Deck 3: Accrual Accounting

Question 1

When a company recognizes the portion of supplies used during a year,the effect is to decrease net income.

Answer 1

True

Question 2

One effect of recognizing depreciation is to decrease net income.

Answer 2

True

Question 3

Accrued revenue is recognized when cash is received.

Answer 3

False

Question 4

Income statement accounts are closed to the income summary.

Question 5

Adjustments are recorded for all transactions involving outside entities.

Question 6

When cash is paid before an expense is incurred,an accrual is necessary.

Question 7

Matching requires expenses be recorded and reported in the same period as the revenue that it helped to generate.

Question 8

Most companies use the accrual basis of accounting because it is required under generally accepted accounting principles.

Question 9

A company that forgets to recognize depreciation for the year understates its income and assets.

Question 10

Three months before its year end,a company signed a $250,000,12%,eight-month note.Principal and interest will be paid at maturity.No interest should be accrued at year end because the company has no obligation to pay the interest until the note matures.

Question 11

The cash account is never part of an adjusting entry.

Question 12

When revenue is earned after the earlier receipt of cash,an adjustment that increases a revenue account and decreases a liability account is recorded.

Question 13

The amount of interest accrued is added to the note payable account and reported in the liabilities section of the balance sheet.

Question 14

Accumulated depreciation is a contra asset account.

Question 15

When an expense is incurred prior to the payment of cash for that expense,an adjustment that increases an expense account and increases a liability is prepared.

Question 16

A cost can be an asset or expense depending on whether or not the future economic benefits have expired.

Question 17

Adjusting entries are prepared using the accrual basis of accounting for preparing financial statements.

Question 18

Every adjustment involves at least one income statement and one balance sheet account.

Question 19

The balance in the account,Rent Collected in Advance,is reported as a liability on the balance sheet of the landlord.

Question 20

A franchiser is permitted to recognize the revenue from the sale of a franchise whenever they wish under accrual-basis accounting.

Question 21

The names of the four major types of adjusting entries are ____________________,____________________,____________________,and ____________________.

Question 22

Since dividends do not impact income,the dividends account is not closed to the income summary account.

Question 23

Dividends,like expenses,are closed to the income summary account during the end-of-period closing process.

Question 24

The difference between accrual-based revenue and accrual-based expenses in the period the activity occurred is called ____________________.

Question 25

During the closing process,revenues,expenses,and dividends must be closed to the income summary account.

Question 26

____________________ is the allocation of the cost of a tangible,long-term asset over its useful life to expense.

Question 27

Under the ____________________ basis of accounting,revenues are recognized when earned and expenses when incurred.

Question 28

Adjusting entries must be made prior to the preparation of financial statements.

Question 29

The adjustment necessary to record the expense and the associated increase in the company's liabilities is ____________________.

Question 30

The ____________ basis of accounting recognizes revenue when it is received regardless of when the revenue is earned.

Question 31

The ____________________ basis of accounting requires that revenues be recorded in the period they are earned rather than in the period they are received.

Question 32

Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period.

Question 33

____________________ is the name given to balance sheet accounts because their balances are carried forward from the current accounting period to future accounting periods.

Question 34

According to the revenue recognition principle,revenues are recognized when they are ____________________ and ____________________.

Question 35

Closing entries are necessary to assure that the company's net income for an accounting period is accurately determined.

Question 36

The ____________________ principle determines when revenue is recorded and reported.

Question 37

If the income summary account has a credit balance just prior to closing it to retained earnings,the company must have incurred a net income for the year.

Question 38

The ____________________ principle attempts to associate the revenue of the period with all costs necessary to generate that revenue.

Question 39

____________________ is the name given to revenue,expense,and dividend accounts because they are closed at the end of the period.

Question 40

____________________ are journal entries made at the end of the accounting period to return the balance in all temporary accounts to zero.

Question 41

Select the correct revenue recognition principle for each of the following. (Choices may be used more than once.)

-inventory

A)Recognize revenue over the passage of time.
B)Recognize revenue when the customer takes possession of the product.
C)Recognize revenue when cash is collected.
D)Recognize revenue when service is performed.

Question 42

The six steps for preparing the worksheet are unadjusted trial balance,adjusting entries,adjusted trial balance,______________,retained earnings statement,and balance sheet.

Question 43

The ____________________ principle requires that expenses be recorded and reported in the same period as the revenue that it helped to generate.

Question 44

Select the correct revenue recognition principle for each of the following. (Choices may be used more than once.)

-rent

A)Recognize revenue over the passage of time.
B)Recognize revenue when the customer takes possession of the product.
C)Recognize revenue when cash is collected.
D)Recognize revenue when service is performed.

Question 45

An informal schedule called a(n)________________ is helpful for organizing and preparing the information necessary to perform the end-of-period steps in the accounting cycle.

Question 46

Match the following types of adjusting entries to the listed situation. (Choices may be used more than once.)

-Two years insurance premium was paid in advance.

A)a deferred (prepaid) expense
B)a deferred (unearned) revenue
C)an accrued expense
D)an accrued revenue

Question 47

Select the correct revenue recognition principle for each of the following. (Choices may be used more than once.)

-consulting services

A)Recognize revenue over the passage of time.
B)Recognize revenue when the customer takes possession of the product.
C)Recognize revenue when cash is collected.
D)Recognize revenue when service is performed.

Question 48

The first step in the accounting cycle is to ________________ transactions.

Question 49

A(n)____________________ revenue results when cash is received before it is earned and reported on the income statement.

Question 50

A(n)____________________ revenue must be recorded when revenue is earned in advance of receiving cash.

Question 51

Match the most probable matching method to the costs listed. (Choices may be used more than once.)

-storage facility used for storing inventory goods

A)directly match a specific revenue
B)indirectly match with the period during which it will provide revenue
C)not recognized in this period

Question 52

A(n)____________________ results when cash is paid before the related amount is reported on the income statement.

Question 53

Select the correct revenue recognition principle for each of the following. (Choices may be used more than once.)

-interest

A)Recognize revenue over the passage of time.
B)Recognize revenue when the customer takes possession of the product.
C)Recognize revenue when cash is collected.
D)Recognize revenue when service is performed.

Question 54

Match the most probable matching method to the costs listed. (Choices may be used more than once.)

-commissions earned by sales people

A)directly match a specific revenue
B)indirectly match with the period during which it will provide revenue
C)not recognized in this period

Question 55

Match the following types of adjusting entries to the listed situation. (Choices may be used more than once.)

-Cash was collected from customers for services to be performed next year.

A)a deferred (prepaid) expense
B)a deferred (unearned) revenue
C)an accrued expense
D)an accrued revenue

Question 56

Once adjustments have been made,a(n)____________________ is prepared to ensure the accounting equation is still in balance and to facilitate preparation of the financial statements.

Question 57

Match the most probable matching method to the costs listed. (Choices may be used more than once.)

-cost of two-year lease

A)directly match a specific revenue
B)indirectly match with the period during which it will provide revenue
C)not recognized in this period

Question 58

Match the most probable matching method to the costs listed. (Choices may be used more than once.)

-rent paid in advance

A)directly match a specific revenue
B)indirectly match with the period during which it will provide revenue
C)not recognized in this period

Question 59

Select the correct revenue recognition principle for each of the following. (Choices may be used more than once.)

-prepaid subscriptions

A)Recognize revenue over the passage of time.
B)Recognize revenue when the customer takes possession of the product.
C)Recognize revenue when cash is collected.
D)Recognize revenue when service is performed.

Question 60

The preparation of _______________ is necessary to get the account balances properly stated and up to date.

Question 61

Match the following types of adjusting entries to the listed situation. (Choices may be used more than once.)

-Interest was earned but not yet collected.

A)a deferred (prepaid) expense
B)a deferred (unearned) revenue
C)an accrued expense
D)an accrued revenue

Question 62

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-land

A)temporary account
B)permanent account

Question 63

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Revenue is earned for previously received advance cash collections.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 64

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-supplies expense

A)temporary account
B)permanent account

Question 65

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-unearned revenue

A)temporary account
B)permanent account

Question 66

Match the following types of adjusting entries to the listed situation. (Choices may be used more than once.)

-An office building was acquired for cash.

A)a deferred (prepaid) expense
B)a deferred (unearned) revenue
C)an accrued expense
D)an accrued revenue

Question 67

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Insurance is earned in the current period although collections from customers had been received in a previous period.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 68

Match the following types of adjusting entries to the listed situation. (Choices may be used more than once.)

-Utility expense was incurred but not yet paid at the end of the year.

A)a deferred (prepaid) expense
B)a deferred (unearned) revenue
C)an accrued expense
D)an accrued revenue

Question 69

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-The employee salaries have been incurred but not paid at the end of the accounting period.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 70

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-cash

A)temporary account
B)permanent account

Question 71

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Depreciation on a building is recorded.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 72

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-The cost of salaries earned by employees,but not paid at the end of the accounting period,is recorded.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 73

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Rent had been incurred but not yet paid.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 74

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Amounts are earned but not yet received from customers.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 75

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-Interest is earned on notes receivable but not yet received.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 76

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-rent revenue

A)temporary account
B)permanent account

Question 77

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-depreciation expense

A)temporary account
B)permanent account

Question 78

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-The depreciation on machinery used during the current year is recorded.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 79

For each transaction select the type of adjustment that would be required. (Choices may be used more than once.)

-The cost of supplies used during the year is recorded.

A)deferred (prepaid) expense
B)deferred (unearned) revenue
C)accrued expense
D)accrued revenue

Question 80

From the list of accounts, determine whether the account is a temporary or permanent account. (Choices may be used more than once.)

-prepaid insurance

A)temporary account
B)permanent account