Question 1

If a company is using the accrual method of accounting,when is revenue recorded?
A) When cash is received, even though services may be rendered at a later date
B) When services are rendered, even though cash may be received at a later date
C) When cash is received, before the completion of the services
D) When cash is received, 30 days after the completion of the services

Accepted Answer

Under the accrual method of accounting, revenue is recognized when services are rendered or goods are delivered, even if cash has not yet been received. This means that revenue is recorded when the company has fulfilled its obligation to the customer, regardless of when payment is received. This method provides a more accurate picture of a company's financial performance, as it takes into account revenue that has been earned but not yet received.

Question 2

The owner of Recipes.org purchases $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the $2,000 is paid.

Accepted Answer

Under the accrual basis of accounting, expenses are recognized when they are incurred, regardless of when they are paid. Therefore, an entry should be made to record the $2,000 purchase on account even if it has not yet been paid.

Question 3

Which of the following would be considered an interim accounting period?
A) One to two months
B) One to two quarters
C) One to two years
D) Either one month or one quarter

Accepted Answer

An interim accounting period is a period shorter than a full fiscal year. Option D includes both one month and one quarter, which are both acceptable lengths of interim accounting periods. Options A and C are too short or too long, respectively, to be considered interim accounting periods. Option B is also a possibility, as some companies may choose to report on a quarterly basis, but it is not as broad as option D.

Question 4

The revenue principle is the basis for recording revenues―both when to record revenue and the amount of revenue to record.

Accepted Answer

The revenue principle provides guidance on when and how to record revenue in accounting. It states that revenue should be recognized when earned, regardless of when payment is received, and the amount of revenue should be based on the fair value of the goods or services provided.

Question 5

Accrual accounting records transactions ONLY when cash is received or paid.

Accepted Answer

Accrual accounting records transactions when they occur, regardless of when cash is received or paid. This means that revenues and expenses are recognized when they are earned or incurred, not when money changes hands.

Question 6

Which of the following entries would be recorded if a company is using the cash-basis method of accounting?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Salary expense } & 1,000 & \
\hline \text { Salary payable } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Prepaid rent } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Rent expense } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

Under the cash-basis method of accounting, transactions are recorded only when cash is received or paid. In this case, rent expense is recorded when cash is paid, which is reflected in option D.

Question 7

Which of the following situations would result in an increase in income under the accrual method of accounting,but would NOT result in an increase in income under the cash-basis method of accounting?
A) Purchase of supplies for cash
B) Performance of services on account
C) Use of supplies purchased earlier
D) Receipt of cash for services that were performed earlier on account

Accepted Answer

The performance of services on account under the accrual method of accounting would result in an increase in income, even if cash has not been received yet. However, under the cash-basis method, income is only recognized when cash is received, so the receipt of cash for services performed earlier on account (choice D) would result in an increase in income under both methods of accounting. The purchase of supplies for cash (choice A) and the use of supplies purchased earlier (choice C) are not related to income recognition under either method of accounting.

Question 8

Generally accepted accounting principles require the use of accrual accounting.

Accepted Answer

This statement is true. Generally accepted accounting principles (GAAP) mandate the use of accrual accounting, which recognizes revenue and expenses when they are earned or incurred, regardless of whether or not cash has been exchanged. Accrual accounting provides a more accurate picture of a company's financial performance and position over time.

Question 9

In cash-basis accounting,revenue is recognized when cash is received and expenses are recognized when they are paid.

Accepted Answer

In cash-basis accounting, revenue is recognized when cash is received and expenses are recognized when they are paid. This is in contrast to accrual accounting, where revenue and expenses are recognized when they are earned or incurred, regardless of when cash is exchanged.

Question 10

Which of the following is TRUE?
A) Accrual accounting is required by generally accepted accounting principles.
B) Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash is paid.
C) Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue when cash is received.
D) All of the above are true.

Accepted Answer

A) Accrual accounting is required by generally accepted accounting principles.
B) Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash is paid.
C) Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue when cash is received.
All the given options are true. Thus, option D, 'All of the above are true.' is the correct answer.

Question 11

Under cash-basis accounting,revenue is recorded when it is earned,regardless of when cash is received.

Accepted Answer

Under cash-basis accounting, revenue is recorded only when cash is received, not when it is earned.

