Question 1

There are two methods used to account for transactions.These methods are:

Accepted Answer

The most commonly used accounting methods are cash and accrual. Cash accounting records transactions when cash is actually received or paid, while accrual accounting records transactions when they occur regardless of whether cash has been exchanged. Both methods have their advantages and disadvantages, and the choice of which method to use depends on various factors such as the size and nature of the business, its accounting needs, and regulatory requirements. However, the accrual method is generally considered to be more accurate and better for businesses that have a significant amount of credit purchases, sales, or transactions that extend over a period of time.

Question 2

Under the revenue recognition principle,a business should record revenue when the business:

Accepted Answer

According to the revenue recognition principle, revenue should only be recognized when goods or services are delivered to the customer. This means that the business has fulfilled its obligation to provide the product or service, and can recognize the revenue earned from that transaction. This is different from receiving an order or preparing an invoice, which do not necessarily represent the completion of the transaction. Payment may also be received before or after the delivery of goods or services, and is not the sole determining factor for revenue recognition.

Question 3

The cash basis of accounting records the impact of all business transactions as they occur.

Accepted Answer

The cash basis of accounting records transactions only when cash is received or paid, not necessarily when the transactions occur.

Question 4

People using the cash basis of accounting for their business generally make better decisions.

Accepted Answer

The cash basis of accounting only records transactions when cash is received or paid out. It does not take into account accounts receivable, accounts payable or deferred revenue, which could give an incomplete picture of a business's financial health. Therefore, people using the accrual basis of accounting generally make better decisions as they have a more comprehensive understanding of their business's finances.

Question 5

Which of the following transactions would be recorded at the time the transaction occurs under the accrual basis,but would not be recorded until sometime in the future under the cash basis?

Accepted Answer

Under the accrual basis, the sale of merchandise on account would be recorded immediately when the sale occurs, even though payment will not be received until a later date. However, under the cash basis, the revenue would only be recorded when payment is received in the future. The other options (B, C, and D) involve cash transactions that would be recorded at the time the transaction occurs under both the accrual and cash basis of accounting.

Question 6

Using accrual accounting,expenses are not recorded until the cash for the expense is disbursed.

Accepted Answer

In accrual accounting, expenses are recorded when they are incurred, regardless of when the cash is disbursed. This is based on the matching principle, which states that expenses should be recognized in the same period as the related revenue, regardless of when the cash is received or paid out.

Question 7

Cash for services to be performed in 2017 is received in 2016.Using the accrual basis of accounting,the revenue should appear on:

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when it is earned, not when cash is received. Since the services are to be performed in 2017, the revenue should be recognized in 2017.

Question 8

An expense incurred in 2016 is not paid until 2017.Using the accrual basis of accounting,the expense should appear on:

Accepted Answer

Under the accrual basis of accounting, expenses are recorded when they are incurred, regardless of when they are paid. Therefore, the expense should appear on the 2016 income statement.

Question 9

The following transactions for Carleton Company occurred during January 2017:
  Required: Show the amount of revenue and expense recognized for each transaction under both the accrual basis and the cash basis of accounting by completing the charts below.

Accepted Answer

The answer of The following transactions for Carleton Company occurred...

Question 10

Corporations typically use the cash basis for their transactions.

Accepted Answer

Corporations typically use the accrual basis for their transactions, which recognizes revenue and expenses when they are earned or incurred rather than when cash is received or paid.

Question 11

On October 25,2017 Quick Corp.prints a cheque for November's rent payment.Quick Corp.mails the cheque on October 27 to the landlord.The landlord receives the cheque October 31 and cashes the cheque on November 2.When should Quick Corp.record the rent expense associated with this transaction?

Accepted Answer

Quick Corp. should record the rent expense in November, the period in which the rent is due and the benefit is received, following the accrual accounting principle.

Question 12

An accrual refers to an event:

Accepted Answer

An accrual refers to an event where cash has not been exchanged between the two parties, but a transaction has occurred that will require recognition in the financial statements. This could include accrued expenses, such as wages or interest, or accrued revenue, such as a sale that has been made but not yet received payment. Accruals are an important part of accrual accounting, where revenue and expenses are recognized when they are earned or incurred, regardless of when cash is exchanged.

