Deck 4: Accrual Accounting Concepts

Question 1

Adjustments are not recorded to update the accounts.

Answer 1

False

Question 2

Adjustments are often made because some business events are not recorded as they occur.

Answer 2

True

Question 3

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Answer 3

False

Question 4

Adjustments are not necessary if the basic accounting equation balances.

Question 5

The revenue recognition principle and the expense recognition principle are helpful guides used in determining net income or net loss for a period.

Question 6

The periodicity assumption is often referred to as the expense recognition principle.

Question 7

The expense recognition principle requires that efforts be related to accomplishments.

Question 8

Revenue received before it is recognized and expenses paid before being used or consumed are both initially recorded as liabilities.

Question 9

An adjustment always involves two balance sheet accounts.

Question 10

The cash basis of accounting is not in accordance with generally accepted accounting principles.

Question 11

The periodicity assumption states that the economic life of a business entity can be divided into artificial time periods.

Question 12

Revenue received before it is recognized and expenses used or consumed before being paid are both initially recorded as liabilities.

Question 13

An adjustment to a prepaid expense is required to recognize expired costs.

Question 14

An adjustment would be made to the revenue account only when cash is received.

Question 15

Accrued revenues are revenues that have been received but not yet recognized.

Question 16

An adjustment always involves a balance sheet account and an income statement account.

Question 17

Recognizing when an expense contributes to the production of revenue is critical.

Question 18

The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.

Question 19

Expense recognition is tied to revenue recognition.

Question 20

The expense recognition principle is frequently referred to as the matching principle.

Question 21

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Question 22

The adjustment for accrued salaries requires a decrease to Salaries and Wages Payable.

Question 23

Financial statements can be prepared from the information provided by an adjusted tabular summary of transactions.

Question 24

Accrued revenues are revenues that have been recognized but not yet recorded.

Question 25

One of the accounting concepts upon which adjustments for prepayments and accruals are based is:

A)expense recognition.
B)cost.
C)monetary unit.
D)economic entity.

Question 26

Accrued revenues are revenues that have been recognized but cash has not been received before financial statements have been prepared.

Question 27

The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.

Question 28

Asset prepayments become expenses when they expire.

Question 29

If prepaid costs are initially recorded as an asset no adjustment will be required in the future.

Question 30

The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjustment and unearned revenue has never been recorded.

Question 31

The adjustment for unearned revenue results in an increase to an asset account and an increase to a revenue account.

Question 32

The accrued interest for a three month note payable of $10000 dated December 1 2017 at an interest rate of 6% is $150 on December 31 2017.

Question 33

A liability-revenue account relationship exists with an unearned rent revenue adjustment.

Question 34

The periodicity assumption states that:

A)a transaction can only affect one period of time.
B)estimates should not be made if a transaction affects more than one time period.
C)adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
D)the economic life of a business can be divided into artificial time periods.

Question 35

Unearned revenue is a prepayment that requires an adjustment when services are performed.

Question 36

A contra asset account is subtracted from a related account in the balance sheet.

Question 37

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

Question 38

An adjusted tabular summary must be prepared before the adjustments can be recorded.

Question 39

Accumulated Depreciation is a liability account.

Question 40

Without an adjustment for accrued interest expense liabilities and interest expense are understated and net income and stockholders' equity are overstated.

Question 41

An accounting time period that is one year in length is called:

A)a fiscal year.
B)an interim period.
C)the time period assumption.
D)a reporting period.

Question 42

A flower shop makes a large sale for $1000 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 $1000 considered to be recognized?

A)December 5
B)December 10
C)November 30
D)December 1

Question 43

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

A)assets should be matched with liabilities.
B)efforts should be matched with accomplishments.
C)dividends should be matched with stockholder investments.
D)cash payments should be matched with cash receipts.

Question 44

Adjustments would not be necessary if financial statements were prepared to reflect net income from:

A)monthly operations.
B)fiscal year operations.
C)interim operations.
D)lifetime operations.

Question 45

The expense recognition principle matches:

A)customers with businesses.
B)expenses with revenues.
C)assets with liabilities.
D)creditors with businesses.