Question 12

Which of the following is NOT considered an interim accounting period?
A) Monthly
B) Quarterly
C) Annually
D) Semi-annually

Accepted Answer

Monthly, quarterly, and semi-annually are all examples of interim accounting periods, as they occur between the annual reporting periods. Annually, on the other hand, is the annual reporting period and not an interim period.

Question 13

Under cash-basis accounting,an expense is recorded ONLY when cash is paid out.

Accepted Answer

Cash-basis accounting only records expenses when cash is actually paid out, regardless of when the expense was incurred. This is different from accrual accounting, which records expenses when they are incurred, regardless of when payment is made.

Question 14

Under accrual basis accounting,revenue is recorded ONLY when cash is received.

Accepted Answer

Under accrual basis accounting, revenue is recorded when it is earned, regardless of when cash is received. Cash basis accounting records revenue when cash is received.

Question 15

Which of the following accounts would be used under the accrual method of accounting,but NOT under the cash-basis method of accounting.
A) Cash
B) Unearned revenue
C) Equipment
D) Salary expense

Accepted Answer

Under the accrual method of accounting, unearned revenue is recognized when cash is received before a service is performed or goods are delivered, reflecting a liability to perform services or deliver goods in the future. This concept does not exist under the cash-basis method, where income is not recognized until cash is actually received, regardless of when services or goods are provided.

Question 16

Under accrual basis accounting,an expense is recorded ONLY when the cash is paid out.

Accepted Answer

Under accrual basis accounting, expenses are recorded when they are incurred, regardless of when cash is paid out. Therefore, the statement that an expense is recorded only when cash is paid out is false.

Question 17

Which of the following accounts does cash-basis accounting ignore?
A) Payables
B) Revenue
C) Cash
D) Expenses

Accepted Answer

Cash-basis accounting ignores payables because it only records transactions when cash changes hands, not when obligations are incurred.

Question 18

If a company is using the cash-basis method of accounting,when is revenue recorded?
A) When services are rendered, even though cash may be received at a later date
B) When cash is received, prior to the services being rendered
C) When cash is received, at a time after the services were rendered
D) When cash is received, either prior to the services being rendered or at a time after the services were rendered

Accepted Answer

In cash-basis accounting, revenue is recorded when cash is received, regardless of when the services were actually rendered. This can happen either before the services are provided or after.

Question 19

Which of the following entries would be recorded ONLY if a company is using the accrual method of accounting?
A) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Salary expense } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Service revenue } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Supplies } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

The accrual method of accounting records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged. Entry A, which records an increase in Accounts Receivable, is an example of accrual accounting because it recognizes revenue at the time the service is performed, not when the cash is received.

Question 20

An example of an interim accounting period is one year.

Accepted Answer

An interim accounting period is a period shorter than one year, usually either a quarter (3 months) or a half-year (6 months). Therefore, one year is not an example of an interim accounting period.

Quiz 3: The Adjusting Process

If a company is using the accrual method of accounting,when is revenue recorded?

The owner of Recipes.org purchases $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the $2,000 is paid.

Which of the following would be considered an interim accounting period?

The revenue principle is the basis for recording revenues―both when to record revenue and the amount of revenue to record.

Accrual accounting records transactions ONLY when cash is received or paid.

Which of the following entries would be recorded if a company is using the cash-basis method of accounting?

Which of the following situations would result in an increase in income under the accrual method of accounting,but would NOT result in an increase in income under the cash-basis method of accounting?

Generally accepted accounting principles require the use of accrual accounting.

In cash-basis accounting,revenue is recognized when cash is received and expenses are recognized when they are paid.

Which of the following is TRUE?

Under cash-basis accounting,revenue is recorded when it is earned,regardless of when cash is received.

Which of the following is NOT considered an interim accounting period?

Under cash-basis accounting,an expense is recorded ONLY when cash is paid out.

Under accrual basis accounting,revenue is recorded ONLY when cash is received.

Which of the following accounts would be used under the accrual method of accounting,but NOT under the cash-basis method of accounting.

Under accrual basis accounting,an expense is recorded ONLY when the cash is paid out.

Which of the following accounts does cash-basis accounting ignore?

If a company is using the cash-basis method of accounting,when is revenue recorded?

Which of the following entries would be recorded ONLY if a company is using the accrual method of accounting?

An example of an interim accounting period is one year.