Question 1

The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues.

Accepted Answer

The revenue recognition principle guides how and when revenues should be recognized in the financial statements. Adjusting entries are made based on this principle, particularly for unearned and accrued revenues. Therefore, the statement is true.

Question 2

The 12 consecutive months (or 52 weeks)selected as an organization's accountingperiod is called the fiscal year.

Accepted Answer

The statement is true.

Question 3

Adjusting entries are designed primarily to correct errors made by bookkeepers

Accepted Answer

Adjusting entries are primarily made to record events that have occurred but are not yet recorded by the end of the accounting period, to ensure that the financial statements are accurate and comply with the accrual basis of accounting. They are not primarily for correcting bookkeeper errors.

Question 4

Since the revenue recognition principle requires that revenues be earned, there is no such thing as unearned revenues in accounting.

Accepted Answer

The statement is false. Unearned revenues, also known as deferred revenues, are a common accounting concept that refers to the prepayment of funds for goods or services that will be delivered or performed in the future. These funds are not yet considered earned revenue until the goods or services are provided to the customer.

Question 5

The timeliness principle assumes that an organization's activities can be divided intospecific periods.

Accepted Answer

The timeliness principle assumes that an organization's activities can be divided into specific periods, such as accounting periods, reporting periods, budget periods, etc. This allows for better tracking and analysis of performance over time.

Question 6

Companies with little seasonal variation in sales often choose the calendar year as theirfiscal year.

Accepted Answer

Companies with little seasonal variation in sales often choose the calendar year as their fiscal year because it aligns with the traditional calendar year and makes it easier for financial reporting and tax purposes.

Question 7

Adjusting entries are required to match revenues and expenses

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are properly matched and recorded in the correct period. This helps to accurately reflect the financial performance of a business and ensures that financial statements are reliable and informative.

Question 8

Internal transactions have no effect on the accounting equation

Accepted Answer

Internal transactions involve exchanges within a company that may affect the accounting equation by reallocating amounts among assets, liabilities, and equity, but the overall equation remains balanced.

Question 9

Before making adjusting entries at the end of an accounting period, some accounts may 3)not show proper financial statement amounts even though all transactions were correctly recorded.

Accepted Answer

Adjusting entries are made to correct any discrepancies in the financial statement amounts and to ensure that they accurately reflect the financial position of the company. Even if all transactions were correctly recorded, some accounts may still require adjustments to show their proper amounts.

Question 10

IFRS requires the preparation of interim financial statements

Accepted Answer

IFRS does not require the preparation of interim financial statements; it is optional. However, if an entity chooses to prepare them, IAS 34 Interim Financial Reporting applies.

Question 11

External business transactions are transactions between the business entity and some 5)other (outside)party.

Accepted Answer

External business transactions involve exchanges between the company and parties outside of the company, such as customers, suppliers, and creditors.

Question 12

Adjusting entries are used to record the effects of internal economic events

Accepted Answer

Adjusting entries are entries made at the end of an accounting period to record the effects of internal economic events that have not been recorded during the period or have been recorded in a wrong account. These entries ensure that the financial statements accurately reflect the company's financial position and performance at the end of the period.

Question 13

Internal transactions often include cash payments

Accepted Answer

The answer of Internal transactions often include cash payments...

Question 14

Interim financial reports cover a firm's business activity for one year

Accepted Answer

Interim financial reports cover a shorter period of time, usually three or six months, rather than a full year.

Question 15

The two main accounting principles used in the adjusting process are matching and fulldisclosure.

Accepted Answer

The two main accounting principles used in the adjusting process are the matching principle and the revenue recognition principle.

Question 16

The natural business year can only be used when the seasonal variation in sales does not match the calendar year.

Accepted Answer

The natural business year is a fiscal year that is chosen based on the company's specific pattern of seasonality rather than the traditional January-December calendar year. It is used when the seasonal variation in sales does not align with the calendar year.

Question 17

A company's fiscal year must correspond with the calendar year

Accepted Answer

A company's fiscal year does not necessarily have to correspond with the calendar year. Companies can choose any 12-month period as their fiscal year for financial reporting purposes.

Question 18

If equipment were purchased from an outside party, the using up of the equipment's 7)economic benefit would be considered an external transaction.

Accepted Answer

The using up of the equipment's economic benefit is an internal transaction, as it involves the consumption of the asset within the company, not a transaction with an outside party.

Question 19

Adjusting entries are made after the preparation of financial statements

Accepted Answer

The answer of Adjusting entries are made after the preparation...

Question 20

The matching principle requires that revenue be assigned to the accounting period in which it is earned.

Accepted Answer

The answer of The matching principle requires that revenue be...

Quiz 3: Adjusting Accounts for Financial Statements