Deck 3: Accrual Accounting Income

Question 1

The requirement to report accounting information at regular intervals is known as the:

A)interval concept.
B)GAAP concept.
C)time-period concept.
D)reporting concept.

Answer 1

C

Question 2

AMR received $1,600 on a sale using the cash basis of accounting and did not record a sale on account. This transaction should have been recorded under accrual accounting. The balance sheet problem, using the cash basis of accounting, is the failure to record an entry to which account?

A)Cash
B)Accounts Receivable
C)Sales
D)Both Accounts Receivable and Sales

Answer 2

B

Question 3

The accounting period that ends on a date other than December 31 is called a:

A)fiscal year.
B)year end.
C)calendar year.
D)revolving year.

Answer 3

A

Question 4

The method of accounting that records revenues when the cash is received and expenses as they are paid is the:

A)deferral method.
B)cash method.
C)accrual method.
D)hybrid method.

Question 5

Chunky Bags sold items for $20,000 cash using the cash basis of accounting and did not record a sale on account. This transaction should have been recorded under accrual accounting. The income statement defect of the cash basis with respect to this transaction is the failure to record an entry to which account?

A)Cash
B)Accounts Receivable
C)Sales
D)Both Accounts Receivable and Sales

Question 6

The method of accounting that records the impact of a business transaction as it occurs is the:

A)deferral method.
B)cash method.
C)accrual method.
D)hybrid method.

Question 7

The time-period concept requires a company to report accounting information at regular intervals.

Question 8

A company makes a $200 sale on account. It later collects the $200 in cash. Under the accrual method of accounting, revenue is recognized:

A)when the cash is collected.
B)when the sale is made.
C)either when the cash is received or the sale is made.
D)at a time that cannot be determined from the facts.

Question 9

Which time period indicates that a company has prepared interim statements?

A)For the year ended December 31
B)For the month ended June 30
C)For the quarter ended April 30
D)Both the month ended June 30 and the quarter ended April 30 are correct.

Question 10

All but the smallest businesses use the accrual basis of accounting.

Question 11

An expense incurred in 2010 is not paid until 2011. Using the accrual basis of accounting, the expense should appear on:

A)the 2010 income statement.
B)the 2011 income statement.
C)neither the 2010 nor the 2011 income statement.
D)both the 2010 and 2011 income statements.

Question 12

The process of going out of business is called:

A)time-period concept.
B)revenue principle.
C)liquidation.
D)bankruptcy.

Question 13

GAAP requires use of the cash basis of accounting.

Question 14

An accountant recognizes the impact of a business event as it occurs and accounts for it appropriately under which basis of accounting?

A)Cash
B)Prepaid
C)Accrual
D)Deferred

Question 15

Under the cash basis of accounting, there are two defects-one on the balance sheet and one on the income statement.

Question 16

Cash for merchandise delivered to the customer in 2010 is received in 2011. Using the accrual basis of accounting, the revenue should appear on:

A)the 2010 income statement.
B)the 2011 income statement.
C)neither the 2010 nor the 2011 income statement.
D)both the 2010 and 2011 income statements.

Question 17

Accrual accounting records both cash and noncash transactions.

Question 18

An interim period is generally:

A)more than one year, but less than the life of the company.
B)more than one year.
C)less than one year.
D)half of the life of the company.

Question 19

There are two methods used to account for transactions. These methods are:

A)deferral and prepaid.
B)accrual and deferral.
C)cash and deferral.
D)cash and accrual.

Question 20

Companies generally have a year that ends at the low point in their business activity.

Question 21

The revenue principle governs two things:

A)when to record a revenue and where to record this revenue.
B)where to record a revenue and the amount of revenue to record.
C)when to record revenue and the amount of revenue to record.
D)to record the amount to be received and in which journal to record this amount.

Question 22

Expenses have a future benefit to the company.

Question 23

On July 25, Hamilton Bey Company's accountant prepared a check for August's rent payment. Hamilton Bey Company mails the check on July 27 to the landlord. The landlord receives the check on July 31 and cashes the check on August 2. When should Hamilton Bey Company record the rent expense associated with this transaction?

A)July 25
B)July 27
C)August 31
D)August 2

Question 24

In most cases, revenue is earned:

A)when the cash is received.
B)when the order is placed.
C)when the customer mails the check.
D)when the goods or services have been delivered to the customer.

Question 25

The revenue principle requires that a business record revenue when the business:

A)receives an order from a customer.
B)prepares the invoice for the customer.
C)delivers goods or services to a customer.
D)receives payment from a customer.

Question 26

Under the adjusting principle, a business should record revenue when it is earned, regardless of when payment is received from the customer.

Question 27

The amount of revenue to record is the cash value of the goods or services transferred to the customer.

Question 28

The revenue principle states that revenue should be recorded in the same period as the cash is received.

