will not continue to operate indefinitely unless there is evidence to the contrary.

Answer 1

False

Question 2

A company's fiscal year need not correspond to the calendar year.

Answer 2

True

Question 3

Expenses are often called the cost of doing business or expired costs.

Answer 3

True

Question 4

In applying the matching rule,expenses should be recognized in the same accounting period as the revenues to which they are related..

Question 5

Revenue is equal to the cash received by a company during an accounting period.

Question 6

Accounting periods should be of unequal length to facilitate comparisons between periods.

Question 7

If a company is not expected to survive,it is considered a going concern.

Question 8

When a net loss has been suffered,Retained Earnings will contain a positive balance.

Question 9

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Question 10

The continuity assumption acknowledges that estimates of net income are still useful.

Question 11

Direct cause-and-effect relationships between revenues and expenses are often difficult to identify.

Question 12

When there is a direct connection between revenues and costs,the costs are systematically allocated among the periods benefited from the costs.

Question 13

When revenues exceed expenses,a net income occurs.

Question 14

Instead of the word net income,accountants use net profit because the latter term can be defined more precisely.

Question 15

Not all decreases in stockholders' equity are a result of expenses.

Question 16

All increases to cash represent revenues.

Question 17

The manipulation of revenues and expenses to get a certain outcome is called earnings management.

Question 18

The matching rule is most closely related to the cash basis of accounting.

Question 19

Accounting periods of greater than a year are called interim periods.

Question 20

All transactions can be easily assigned to specific accounting periods.

Question 21

A cash payment that reduces a liability does not result in an expense.

Question 22

Adjusting entries are useful in apportioning costs among two or more accounting periods.

Question 23

Accrual accounting is an application of continuity.

Question 24

One of the applications of accrual accounting is recognizing revenue at the appropriate time.

Question 25

A contra account is an account whose balance is added to an associated account in the financial statements.

Question 26

Accumulated depreciation is another term for depreciation expense.

Question 27

Revenue is produced when accounts receivable are collected.

Question 28

When the estimates involved in earnings management begin moving outside a reasonable range,the financial statements can become misleading.

Question 29

Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

Question 30

A depreciable asset's original cost can typically be obtained by referring to the balance sheet.

Question 31

Adjusting entries affect only the cash flows of the current period.

Question 32

Revenue should be recognized,only when collectability is reasonably assured.

Question 33

An accrual is the recognition of an expense that has arisen but has not yet been recorded.

Question 34

Expenses that have been paid for and recorded are called accrued expenses.

Question 35

Revenue for which the service has been performed but no entry has been made in the accounting records is called prepaid revenue.

Question 36

Recording incurred but unpaid expenses is an example of an accrual.

Question 37

Revenue cannot be recognized when delivery of goods has occurred or services have been rendered.

Question 38

Net income is misleading when revenue is overstated or expenses are understated by significant amounts.

Question 39

An adjusting entry includes two balance sheet accounts or two income statement accounts.

Question 40

The cash basis of accounting results in a more accurate measurement of net income for the period than does the accrual basis of accounting.

Question 41

After all closing entries have been posted,the balance of the Income Summary account will equal net income for the period.

Question 42

An adjusted trial balance is prepared after the adjusting entries are recorded.

Question 43

Real account balances are reduced to zero by closing entries.

Question 44

Cash is a nominal account.

Question 45

Closing entries deal primarily with the balances of real accounts.

Question 46

Financial statements cannot be prepared until the accounts have been adjusted.

Question 47

An adjusted trial balance proves the balance of the ledger accounts after the adjusting entries have been posted.

Question 48

The adjusted trial balance facilitates the preparation of the financial statements.

Question 49

When an asset's depreciation is recorded,it's carrying value increases.

Question 50

Closing entries are journal entries made at the beginning of an accounting period.

Question 51

The heading of an adjusted trial balance might contain the line "May 31,2013"

Question 52

Accounts Receivable is a real account.

