Question 1

The preparation of adjusting entries is

Accepted Answer

The preparation of adjusting entries can be an involved process, especially for complex transactions, and may require the skills of a professional accountant or bookkeeper. It is not only required for accounts that do not have a normal balance, but also for any transactions that occurred during the accounting period that have not yet been recorded or need to be adjusted. Adjusting entries are necessary to ensure that the financial statements present an accurate portrayal of the company's financial position and performance. They are not optional, as they are a fundamental part of the accounting process.

Question 2

Which one of the following is not a justification for adjusting entries?

Accepted Answer

Adjusting entries are not necessary to bring the general ledger accounts in line with the budget. The purpose of adjusting entries is to correct errors, ensure that revenue and expenses are recorded in the correct accounting period, and ensure financial statements are prepared in accordance with GAAP. Budgets are prepared separately from financial statements and do not require adjusting entries to be made.

Question 3

An adjusting entry

Accepted Answer

An adjusting entry typically involves a balance sheet account (such as prepaid rent or accrued wages) and an income statement account (such as rent expense or wages expense). Therefore, choice C is the correct answer.

Question 4

The expense recognition principle matches

Accepted Answer

The expense recognition principle, also known as the matching principle, matches expenses with revenues in order to properly reflect the financial performance of a business. This principle ensures that expenses are recognized in the same period as the revenues they helped generate, providing a more accurate picture of the profitability of the business. The other choices do not accurately reflect the purpose of the expense recognition principle.

Question 5

A small company may be able to justify using a cash-basis of accounting if they have

Accepted Answer

Using cash-basis accounting is more feasible for small companies with few receivables and payables as it simplifies the process of tracking income and expenses. Option A is incorrect because sales under $1,000,000 do not necessarily determine the accounting method. Option B is not relevant as having accountants on staff is not a deciding factor in choosing the accounting method. Option D is also incorrect as all sales and purchases on account are better suited for the accrual basis of accounting.

Question 6

Crue Company had the following transactions during 2018:
.Sales of $4,800 on account
.Collected $2,000 for services to be performed in 2019
.Paid $1,625 cash in salaries
.Purchased airline tickets for $250 in December for a trip to take place in 2019
What is Crue's 2018 net income using accrual accounting-basis after accrual?

Accepted Answer

Using accrual accounting-basis after accrual, the $4,800 in sales on account is recognized as revenue in 2018, even if payment is not received until later. The $2,000 collected for services to be performed in 2019 is recognized as unearned revenue in 2018 since the services have not yet been provided. The $1,625 in cash paid for salaries is recognized as an expense in 2018. The $250 paid for airline tickets in December for a trip in 2019 is not recognized as an expense in 2018 since it relates to a future period.

Net income = revenue - expenses
Net income = $4,800 - $1,625
Net income = $3,175

Question 7

Which one of the following is not an application of revenue recognition?

Accepted Answer

The answer of Which one of the following is not...

Question 8

Which statement is correct?

Accepted Answer

The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles, which are fundamental principles of generally accepted accounting principles (GAAP). This is because revenue is recognized when cash is received, rather than when it is earned, and expenses are recognized when cash is paid, rather than when they are incurred. Thus, companies who consistently use the cash basis of accounting may not be in compliance with GAAP.

Question 9

A candy factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in

Accepted Answer

The overtime wages should be expensed in February because the work was performed in that month, aligning with the matching principle in accounting which states that expenses should be recorded in the period they are incurred to generate revenues.

Question 10

If a resource has been consumed but a bill has not been received at the end of the accounting period, then

Accepted Answer

According to the accrual accounting principle, expenses should be recognized when they are incurred, not when they are paid. In this case, the resource has been consumed, so the expense has been incurred, but the bill has not yet been received. Therefore, an adjusting entry should be made at the end of the accounting period to recognize the expense and record the corresponding liability. This way the financial statements will accurately reflect the true amount of expenses incurred during the period. Waiting to record the expense when the bill is received or when the cash is paid out would not be in accordance with the accrual accounting principle.

