Question 1

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

Accepted Answer

^{Cash basis accounting records revenues only when cash is received and expenses only when cash is paid}^{.Accrual basis accounting records revenues when earned and expenses when incurred.}

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

Hartman Dental should report Rent Expense of $9,000 because the expense is recorded when incurred.

Question 4

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

Accepted Answer

GAAP requires the use of accrual basis of accounting rather than cash basis. This means that revenues are recorded when they are earned, regardless of when they are received, and expenses are recorded when they are incurred, regardless of when they are paid. This provides a more accurate representation of a company's financial position and performance.

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

Cash basis accounting is a method of accounting where revenue is recorded when cash is received and expenses are recorded when they are paid. This means that an expense is recognized only when cash is paid out and a revenue is recognized only when cash is received. It is a simpler method of accounting and is generally used by small businesses.

Question 7

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

Question 8

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

The unearned revenue account represents revenue that has been received in advance but has not yet been earned. This type of account is recognized under accrual accounting because revenue is recognized when earned, regardless of when payment is received. Under cash accounting, the revenue would only be recognized when payment is received. Therefore, unearned revenue would be used under accrual accounting but not under cash accounting.

Question 9

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

Accepted Answer

Under accrual basis accounting, revenue is recorded when earned.

Question 10

Which of the following entries would be recorded by a company that uses 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) $\begin{array}{|l|r|c|}
\hline \text { Salaries Expense } & 1,000 & \
\hline \text { Salaries Payable } & & 1,000 \
\hline
\end{array}$

C) $\begin{array}{|l|r|c|}
\hline \text { Prepaid Rent } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$

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 of accounting, transactions are recorded only when cash is received or paid. Option D reflects a cash transaction where rent expense is recorded when cash is paid.

Question 11

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 means that companies must use accrual basis accounting to prepare their financial statements in accordance with GAAP. Accrual basis accounting records revenue and expenses when they are earned or incurred, regardless of when cash is received or paid. This allows for a more accurate representation of a company's financial performance and position.

Question 12

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

With accrual basis accounting, revenue should be recorded when services are performed, even if cash is not received until a later date. This is because accrual accounting recognizes revenue when it is earned, regardless of when payment is received.

Question 13

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) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts Receivable } & & 1,000 \
\hline
\end{array}$$
B) $\begin{array}{|l|r|c|}
\hline \text { Accounts Payable } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$

C) $\begin{array}{|l|r|l|}
\hline \text { Cash } & 1,000 & \
\hline \text { Service Revenue } & & 1,000 \
\hline
\end{array}$

D) $\begin{array}{|l|r|c|}
\hline \text { Service Revenue } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$

Accepted Answer

Under accrual basis accounting, revenue is recognized when earned, not when cash is received. Since the service was performed on July 21, the company would recognize the revenue at that time and record an accounts receivable. When the cash is received on August 5, it would debit Cash and credit Accounts Receivable, as shown in option A.

Question 14

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 are incurred.

Question 15

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

Under cash basis accounting, revenue is recognized when cash is received, regardless of when services are performed. This means that revenue is recorded when cash is received, regardless of whether it is prior to, at the time of, or after the services are performed.

Question 16

Aquatic Supplies Company 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 accrual accounting, it is irrelevant when cash is received or paid.

Question 17

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.

Question 18

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 accrual basis accounting, revenue is recognized when it is earned (i.e. when services are performed) regardless of when the payment is received. Therefore, performing services on account would increase net income under accrual basis accounting because revenue has been recognized even though payment has not been received. However, cash basis accounting only recognizes revenue when payment is received, so performing services on account would not result in an increase in net income under cash basis accounting. Choices A, C, and D are all related to cash transactions which affect net income under both accrual basis and cash basis accounting.

Question 19

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

Accepted Answer

Under accrual basis accounting, an expense is recorded when incurred.

Question 20

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.

Quiz 3: The Adjusting Process

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

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

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

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

The Pediatric Dental Company prepays the rent on its dental office.On July 1,the company paid $18,000 for 6 months of rent.The rent period begins on July 1.How much Rent Expense should the company 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 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?

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

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?

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

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?

The cash basis of accounting ignores ________.

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

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

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

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?

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

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