Question 53

In the accounting cycle,adjusting entries are prepared before closing entries.

Question 54

Depreciation Expense-Equipment is an example of a contra account.

Question 55

The carrying value of equipment is the difference between the original value of the equipment and its accumulated depreciation.

Question 56

The only accounts that are closed are temporary accounts.

Question 57

Closing entries result in the transfer of net income or loss into the Retained Earnings account.

Question 58

The dollar amount of Cash on the trial balance and on the adjusted trial balance should be identical.

Question 59

An adjusted trial balance will probably list fewer accounts than are listed in the trial balance.

Question 60

Rent Expense is a permanent account.

Question 61

A revenue account is closed with a credit to the revenue account and a debit to Income Summary.

Question 62

Which of the following actions can distort company records and result in fraudulent financial reporting?

A) Prepaying an expense and recording it as an asset
B) Collecting revenue in advance of earning it
C) Recording income that has not yet been earned
D) Recording an expense that has been incurred but has not yet been paid

Question 63

Which of the following transactions results in an increase in expenses?

A) Cash payment on accounts payable
B) Receive a bill for the usage of utilities
C) Repayment of principal of bank loan
D) Purchase of machinery on credit

Question 64

In order to make comparison easier,financial statement time periods should

A) end during the peak season.
B) be of equal length.
C) correspond to the calendar year.
D) comply with income tax regulations.

Question 65

The periodicity assumption recognizes that

A) the company may continue indefinitely.
B) all financial statements should cover a fiscal year.
C) it is useful to estimate the business's net income in terms of accounting periods.
D) the value of an asset may vary from month to month.

Question 66

Making an assumption about periodicity attempts to solve which income measurement issue?

A) Accounting period issue.
B) Continuity issue.
C) Matching issue.
D) Recognition issue.

Question 67

The going concern assumption helps solve the

A) matching rule issue.
B) periodicity issue.
C) recognition issue.
D) continuity issue.

Question 68

A net loss results in a decrease in

A) expenses.
B) liabilities.
C) stockholders' equity.
D) assets.

Question 69

Net income provides a good measure of a business's debt-paying ability.

Question 70

Net income results in a(n)

A) increase in stockholders' equity.
B) increase in expenses.
C) decrease in revenues.
D) decrease in assets.

Question 71

When expenses exceed revenues,

A) a net income will result.
B) a net loss occurs.
C) stockholders' equity increases.
D) a liability is created.

Question 72

When a direct cause-and-effect relationship cannot be established between revenues and costs,the costs are

A) not expensed and remain as assets on the balance sheet.
B) expensed among the accounting periods that benefit from the costs.
C) expensed immediately in their entirety.
D) expensed equally each year.

Question 73

The cost of doing business is also known as

A) a liability.
B) an expense.
C) revenue.
D) an asset.

Question 74

The Supplies Expense account on the income statement is related to the Supplies Payable account on the balance sheet.

Question 75

Supplies Expense is a permanent account.

Question 76

Which of the following transactions results in an increase in revenues?

A) Sale of a service on credit
B) Receipt of cash from bank loan
C) Sale of land at cost for cash
D) Collection of cash on account

Question 77

Retailers often end their fiscal year

A) in correspondence with their yearly cycle of business activity.
B) during the peak of the busy season.
C) at different times each year.
D) on July 31.

Question 78

The manipulation of revenues and expenses to achieve a specific outcome is called

A) earnings management.
B) continuity.
C) going concern.
D) revenue recognition.

Question 79

Revenues are increases in stockholders' equity and result from

A) selling goods.
B) rendering services.
C) both selling goods and rendering services.
D) neither selling goods nor rendering services.

Question 80

Which of the following transactions will not result in an increase in revenues?

A) Sale of goods on credit
B) Sale of services for cash
C) Accumulation of interest in bank account
D) Sale of stock to investors for cash