Question 13

One of the most widely used financial ratios is the current ratio.

Accepted Answer

The current ratio is one of the most common financial ratios used to evaluate a company's liquidity and ability to pay its short-term obligations.

Question 14

An accrual refers to an event:

Accepted Answer

An accrual refers to an event where the expense or revenue is recorded before the cash settlement. This means that the transaction has already occurred but the payment or receipt of cash has not yet taken place. This is done in order to match revenues and expenses to the period in which they were incurred or earned.

Question 15

Accrual accounting is more complex than the cash basis.

Accepted Answer

Accrual accounting requires recording transactions when they are earned or incurred, regardless of when the cash is received or paid. This can involve estimating and adjusting for items such as accounts receivable and accounts payable, making it more complex than simply recording cash transactions.

Question 16

In accrual accounting,revenue may be earned prior to or after cash is received.

Accepted Answer

Accrual accounting records revenue when it is earned, regardless of whether or not payment has been received. Payment may be received before or after the revenue is actually earned.

Question 17

A company using the cash basis of accounting receives cash for services yet to be performed.The entry to record the cash received will involve a credit to:

Accepted Answer

The answer of A company using the cash basis of...

Question 18

On December 15,2016,a company receives an order from a customer for services to be performed on December 28,2016.Due to a backlog of orders,the company does not perform the services until January 3,2017.The customer pays for the services on January 6,2017.When should revenue be recorded by the company?

Accepted Answer

Revenue should be recorded when the services are actually performed, which was on January 3, 2017. Even though the order was received on December 15, 2016, the services were not performed until a later date, so it would not be appropriate to record revenue in December. The fact that the customer paid on January 6, 2017 is not relevant to when revenue should be recorded.

Question 19

The accounting principle which tells accountants when to record revenue and in what amount is called the:

Accepted Answer

The revenue recognition principle guides accountants on when to record revenue and in what amount. This principle states that revenue should be recognized when it is earned and realizable, regardless of when payment is received. It also requires that the amount of revenue recorded should accurately reflect the value of goods or services provided.

Question 20

An accountant who records a transaction only when cash is received or disbursed is using which basis of accounting?

Accepted Answer

The accountant is using cash basis accounting which records transactions only when cash is received or disbursed, rather than when the transaction occurs or is completed (as in accrual basis accounting).

Quiz 3: Accrual Accounting and the Financial Statements

There are two methods used to account for transactions.These methods are:

Under the revenue recognition principle,a business should record revenue when the business:

The cash basis of accounting records the impact of all business transactions as they occur.

People using the cash basis of accounting for their business generally make better decisions.

Which of the following transactions would be recorded at the time the transaction occurs under the accrual basis,but would not be recorded until sometime in the future under the cash basis?

Using accrual accounting,expenses are not recorded until the cash for the expense is disbursed.

Cash for services to be performed in 2017 is received in 2016.Using the accrual basis of accounting,the revenue should appear on:

An expense incurred in 2016 is not paid until 2017.Using the accrual basis of accounting,the expense should appear on:

The following transactions for Carleton Company occurred during January 2017: Required: Show the amount of revenue and expense recognized for each transaction under both the accrual basis and the cash basis of accounting by completing the charts below.

Corporations typically use the cash basis for their transactions.

On October 25,2017 Quick Corp.prints a cheque for November's rent payment.Quick Corp.mails the cheque on October 27 to the landlord.The landlord receives the cheque October 31 and cashes the cheque on November 2.When should Quick Corp.record the rent expense associated with this transaction?

An accrual refers to an event:

One of the most widely used financial ratios is the current ratio.

An accrual refers to an event:

Accrual accounting is more complex than the cash basis.

In accrual accounting,revenue may be earned prior to or after cash is received.

A company using the cash basis of accounting receives cash for services yet to be performed.The entry to record the cash received will involve a credit to:

The accounting principle which tells accountants when to record revenue and in what amount is called the:

An accountant who records a transaction only when cash is received or disbursed is using which basis of accounting?