Question 1

Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received.

Accepted Answer

Accounting for revenue on an accrual basis means that revenue is recognized when it is earned, regardless of when payment is received. This means that revenue is recorded before the cash is actually received.

Question 2

When cash is paid prior to incurring an expense, it is a deferral.

Accepted Answer

When cash is paid before a business incurs an expense, it is considered a deferral because the payment has been made in advance and is deferred until the expense is actually incurred.

Question 3

Accounts Receivable and Accounts Payable are examples of accruals.

Accepted Answer

Both accounts receivable and accounts payable are examples of accruals, which means they represent transactions that have been recorded but not yet paid or received. Accounts receivable represents money owed to a company by its customers, while accounts payable represents money owed by a company to its vendors or suppliers.

Question 4

The matching principle in accounting requires the matching of:
A)revenue earned with the assets used to produce the revenue.
B)revenue earned with the assets used less the liabilities incurred.
C)revenue earned with the liabilities used to produce the revenue.
D)revenue earned with the expenses incurred to produce the revenue.

Accepted Answer

The matching principle in accounting requires that revenue earned should be matched with the expenses incurred to generate that revenue. This ensures that the financial statements reflect the actual profitability of the business for a given period, as it takes into account all the costs associated with generating the revenue. Option A talks about assets used to produce revenue, but assets may not necessarily involve expenses. Option B and C are incorrect as they involve liabilities which do not necessarily need to be matched with revenue earned.

Question 5

Because inventories are high, Target should end its fiscal year in either November or December.

Accepted Answer

The timing of a company's fiscal year end is determined by the company's own operational, tax, or industry-specific considerations, not directly by the level of inventories.

Question 6

A period of time, such as a month or quarter, could be considered a(n):
A)fiscal year.
B)accounting period.
C)revenue period.
D)income period.

Accepted Answer

A period of time used for accounting purposes is referred to as an accounting period. This can be a month, quarter, or any other time frame chosen by the company for financial reporting and analysis. A fiscal year is a 12-month period chosen by a company for financial reporting and taxation purposes. Revenue period and income period are not commonly used terms in accounting.

Question 7

It does not matter when a fiscal year starts as long as it is twelve consecutive months long.

Accepted Answer

The important factor for a fiscal year is that it is a twelve month period. The starting date is flexible and can vary depending on the organization's needs and preferences.

Question 8

If a business records expenses when paid, the company is using the:
A)cash basis of accounting.
B)accrual basis of accounting.
C)adjustment basis of accounting.
D)the expense basis of accounting.

Accepted Answer

Recording expenses when paid is the definition for the cash basis of accounting.

Question 9

Items for which we have received payment, but have not yet delivered the service, are called:
A)referrals.
B)deferrals.
C)accruals.
D)non-cash items.

Accepted Answer

Deferrals refer to items for which payment has been received, but the service or product has not yet been provided. Referrals refer to customers or clients who are directed to a business by other individuals or entities. Accruals refer to expenses or revenues that have been recognized but not yet paid or received, while non-cash items include items such as depreciation or amortization. Therefore, the best choice for items for which payment has been received but the service has not yet been provided is B, deferrals.

Question 10

If Crane company records revenue when cash is received, they are using the:
A)cash basis of accounting.
B)accrual basis of accounting.
C)adjustment basis of accounting.
D)expense basis of accounting.

Accepted Answer

Crane company records revenue when cash is received, which indicates that they are using the cash basis of accounting. Under this method, revenue and expenses are recognized only when cash is received or paid, respectively.

Question 11

Holly's Holiday Shoppe would most likely end their fiscal year in which month?
A)June
B)November
C)December
D)Any of the above.

Accepted Answer

The answer of Holly's Holiday Shoppe would most likely end...

Question 12

The revenue recognition principle states that revenues should be recognized
A)when cash is received.
B)when they are earned, if cash will be received within the year.
C)when they are earned.
D)within six months of receiving cash.

Accepted Answer

The revenue recognition principle states that revenues should be recognized when they are earned, regardless of when the cash is received. This means that revenue can be recognized before, at the same time, or after cash is received. Option A is incorrect because cash receipt does not determine revenue recognition. Option B is incorrect as it is too restrictive as the timing of cash receipt should not be perceived as a key factor in revenue recognition. Option D is incorrect because there is no set time-frame for recognizing revenue after cash is received, as it solely depends on when the revenue is earned.