Question 29

The matching principle includes two steps:

A)measure the expenses and record the revenue.
B)identify all the expenses incurred during the accounting period and measure the expenses and match them against the revenue earned.
C)when to record revenue and the amount of revenue to record,
D)when to record the revenue and identify all the expenses incurred during the accounting period.

Question 30

On December 15, 2010, a company receives an order from a customer for services to be performed on December 28, 2010. Due to a backlog of orders, the company does not perform the services until January 3, 2011. The customer pays for the services on January 6, 2011. The matching principle requires the revenue to be recorded by the company on:

A)December 15, 2010.
B)January 3, 2011.
C)December 28, 2010.
D)January 6, 2011.

Question 31

Adjusting journal entries recorded at the end of an accounting period update revenues or expense accounts, as well as asset or liability accounts.

Question 32

The cost of assets used up in the process of earning revenue are considered:

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

Question 33

The matching principle states that expenses should be recorded in the same period as the related revenues.

Question 34

A company using the accrual basis of accounting pays $15,000 for a television advertising campaign. Commercials will run evenly in December, January, and February. How much expense will be reported on an income statement prepared for the month of December?

A)$0
B)$5,000
C)$10,000
D)$15,000

Question 35

Cash accounting provides some ethical challenges that accrual accounting avoids.

Question 36

Accrued revenues have been recorded and need adjusting, while deferred revenues have never been recorded before the adjusting process.

Question 37

Thompson Company executives are planning a $5 million advertising campaign. The expense of this advertising campaign should be recognized when:

A)planning for the campaign is complete.
B)cash is paid to the television stations which will run the commercials.
C)commercials are filmed.
D)commercials are broadcast.

Question 38

Expenses can:

A)be paid in cash.
B)arise from using up an asset.
C)occur when a company creates a liability.
D)be all of the above.

Question 39

The updating of accounts is called the adjusting process.

Question 40

According to the revenue principle, revenue should be recorded:

A)before it has been earned.
B)when the cash is received.
C)when it has been earned.
D)whenever the company needs to record the revenue.

Question 41

Prepaid insurance is reported on the balance sheet as a(n):

A)expense.
B)liability.
C)asset.
D)contra asset.

Question 42

All of the following are true statements about the Accumulated Depreciation account EXCEPT that it:

A)is a contra asset account with a normal credit balance.
B)shows the sum of all depreciation expense from using the asset.
C)is a contra asset account with a normal debit balance.
D)always has a normal balance opposite that of its companion account.

Question 43

Unearned rent is reported on the balance sheet as a(n):

A)expense.
B)liability.
C)asset.
D)contra asset.

Question 44

If depreciation for the current period is not recorded, net income for the current period will be understated.

Question 45

An asset that is appreciating in value is still depreciated for accounting purposes.

Question 46

Depreciation allocates the cost of a plant asset to expense over the useful life of the asset.

Question 47

In accrual adjustments, the revenue or expense is recognized before the cash is received or paid.

Question 48

Adjusting entries are:

A)not needed under the accrual basis of accounting.
B)prepared at the option of the accountant.
C)prepared at the beginning of the accounting period to update all accounts.
D)prepared at the end of the accounting period to update certain accounts.

Question 49

The following accounts are up-to-date and need no adjustment at the end of the period:

A)cash, common stock and prepaid rent.
B)prepaid rent, supplies and unearned rent.
C)cash, dividends and common stock.
D)cash, dividends and unearned rent.

Question 50

Prepaid expenses will:

A)become expenses when their future benefits expire.
B)become revenues when their future benefits expire.
C)become liabilities when their future benefits expire.
D)become none of the above.

Question 51

The accumulated depreciation account decreases over the life of the asset.

Question 52

The term deferral refers to an event where the:

A)recognition of an expense or revenue is recorded after the cash is paid or received.
B)liability for an expense is recorded before the expense is actually incurred.
C)liability for an expense is recorded after the expense is actually incurred.
D)recognition of an expense or revenue is recorded before the cash is paid or received.

Question 53

An expense that is paid in advance is a(n):

A)unearned expense.
B)prepaid expense.
C)liability.
D)unearned asset.

Question 54

Which term refers to the allocation of the cost of an asset over the asset's useful life?

A)Accrual
B)Deferral
C)Depreciation
D)Expiration

Question 55

The three basic categories of adjusting entries are:

A)deferrals, depreciation and accruals.
B)deferrals, unearned and accruals.
C)depreciation, deferrals and closing.
D)accruals, deferrals and reversing.

Question 56

In a deferral adjustment, the expense or revenue is recognized after the cash is paid or received.

Question 57

If deferred revenue has been earned by the end of the current period and no adjustment is recorded, net income for the current period will be understated.

Question 58

The adjusting entry to recognize unpaid salaries increases net income and increases liabilities.

Question 59

The unearned revenue adjustment decreases both net income and total assets.

Question 60

Unearned service revenue is a current liability because the company is obligated to perform the service.

Question 61

Unearned revenue is a(n):

A)asset account.
B)liability account.
C)revenue account.
D)expense account.

