Question 1

The revenue recognition concept requires that the reporting of revenue be included in the period when cash for the service is received.

Accepted Answer

The revenue recognition concept requires that revenue be recognized in the period when it is earned, regardless of when cash is received. This means that revenue should be recognized when goods are delivered or services are performed, even if payment is received at a later date.

Question 2

The matching concept supports matching expenses with the related revenues.

Accepted Answer

The matching concept is a fundamental accounting principle that requires expenses to be recognized in the same accounting period as the related revenues. This means that expenses should be matched with the revenues that they helped to generate. This matching process helps to ensure that financial statements accurately reflect the profitability of a business over a given period of time.

Question 3

Generally accepted accounting principles require accrual-basis accounting.

Accepted Answer

Accrual-basis accounting is a requirement of GAAP, which means that revenue and expenses are recognized when they are earned or incurred, regardless of when money actually changes hands.

Question 4

The updating of accounts is called the adjusting process.

Accepted Answer

The adjusting process involves making changes to accounts at the end of an accounting period to ensure that financial statements reflect all transactions and events that should be recorded.

Question 5

An adjusting entry would adjust an expense account so the expense is reported when incurred.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that the accounts accurately reflect the financial activity that occurred during that period. An adjusting entry for an expense account would ensure that the expense is properly recorded in the period when it was incurred, even if the actual payment was made at a later date.

Question 6

Even though GAAP requires the accrual basis of accounting,some businesses prefer using the cash basis of accounting.

Accepted Answer

While GAAP requires the accrual basis of accounting, some businesses may choose to use the cash basis instead. However, it is important to note that using the cash basis may result in financial statements that are not as accurate or reliable as those prepared using the accrual basis.

Question 7

Adjusting entries affect only expense and asset accounts.

Accepted Answer

Adjusting entries can affect both expense and revenue accounts, as well as asset and liability accounts.

Question 8

The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded.

Accepted Answer

Deferred revenue refers to money received by a company for goods or services yet to be delivered or performed, thus it has been recorded as a liability. Accrued revenue refers to revenue that has been earned (for goods or services provided) but not yet received or recorded, indicating it needs to be recognized in the financial statements through an adjusting entry.

Question 9

Reporting of revenues and expenses in the proper period is due to the accounting period concept.

Accepted Answer

The accounting period concept requires that revenues and expenses are recognized in the period in which they occur, regardless of when cash is received or paid. This ensures that financial statements accurately reflect the financial performance of the business during a specific period of time.

Question 10

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.

Accepted Answer

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the accrual basis of accounting. The cash basis of accounting records revenues and expenses when cash is received or paid out, respectively.

Question 11

For most large businesses,the cash basis of accounting will provide accurate financial statements for user needs.

Accepted Answer

For large businesses, the accrual basis of accounting is generally more accurate as it records transactions when they occur rather than when cash is exchanged. This provides a clearer picture of the company's financial status and performance.

Question 12

Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.

Accepted Answer

Accruals are necessary to properly match expenses with the revenue they generate or to recognize revenue when it is earned, even if payment or receipt has not yet been made. This means that expenses or revenues that have been incurred or earned but are not yet recorded in the financial statements need to be accrued.

Question 13

Adjusting entries affect balance sheet accounts at the exclusion of income statement accounts.

Accepted Answer

Adjusting entries affect both balance sheet and income statement accounts.

Question 14

If the debit portion of an adjusting entry is to an asset account,then the credit portion must be to a liability account.

Accepted Answer

If the debit portion of an adjusting entry is to an asset account, the credit portion may be to an expense account, a revenue account, or a contra asset account. It does not necessarily have to be to a liability account.

Question 15

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

Accepted Answer

The revenue recognition concept states that revenue should be recorded when it is earned, regardless of when the cash is received. This means that revenue can be recognized before or after cash is received, depending on when the product or service is provided. This principle is important for ensuring accurate financial reporting and matching expenses with revenue in the appropriate periods.

Question 16

The matching concept requires expenses be recorded in the same period that the related revenue is recorded.

Accepted Answer

The matching concept is a fundamental principle of accrual accounting, which requires that expenses should be recorded in the same period as the related revenue is recognized. This ensures that the financial statements reflect the true profitability of the organization during the period.

Question 17

An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that revenue and expenses are reported in the correct period. Revenue should be recognized when it is earned, regardless of when cash is received. Adjusting entries can help to match revenue and expenses to the appropriate period, and ensure accurate financial reporting.

Question 18

An adjusting entry to accrue an incurred expense will affect total liabilities.

Accepted Answer

Accruing an incurred expense involves recognizing an expense that has been incurred but not yet paid. This means that a liability is created because the company owes money for this expense. Therefore, an adjusting entry to accrue an incurred expense will affect total liabilities.

Question 19

An example of deferred revenue is Unearned Rent.

Accepted Answer

Unearned Rent is an example of deferred revenue because it represents rent payments received in advance that have not yet been earned.

Question 20

Revenues and expenses should be recorded in the same period to which they relate.

Accepted Answer

This is the basic principle of accrual accounting, which matches revenues and expenses to the period in which they are earned and incurred, respectively. This allows for a more accurate representation of a company's financial performance and position.

Quiz 3: The Adjusting Process