Question 1

The expense recognition (matching)principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Accepted Answer

The expense recognition (matching) principle aims to record expenses in the same accounting period as the revenue earned as a result of these expenses. This is done to align the recognition of revenue and expenses, and to provide a more accurate picture of an organization's financial performance.

Question 2

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Accepted Answer

False

Question 3

The accrual basis of accounting recognizes expenses when cash is paid.

Accepted Answer

The accrual basis of accounting recognizes expenses when they are incurred, regardless of when cash is paid.

Question 4

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Accepted Answer

The cash basis of accounting only records transactions when cash is received or paid out, regardless of when the transaction actually occurred. This can lead to inconsistencies in financial statements from period to period, as certain transactions may be recorded in one period but not in another. The accrual basis of accounting, which records transactions when they occur, provides more consistent and accurate financial statements over time.

Question 5

Adjusting entries result in a better matching of revenues and expenses for the period.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are matched and reported in the proper period. This improves the accuracy of financial statements and ensures that the company's performance is reflected appropriately.

Question 6

The cash basis of accounting recognizes revenues when cash payments from customers are received.

Accepted Answer

The definition of cash basis accounting is that revenues are recognized when cash payments are received, making this statement true.

Question 7

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Accepted Answer

Under the cash basis of accounting, revenue and expenses are recognized only when cash is received or paid, respectively. Therefore, there is no need for adjustments for prepaid, unearned, and accrued items, as they are not related to cash transactions.

Question 8

Interim financial statements report a company's business activities for a one-year period.

Accepted Answer

Interim financial statements report a company's business activities for a shorter period of time, such as a quarter or six months, rather than a full year.

Question 9

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

Accepted Answer

A fiscal year does refer to an organization's accounting period that lasts for twelve consecutive months or 52 weeks.

Question 10

Recording revenues early overstates current-period income; recording revenues late understates current period income.

Accepted Answer

This statement is true. If revenues are recorded too early, before the goods or services have been fully delivered, it will overstate the current period income. Similarly, if revenues are recorded too late, after the goods or services have been fully delivered, it will understate the current period income. The timing of revenue recognition is important to accurately reflect the financial performance of the business.

Question 11

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that all account balances are accurate and in accordance with accrual accounting principles. Without adjusting entries, some accounts may be overstated or understated, which would result in inaccurate financial statements.

Question 12

Since the revenue recognition principle requires that revenues be recorded when earned, there are no unearned revenues in accrual accounting.

Accepted Answer

The answer of Since the revenue recognition principle requires that...

Question 13

The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred.

Accepted Answer

The answer of The cash basis of accounting is a...

Question 14

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 revenue should be recognized in the financial statements. Adjusting entries may need to be made for unearned revenues (revenues received in advance but not yet earned) and accrued revenues (revenues earned but not yet received) to ensure that the financial statements accurately reflect the revenue for the period.

Question 15

Adjusting entries are made after the preparation of financial statements.

Accepted Answer

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

Question 16

The accrual basis of accounting recognizes revenues when cash is received from customers.

Accepted Answer

The accrual basis of accounting recognizes revenues when they are earned, regardless of when cash is received.

Question 17

The expense recognition (matching)principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

Accepted Answer

The expense recognition (matching) principle states that expenses should be recognized in the same accounting period as the revenues that are earned as a result of the expenses, regardless of when cash is paid or received. This principle helps to accurately reflect the financial performance of a business over a given period of time.

Question 18

The time period assumption assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.

Accepted Answer

The time period assumption assumes that an organization's activities can be measured and reported on over specific time periods, allowing for meaningful comparisons and analysis. This is a fundamental concept in accounting.

Question 19

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

Accepted Answer

A company's fiscal year can start on any date and does not necessarily have to correspond with the calendar year.

Question 20

Two main accounting principles used in accrual accounting are expense recognition and full closure.

Accepted Answer

The two main accounting principles used in accrual accounting are the revenue recognition principle and the matching principle. The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when payment is received, while the matching principle requires that expenses be recognized in the same period as the revenue they help to generate. Full closure is not a recognized accounting principle.

Quiz 3: Adjusting Accounts and Preparing Financial Statements