Question 62

Which account is debited in the adjusting entry to record salaries owed to employees, but not paid until next accounting period?

A)Salary Expense
B)Unearned Salaries
C)Salary Payable
D)Deferred Salary

Question 63

The Houston Rockets basketball team receives $5,000 for season tickets on August 1. By December 31, they have earned $2,000 of the revenue. The adjusting entry to be made on December 31 by the Houston Rockets includes a:

A)credit to Unearned Revenue of $2,000.
B)debit to Unearned Revenue of $2,000.
C)debit to Service Revenue of $2,000.
D)credit to Prepaid Revenue of $3,000.

Question 64

On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next six months. The adjusting entry on December 31 of the current year would include a:

A)credit to Unearned Service Revenue of $4,500.
B)debit to Unearned Service Revenue of $900.
C)debit to Service Revenue of $900.
D)credit to Service Revenue of $4,500.

Question 65

On November 1 of the current year, Prepaid Rent was debited $5,400 for three months of rent, paid in advance. The amount of the adjusting entry on December 31 is:

A)$1,800.
B)$3,600.
C)$5,400.
D)$0.

Question 66

A liability that arises from an expense that has not yet been paid is a(n):

A)unearned expense.
B)prepaid expense.
C)accrued expense.
D)accrued revenue.

Question 67

A company started the year with $400 of supplies. During the year, the company purchased an additional $1,200 of supplies. There were $700 of supplies on hand at the end of the year. An adjusting entry prepared at the end of the accounting period includes a:

A)debit to Supplies for $800.
B)debit to Supplies for $700.
C)debit to Supplies Expense for $900.
D)debit to Supplies Expense for $600.

Question 68

Ben George, Inc. has an unadjusted balance in Accumulated Depreciation─Truck of $9,000 as of December 31, 2010. This relates to a Truck purchased for $15,000 with an expected useful life of 5 years that is depreciated using the straight line method. After recording the depreciation expense for 2011, the adjusted balance in the Accumulated Depreciation─Truck account as of December 31, 2011 is:

A)$15,000.
B)$12,000.
C)$3,000.
D)$1,000.

Question 69

An adjustment for which the business paid or received cash in advance is:

A)an accrual.
B)a deferral.
C)earned revenue.
D)expense recognition.

Question 70

Which account is credited in the adjusting entry to allocate the cost of equipment?

A)Equipment Expense
B)Depreciation Expense
C)Accumulated Equipment
D)Accumulated Depreciation

Question 71

On September 1, Banger Bros. Company paid $9,000 for one year of rent, in advance. Which of the following accounts and amounts will appear on an adjusted trial balance prepared on December 31?

A)Prepaid Rent, $9,000
B)Prepaid Rent, $3,000
C)Rent Expense, $6,000
D)Rent Expense, $3,000

Question 72

The book value of a plant asset is the:

A)accumulated depreciation less the cost of the asset.
B)cost of the asset.
C)balance in the accumulated depreciation account.
D)cost of the asset less the accumulated depreciation.

Question 73

On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next six months. An adjusted trial balance prepared on December 31 of the current year will show a credit balance in Unearned Revenue in the amount of:

A)$0.
B)$900.
C)$4,500.
D)$5,400.

Question 74

Plant and property assets include:

A)equipment, supplies and land.
B)equipment, prepaid insurance and furniture.
C)equipment, buildings and land.
D)land, buildings and accounts receivable.

Question 75

O'Connor Company purchased supplies totaling $21,600. By year end, $9,300 of supplies were still on hand. How much Supplies Expense should O'Connor recognize?

A)$9,300
B)$12,300
C)$21,600
D)$0

Question 76

A company started the year with $400 of supplies. During the year the company purchased additional supplies costing $1,600. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period will show the following balance in Supplies:

A)$1,400.
B)$800.
C)$600.
D)$0.

Question 77

Which account is debited in the adjusting entry to record insurance expired during the current period?

A)Prepaid Insurance
B)Insurance Expense
C)Accrued Insurance
D)Insurance Payable

Question 78

A company pays an employee $1,000 per week for a five day work week. The adjusting entry on December 31, which is a Tuesday, is a:

A)debit to Salaries Expense for $1,000 and a credit to Salaries Payable for $1,000.
B)debit to Salaries Expense for $500 and a credit to Salaries Payable for $500.
C)debit to Salaries Expense for $400 and a credit to Salaries Payable for $400.
D)debit to Salaries Payable for $1,000 and a credit to Salaries Expense for $1,000.

Question 79

A revenue that has been earned, but not yet collected is a(n):

A)unearned expense.
B)prepaid expense.
C)accrued expense.
D)accrued revenue.

Question 80

On August 1 of the current year, Magic Carpet Entertainment received $4,800 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2008, would include a:

A)debit to Cash for $4,800.
B)credit to Service Revenue for $4,800.
C)debit to Unearned Service Revenue for $2,000.
D)debit to Unearned Service Revenue for $2,800.