Question 13

The majority of businesses normally end their fiscal year on:
A)June 30.
B)September 30.
C)December 31.
D)some other date.

Accepted Answer

December 31 is the most common ending date for a fiscal year as it aligns with the calendar year. This makes it easier for businesses to report financial information and file taxes according to the same schedule as other businesses.

Question 14

If revenues are recognized and recorded when earned, the company is using the:
A)cash basis of accounting.
B)accrual basis of accounting.
C)adjustment basis of accounting.
D)the expense basis of accounting.

Accepted Answer

The accrual basis of accounting is when revenues and expenses are recognized when they are earned or incurred, rather than when cash is received or paid. This is the generally accepted accounting principle used by most companies.

Question 15

GAAP requires the use of accrual accounting.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) requires the use of accrual accounting. Accrual accounting records revenues and expenses when they are incurred, rather than when cash is exchanged. This method provides a more accurate representation of a company's financial position and performance.

Question 16

Under accrual accounting, the most important GAAP concepts to remember are the recognition principle for expenses and the matching principle for revenues.

Accepted Answer

Under accrual accounting, the most important GAAP concepts to remember are the revenue recognition principle for revenues and the matching principle for expenses.

Question 17

Part of accrual accounting depends upon recording ________ entries at the end of the accounting period.
A)expense
B)revenue
C)adjusting
D)debit

Accepted Answer

Accrual accounting relies on matching expenses to the revenue they helped generate. The adjusting entries made at the end of each accounting period ensure that all revenue and expenses are recorded in the period in which they were earned or incurred, regardless of when they were actually paid or received. These entries update account balances to reflect the true financial position of the business.

Question 18

If C&S, Inc. records expenses in the time period when incurred, they are using the:
A)cash basis of accounting.
B)accrual basis of accounting.
C)adjustment basis of accounting.
D)expense basis of accounting.

Accepted Answer

If C&S, Inc. records expenses in the time period when incurred, they are using the accrual basis of accounting. This method recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.

Question 19

Item costs that have been incurred, but not yet paid, are called:
A)referrals.
B)deferrals.
C)accruals.
D)non-cash items.

Accepted Answer

Item costs that have been incurred, but not yet paid, are referred to as accruals. Accrual accounting involves recognizing revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. Accrued expenses are posted as liabilities on the balance sheet.

Question 20

The type of accounting required by GAAP is:
A)modified cash.
B)hybrid cash.
C)cash.
D)accrual.

Accepted Answer

GAAP requires accrual accounting, which records transactions when they are incurred, rather than when cash is exchanged. This method provides a more accurate picture of a company's financial position and performance. Modified cash and cash accounting are not in line with GAAP, and hybrid cash accounting is not a recognized accounting method.

Quiz 3: Adjusting and Closing Entries

Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received.

When cash is paid prior to incurring an expense, it is a deferral.

Accounts Receivable and Accounts Payable are examples of accruals.

The matching principle in accounting requires the matching of:

Because inventories are high, Target should end its fiscal year in either November or December.

A period of time, such as a month or quarter, could be considered a(n) :

It does not matter when a fiscal year starts as long as it is twelve consecutive months long.

If a business records expenses when paid, the company is using the:

Items for which we have received payment, but have not yet delivered the service, are called:

If Crane company records revenue when cash is received, they are using the:

Holly's Holiday Shoppe would most likely end their fiscal year in which month?

The revenue recognition principle states that revenues should be recognized

The majority of businesses normally end their fiscal year on:

If revenues are recognized and recorded when earned, the company is using the:

GAAP requires the use of accrual accounting.

Under accrual accounting, the most important GAAP concepts to remember are the recognition principle for expenses and the matching principle for revenues.

Part of accrual accounting depends upon recording ________ entries at the end of the accounting period.

If C&S, Inc. records expenses in the time period when incurred, they are using the:

Item costs that have been incurred, but not yet paid, are called:

The type of accounting required by GAAP is: