Deck 3: The Accounting Cycle: End of the Period

Question 1

Prepaid expenses involve payment of cash (or an obligation to pay cash)for the purchase of an asset before the expense is incurred.

Answer 1

True

Question 2

Accrual-basis accounting involves recording revenues when earned and recording expenses with their related revenues.

Answer 2

True

Question 3

According to the revenue recognition principle,if a company provides services to a customer in the current year but does not collect cash until the following year,the company should report the revenue in the current year.

Answer 3

True

Question 4

Under cash-basis accounting,if costs associated with producing revenue in the current year are not paid in cash until the following year,the costs should be expensed in the following year.

Question 5

Under cash-basis accounting,if a company provides services to a customer in the current year but does not collect cash until the following year,the company should report the revenue in the current year.Under cash-basis accounting,revenues are recorded at the time cash is collected.

Question 6

Adjusting entries should be prepared after financial statements are prepared.Adjusting entries should be prepared before financial statements are prepared.

Question 7

The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income.

Question 8

Deferred revenues occur when cash is received after the revenue is earned.Deferred revenues occur when cash is received before the revenue is earned.

Question 9

The matching principle states that we recognize expenses in the same period as the revenues they help to generate.

Question 10

Under cash-basis accounting,we record revenues at the time we receive cash and expenses at the time we pay cash.

Question 11

Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been recorded.

Question 12

Under cash-basis accounting,the timing of cash inflows and outflows exactly matches the reporting of revenues and expenses in the income statement.

Question 13

Adjusting entries involve recording events that have occurred but that have not yet been recorded by the end of the period.

Question 14

Because cash-basis accounting violates both the revenue recognition principle and the matching principle,it is generally not accepted in preparing financial statements.

Question 15

Accrued expenses involve the payment of cash before recording an expense and a liability.Accrued expenses involve the payment of cash after recording an expense and a liability.

Question 16

Because adjusting entries allow the proper application of the revenue recognition principle or the matching principle,they are a necessary part of cash-basis accounting.Adjusting entries are a necessary part of accrual-basis accounting.

Question 17

The adjusting entry for a prepaid expense always includes a debit to an expense account and a credit to a liability account.The credit is to an asset account.

Question 18

Jones Corporation provides services to a customer on June 17,but the customer does not pay for the services until August 12.According to the revenue recognition principle,Jones Corporation should record the revenue on August 12.The revenue recognition principle requires that revenue be recorded when earned (June 17).

Question 19

According to the concept of expense recognition under accrual-basis accounting,if costs associated with producing revenue in the current year are not paid in cash until the following year,the costs should be expensed in the current year.

Question 20

The revenue recognition principle states that we record revenue in the period in which we collect cash.The revenue recognition principle states that we record revenue in the period in which we earn it.

Question 21

The adjusting entry for an accrued expense always includes a debit to an expense account and a credit to a liability account.

Question 22

Long-term assets are assets that provide a benefit to a company for more than one year.

Question 23

The adjusting entry for a deferred revenue has the effects of reducing liabilities and increasing net income.

Question 24

The Supplies account is an example of an accrued expense.The Supplies account is an example of a prepaid expense.

Question 25

At December 31,2018,a company has received,but not paid,a utility bill for $250.The amount of utility expense for 2018 equals $250.

Question 26

Current liabilities are liabilities due within one year.

Question 27

The adjusting entry for an accrued expense has the effects of decreasing net income and decreasing liabilities.The adjusting entry has the effect of increasing liabilities.

Question 28

Once the adjusted trial balance is complete,financial statements are prepared.

Question 29

A classified balance sheet separates assets into current and long-term,and separates liabilities into current and long-term.

Question 30

The adjusting entry for an accrued revenue has the effects of increasing assets and increasing net income.

Question 31

Adjusting entries are unnecessary for transactions that do not involve revenue or expense activities,such as selling common stock or paying dividends.

Question 32

Adjusting entries are not necessary when cash is received at the same time revenues are earned.

Question 33

Current assets are assets that provide a benefit to a company over more than one year.Current assets provide a benefit to a company over the next year only.

Question 34

On November 1,2018,a company receives $1,800 for services to be provided evenly over the next six months.The December 31,2018,adjusting entry for the company would include a credit to Deferred Revenue for $600.The adjusting entry would involve a debit to Deferred Revenue and a credit to Service Revenue for $600.

Question 35

Adjusting entries are not necessary when cash is paid at the same time expenses are incurred.

Question 36

A post-closing trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries.This is an adjusted trial balance.

Question 37

The adjusting entry for an accrued revenue always includes a debit to a liability account and a credit to a revenue account.The debit is to an asset account.

Question 38

The adjusting entry for a deferred revenue always includes a debit to an asset account and a credit to a revenue account.The debit is to a liability account.

Question 39

Suppose Simeon Company begins the year with $1,000 in supplies,purchases an additional $5,500 of supplies during the year,and ends the year with $700 in supplies.The year-end adjusting entry includes Supplies Expense of $7,200.Supplies Expense = beginning ($1,000)+ purchases ($5,500)- ending ($700).

Question 40

On December 31,2018,employees who earn $500 per day have worked eight days and will be paid on January 6,2019.The adjusting entry on December 31,2018,includes a debit to Salaries Expense for $4,000.

Question 41

If the beginning balance of Retained Earnings equals $10,000,net income for the year equals $6,000,and dividends for the year equal $2,000,then the ending balance of Retained Earnings equals $18,000.Ending Retained Earnings = beginning Retained Earnings ($10,000)+ net income ($6,000)- dividends ($2,000)= $14,000.

Question 42

The concept of matching in accounting refers to:

A)All costs that are used to generate revenue are recorded in the period the revenue is recognized.
B)All transactions are recorded at the exchange price.
C)The business is separate from its owners.

Question 43

Long-term liabilities are liabilities due in more than one year.

Question 44

The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to all revenue accounts.The closing entry for revenue accounts includes a debit to all revenue accounts and a credit to Retained Earnings.

Question 45

The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.The closing entry for dividends includes a debit to Retained Earnings and a credit to the Dividends account.

Question 46

Which accounting principle states that a company should "record revenues when they provide goods and services to customers?"

A)Matching.
B)Revenue recognition.
C)Conservatism.

Question 47

Long-term asset categories include investments;property,plant,and equipment;and intangible assets.

Question 48

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26.The flight took place on April 5.According to the revenue recognition principle,in which month should Air France have recognized this revenue?

A)January.
B)February.
C)April.

Question 49

The closing entry for expense accounts includes a debit to Retained Earnings and a credit to all expense accounts.

Question 50

After closing entries are posted to the accounts in the general ledger,all asset and liability accounts have a balance of zero.After closing entries are prepared,all revenue,expense,and dividend accounts have a balance of zero.

Question 51

If the beginning balance of Retained Earnings equals $12,000,the ending balance of Retained Earnings equals $15,000,and dividends for the year equal $1,000,then net income for the year equals $4,000.

Question 52

The components of retained earnings include assets,expenses,and dividends.The components of retained earnings include revenues,expenses,and dividends.

Question 53

Which of the following concepts suggests that expenses should be recognized in the same period as the revenues they help to generate?

A)Accounting equation.
B)Revenue recognition.
C)Matching.

Question 54

Closing entries transfer the balances of all temporary accounts (revenues,expenses,and dividends)to the Common Stock account.Balances of temporary accounts are transferred to Retained Earnings.

Question 55

After closing entries are prepared,the balance of Retained Earnings is updated to reflect the activity in the revenue,expense,and dividend accounts for the period.

Question 56

The accounting basis that records revenues when goods or services are provided to customers and expenses with related revenues is referred to as:

A)Cash-basis.
B)Matching-basis.
C)Accrual-basis.

Question 57

The accounting basis that helps to measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners is referred to as:

A)Cash-basis.
B)Accrual-basis.
C)Matching-basis.

Question 58

The revenue recognition principle states that:

A)Revenue should be recognized in the period the cash is received.
B)Revenue should be recognized in the period goods and services are provided.
C)Revenue should be recognized in the balance sheet.

Question 59

The post-closing trial balance is a list of all accounts and their balances at a particular date after the account balances have been updated for closing entries.

Question 60

The post-closing trial balance does not include any assets or liabilities,because these accounts all have zero balances after closing entries.The post-closing trial balance does not include any revenues,expenses,or dividends,because these accounts all have zero balances after closing entries.

Question 61

A company orders office supplies in June.Those supplies are received and used in July.The supplies are paid for in August.In which month should the company record supplies expense?

A)June.
B)July.
C)August.

Question 62

Pawn Shops Unlimited recorded the following four transactions during April.Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

A)Purchased $500 of office supplies on account (supplies were used in May and paid for in May).
B)Paid $1,800 for a six-month insurance policy covering the period July 1-December 31.
C)Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas Sun newspaper.

Question 63

The primary difference between accrual-basis and cash-basis accounting is:

A)The timing of when revenues and expenses are recorded.
B)Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting.
C)Accrual-basis accounting violates both the revenue recognition and matching principles.

Question 64

In November,a company hires three temporary employees that are scheduled to work only the month of December.Those employees work during December,and they are then paid their full salaries in January.In which month should the company record supplies expense?

A)November.
B)December.
C)January.

Question 65

A company paid $900 to workers during May.Of this amount,$600 was for work performed in April,while the other $300 was for work performed during May.What would the impact of this transaction be during May on (1)the balance of cash, (2)cash-basis net income,and (3)accrual-basis net income?

A)(1)No effect, (2)No effect, (3)Decrease.
B)(1)Decrease, (2)Decrease, (3)No effect.
C)(1)Decrease, (2)Decrease, (3)Decrease.

Question 66

When a company provides services on account,which of the following would be recorded using cash-basis accounting?

A)Debit to Cash.
B)Debit to Service Revenue.
C)Credit to Deferred Revenue.
D)No entry would be recorded.

Question 67

A company purchased $400 of office supplies on account during May.All the supplies were used in May,and the account was paid during June.What would the impact of these transactions be during May on (1)the balance of cash, (2)cash-basis net income,and (3)accrual-basis net income?

A)(1)No effect, (2)No effect, (3)Decrease.
B)(1)Decrease, (2)Decrease, (3)No effect.
C)(1)Decrease, (2)Decrease, (3)Decrease.

Question 68

The following events pertain to Bills Company: Using cash-basis accounting,on which date should Bills Company record revenue for the accounting and tax services?
$\begin{array}{|l|l|}\hline\text { December } 28,2018 & \begin{array}{l}\text { Bills was contacted by a customer for possible accounting and tax } \\\text { services. }\end{array} \\\hline \text { December } 30,2018 & \begin{array}{l}\text { Bills signed a formal agreement with the customer to provide } \\\text { accounting and tax services in } 2019 .\end{array} \\\hline \text { January } 4,2019 & \begin{array}{l}\text { The customer paid } \$ 1,000 \text { in advance for the services to be provided } \\\text { by Bills Company. }\end{array} \\\hline \text { January } 11,2019 & \text { Bills provided accounting and tax services to the customer. } \\\hline\end{array}$

A)December 30,2018.
B)December 31,2018.
C)January 4,2019.

Question 69

The accounting basis that records revenues when cash is received and expenses when cash is paid is referred to as:

A)Cash-basis.
B)Accrual-basis.
C)Matching-basis.

Question 70

Pawn Shops Unlimited recorded the following four transactions during April.Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

A)Received $600 from customers for services to be provided in May.
B)Paid $1,800 for a six-month insurance policy covering the period July 1-December 31.
C)Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas Sun newspaper.

Question 71

When the amount of interest receivable decreases during an accounting period:

A)Accrual-basis revenues exceed cash collections from borrowers.
B)Accrual-basis net income exceeds cash-basis net income.
C)Accrual-basis revenues are less than cash collections from borrowers.

Question 72

Consider the following transactions: 1.The company uses supplies purchased in the previous period,$1,500.2.The company pays cash for rent in advance,$6,000.3.The company repays a loan to the bank,$10,000 (ignore any interest cost).The amount of accrual-basis expense is _____ while the amount of cash-basis expense is _____.

A)$6,000;11,500
B)$6,000;$16,000
C)$1,500;16,000
D)$1,500;$6,000

Question 73

The following events pertain to Jasper Corporation: May 1 Jasper purchased office supplies of $3,000 on account.May 5 The office supplies were shipped to Jasper.May 8 Jasper used these office supplies for a one-time event.May 9 Jasper paid $3,000 cash for the office supplies purchased on May 1.Using cash-basis accounting,on which date should Jasper record supplies expense?

A)May 1.
B)May 5.
C)May 8.
D)May 9.

Question 74

When the balance of the Deferred Revenue account decreases during an accounting period:

A)Accrual-basis revenues exceed cash collections from customers.
B)Accrual-basis expenses exceed cash collections from customers.
C)Accrual-basis revenues are less than cash collections from customers.

Question 75

The following events pertain to Bills Company: Using accrual-basis accounting,on which date should Bills Company record revenue for the accounting and tax services?
$\begin{array}{|l|l|}\hline \text { December } 28,2018 & \begin{array}{l}\text { Bills was contacted by a customer for possible accounting and } \\\text { tax services. }\end{array} \\\hline \text { December } 30,2018 & \begin{array}{l}\text { Bills signed a formal agreement with the customer to provide } \\\text { accounting and tax senvices in } 2019 .\end{array} \\\hline \text { January } 4,2019 & \begin{array}{l}\text { The customer paid } \$ 1,000 \text { in advance tor the services to be } \\\text { provided by Bills Company. }\end{array} \\\hline \text { January } 11,2019 & \text { Bills provided accounting and tax services to the customer. } \\\hline\end{array}$

A)December 30,2018.
B)December 31,2018.
C)January 4,2019.
D)January 11,2019.

Question 76

A company received an order from a customer in June for services to be provided.Those services were provided in July,and the customer paid the full amount in August.According to the revenue recognition principle,in which month should the company record revenue?

A)June.
B)July.
C)August.

Question 77

A company provided $1,500 of services to customers during the month of May.The customers paid in June.What would the impact of these transactions be during May on (1)the balance of cash, (2)cash-basis net income,and (3)accrual basis net income?

A)(1)No effect, (2)No effect, (3)Increase.
B)(1)No effect, (2)No effect, (3)No effect.
C)(1)Increase, (2)Increase, (3)Increase.

Question 78

C.

Question 79

A customer purchased a drill press on November 14 on account from Sears.The drill press was delivered two weeks later.The customer paid for the drill press on December 5.When should Sears record the revenue for this transaction according to the revenue recognition principle?

A)November.
B)December.
C)Evenly in each of the two months.

Question 80

B.