Question 11

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

Accepted Answer

Salaries and Wages Payable represents the amount owed to employees for services they have already rendered but have not yet been paid for. It is a liability account that appears on the balance sheet at the end of the period.

Question 12

A company spends $15 million dollars for an office building. Over what period should the cost be written off?

Accepted Answer

The cost of the office building should be depreciated over its useful life, which can be determined by the company's accounting policies and industry standards. This ensures that the cost is allocated appropriately over the period in which the building generates economic benefits for the company. Options A, B and D are incorrect as they do not follow generally accepted accounting principles.

Question 13

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

Accepted Answer

The expense recognition principle requires that expenses be matched with the revenues they help generate. This means that efforts (expenses) should be matched with accomplishments (revenues) to determine the true profitability of an entity. Option A is incorrect because it refers to the matching of assets with liabilities, which relates to the balance sheet equation. Option C is not relevant to the expense recognition principle. Option D is incorrect because it refers to the matching of cash payments with cash receipts, which does not necessarily reflect the timing of expenses and revenues.

Question 14

Adjusting entries are required

Accepted Answer

Adjusting entries are made every time financial statements are prepared, typically at the end of an accounting period (e.g. month, quarter, or year). These entries are necessary to ensure that the financial statements reflect accurate and up-to-date information about the company's financial position and performance.

Question 15

Under accrual-basis accounting

Accepted Answer

Under accrual-basis accounting, events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. This means that revenue is recognized when earned, regardless of whether cash has been received, and expenses are recognized when incurred, regardless of whether cash has been paid out. This results in a more accurate reflection of a company's financial performance in a given period.

Question 16

Crue Company had the following transactions during 2018:
.Sales of $4,500 on account
.Collected $2,500 for services to be performed in 2019
.Paid $1,625 cash in salaries
.Purchased airline tickets for $250 in December for a trip to take place in 2019
What is Crue's 2018 net income using cash-basis accounting after cash?

Accepted Answer

Under cash-basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. Crue Company collected $2,500 for future services and paid $1,625 in salaries, resulting in a net income of $875 ($2,500 - $1,625). The purchase of airline tickets is not an expense for 2018 as the trip is in 2019.

Question 17

The following is selected information from Motley Corporation for the fiscal year ending October 31, 2018.  Based on the accrual basis of accounting, what is Motley Corporation's net income for the year ending October 31, 2018?

Accepted Answer

The answer of The following is selected information from Motley...

Question 18

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered to be recognized?

Accepted Answer

According to the revenue recognition principle under GAAP, revenue is recognized when it is earned and realizable, which in this case is when the sale is made on November 30.

Question 19

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?

Accepted Answer

According to the revenue recognition principle, revenue is recognized when the service is performed, which is on July 31 when the car was serviced.

Question 20

Adjusting entries are required

Accepted Answer

Adjusting entries are required because some costs expire with the passage of time (such as prepaid expenses, depreciation) and have not yet been journalized. This is an example of accrual accounting, where revenue and expenses are recognized when earned or incurred, rather than when cash is received or paid. Adjusting entries help to bring the accounts up-to-date and reflect the correct amount of revenue and expenses for the current period. Choices B, C, and D are not accurate explanations for why adjusting entries are required.

Quiz 3: Adjusting the Accounts

The preparation of adjusting entries is

Which one of the following is not a justification for adjusting entries?

An adjusting entry

The expense recognition principle matches

A small company may be able to justify using a cash-basis of accounting if they have

Which one of the following is not an application of revenue recognition?

Which statement is correct?

A candy factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in

If a resource has been consumed but a bill has not been received at the end of the accounting period, then

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

A company spends $15 million dollars for an office building. Over what period should the cost be written off?

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

Adjusting entries are required

Under accrual-basis accounting

The following is selected information from Motley Corporation for the fiscal year ending October 31, 2018. Based on the accrual basis of accounting, what is Motley Corporation's net income for the year ending October 31, 2018?

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered to be recognized?

Adjusting entries are required