Question 1

Which of the following entries would be recorded by a company that uses the cash basis method of accounting?
A) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts Receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Salaries Expense } & 1,000 & \
\hline \text { Salaries Payable } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Prepaid Rent } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Rent Expense } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

Under the cash basis of accounting, transactions are recorded only when cash is received or paid. Entry D reflects a cash payment for rent, which aligns with the cash basis method.

Question 2

Which of the following statements is true of accrual basis accounting?
A) Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP).
B) Accrual basis accounting records expenses only when cash has been paid for them.
C) Accrual basis accounting records revenue only when cash is received.
D) Accrual basis accounting always results in greater net income than cash basis accounting.

Accepted Answer

Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP). This is because accrual basis accounting provides a more accurate picture of a company's financial performance by recording revenue and expenses when they are incurred, rather than when cash is received or paid. The matching principle also requires expenses to be matched with the revenue they helped generate, even if payment has not yet been made.

Question 3

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 4

Generally Accepted Accounting Principles (GAAP) require the use of the accrual basis of accounting.

Accepted Answer

GAAP require the use of the accrual basis of accounting, which recognizes revenues when earned and expenses when incurred, regardless of when cash is exchanged.

Question 5

Under cash basis accounting, an expense is recorded only when cash is paid.

Accepted Answer

In cash basis accounting, expenses are recorded when cash is paid, not when the expense is incurred. This is different from accrual basis accounting, which records expenses when they are incurred, regardless of when cash is actually paid.

Question 6

Aquatic Supplies, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

Accepted Answer

Under the accrual basis of accounting, a company should record an expense in the period in which it is incurred, regardless of the timing of the payment. Therefore, an entry should be made to record the purchase of supplies on account, even if the payment hasn't been made yet.

Question 7

If a company is using accrual basis accounting, when should it record revenue?
A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) before services are performed
D) when cash is received, 30 days after the completion of the services

Accepted Answer

According to accrual basis accounting, revenue should be recorded when services are performed, even if the payment is not received at the time. This helps in recognizing revenue in the period in which it is earned, regardless of when the payment is actually received.

Question 8

The Pediatric Dental Corporation prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How much Rent Expense should the corporation record for the three months ended September 30 under the cash basis? Why?

Accepted Answer

The answer of The Pediatric Dental Corporation prepays the rent...

Question 9

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

Accepted Answer

Cash basis accounting recognizes revenue when cash is received and expenses when they are paid, regardless of when the sale or purchase actually occurred. It is simpler than accrual accounting but can result in distorted financial statements if there are significant timing differences between when cash is received or paid and when the related transactions actually occurred.

Question 10

The Hartman Dental Corporation prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How much Rent Expense should the corporation record for the three months ended September 30 under the accrual basis? Why?

Accepted Answer

The answer of The Hartman Dental Corporation prepays the rent...

Question 11

The cash basis of accounting ignores ________.
A) payables
B) revenue
C) cash
D) expenses

Accepted Answer

The cash basis of accounting ignores payables because it only records transactions when cash actually changes hands, not when obligations to pay (payables) are incurred.

Question 12

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenues and assets.

Accepted Answer

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenue or expense.

Question 13

What is the difference between cash basis accounting and accrual basis accounting?

Accepted Answer

The answer of What is the difference between cash basis...

Question 14

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

Accepted Answer

Under accrual basis accounting, revenue is recognized when earned, regardless of when the cash is received. Income is recorded when it is earned and expenses are recorded when they are incurred, regardless of when the cash is exchanged.

Question 15

Under accrual basis accounting, an expense is recorded only when cash is paid.

Accepted Answer

Under accrual basis accounting, expenses are recorded when they are incurred, regardless of whether cash has been paid or not. Cash basis accounting records expenses only when cash is paid.

Question 16

At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis 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

Under the accrual basis of accounting, revenue is recognized when earned, regardless of when payment is received, and expenses are recognized when incurred, regardless of when payment is made. Therefore, performing services on account (earning revenue without receiving payment) would increase net income under accrual basis but would not increase net income under cash basis accounting, as cash basis only recognizes revenue when payment is actually received. Choices A, C, and D all involve actual cash transactions, and thus would increase net income under both accrual and cash basis accounting.

Question 17

The accrual method is an easier accounting method to follow than cash basis accounting because it generally requires less knowledge of accounting concepts and principles.

Accepted Answer

The accrual method requires a solid understanding of accounting principles and concepts, as it involves recording transactions when they occur, regardless of when cash is received or paid. Cash basis accounting, on the other hand, simply records transactions when cash is received or paid, making it a simpler method to follow.

Question 18

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?
A) Cash
B) Unearned Revenue
C) Service Revenue
D) Salaries Expense

Accepted Answer

Under the accrual basis of accounting, companies recognize revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid. Unearned Revenue is a liability account that represents revenue received before the company has delivered goods or services. This concept does not exist under the cash basis of accounting, where revenue is recognized only when cash is received.

Question 19

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?
A) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts Receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Payable } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Service Revenue } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Service Revenue } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

Under accrual basis accounting, revenue is recognized when earned, not when cash is received. The service was performed on July 21, so the company would recognize the revenue then and record an accounts receivable. When the cash is received on August 5, the entry is to debit Cash and credit Accounts Receivable, reflecting the receipt of cash and the reduction of the outstanding receivable.

Question 20

When does a company account for revenue if it uses cash basis accounting?
A) when services are performed, even though cash may be received at a later date
B) before services are performed
C) when the services are being performed
D) when cash is received, either prior to, at the time of, or after the services are performed

Accepted Answer

With cash basis accounting, revenue is recognized when cash is received, either prior to, at the time of, or after the services are performed.

Quiz 3: The Adjusting Process

Which of the following entries would be recorded by a company that uses the cash basis method of accounting?

Which of the following statements is true of accrual basis accounting?

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

Generally Accepted Accounting Principles (GAAP) require the use of the accrual basis of accounting.

Under cash basis accounting, an expense is recorded only when cash is paid.

Aquatic Supplies, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

If a company is using accrual basis accounting, when should it record revenue?

The Pediatric Dental Corporation prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How much Rent Expense should the corporation record for the three months ended September 30 under the cash basis? Why?

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

The Hartman Dental Corporation prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How much Rent Expense should the corporation record for the three months ended September 30 under the accrual basis? Why?

The cash basis of accounting ignores ________.

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenues and assets.

What is the difference between cash basis accounting and accrual basis accounting?

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

Under accrual basis accounting, an expense is recorded only when cash is paid.

At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis accounting?

The accrual method is an easier accounting method to follow than cash basis accounting because it generally requires less knowledge of accounting concepts and principles.

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?

When does a company account for revenue if it uses cash basis accounting?