Question 46

Under the cash basis of accounting:

A)revenue is recognized when services are performed.
B)expenses are matched with the revenue that is produced.
C)cash must be received before revenue is recognized.
D)a promise to pay is sufficient to recognize revenue.

Question 47

Using accrual accounting expenses are recorded and reported only:

A)when they are incurred whether or not cash is paid.
B)when they are incurred and paid at the same time.
C)if they are paid before they are incurred.
D)if they are paid after they are incurred.

Question 48

A furniture factory's employees work overtime to finish an order that is sold on January 31.The office sends a statement to the customer in early February and payment is received by mid-February.The overtime wages should be expensed in:

A)January.
B)February.
C)the period when the workers receive their checks.
D)either January or February depending on when the pay period ends.

Question 49

Expenses are recognized when:

A)they contribute to the production of revenue.
B)they are paid.
C)they are billed by the supplier.
D)the invoice is received.

Question 50

The revenue recognition principle dictates that revenue should be recognized in the accounting records:

A)when cash is received.
B)when the performance obligation is satisfied.
C)at the end of the month.
D)in the period that income taxes are paid.

Question 51

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?

A)Historical cost principle.
B)Periodicity principle.
C)Revenue recognition principle.
D)Expense recognition principle.

Question 52

In a service-type business revenue is recognized:

A)at the end of the month.
B)at the end of the year.
C)when the service is performed.
D)when cash is received.

Question 53

Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.

A)annual annual
B)monthly annual
C)quarterly monthly
D)monthly monthly

Question 54

Otto's Tune-Up Shop follows the revenue recognition principle.Otto services a car on August 31.The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5.Otto receives the check in the mail on September 6.When should Otto show that the revenue was recognized?

A)August 31
B)August 1
C)September 5
D)September 6

Question 55

Which is not an application of revenue recognition?

A)Recording revenue as an adjustment on the last day of the accounting period.
B)Recording cash from an established customer for services to be performed over the next three months.
C)Billing customers on June 30 for services completed during June.
D)Receiving cash for services performed.

Question 56

Which of the following is not generally an accounting time period?

A)A week.
B)A month.
C)A quarter.
D)A year.

Question 57

A company spends $20 million dollars for an office building.Over what period should the cost be written off?

A)When the $20 million is expended in cash.
B)All in the first year.
C)After $20 million in revenue is earned.
D)None of these answer choices are correct.

Question 58

On April 1 2022 nPropel Corporation paid $48000 cash for equipment that will be used in business operations.The equipment will be used for four years.nPropel records depreciation expense of $48000 for the calendar year ending December 31 2022.Which accounting principle has been violated?

A)Depreciation principle.
B)No principle has been violated.
C)Cash principle.
D)Expense recognition principle.

Question 59

Under the accrual basis of accounting:

A)cash must be received before revenue is recognized.
B)net income is calculated by matching cash outflows against cash inflows.
C)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.
D)a company's accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

Question 60

Why do generally accepted accounting principles require the application of the revenue recognition principle?

A)Failure to apply the revenue recognition principle could lead to a misstatement of revenue.
B)It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
C)Recording revenue when cash is received is an objective application of the revenue recognition principle.
D)Accounting software has made the revenue recognition principle easy to apply.

Question 61

La More Company had the following transactions during 2022. Sales of $9000 on account
Collected $4000 for services to be performed in 2023
Paid $2650 cash in salaries
Purchased airline tickets for $500 in December for a trip to take place in 2023
What is La More's 2022 net income using cash basis accounting?

A)$10350
B)$1350
C)$9850
D)$850

Question 62

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

A)sales under $1000000.
B)no accountants on staff.
C)few receivables and payables.
D)all sales and purchases on account.

Question 63

Under the cash basis of accounting an amount received from a customer in advance of providing the services would be reported as a(n):

A)revenue.
B)liability.
C)expense.
D)prepaid expense.

Question 64

Given the data below for a firm in its first year of operation determine net income under the accrual basis of accounting. $\begin{array} { l r } \text { Revenue recognized } & \$ 19,000 \\\text { Accounts receivable } & 3,000 \\\text { Expenses incurred } & 7,250 \\\text { Accounts payable (related to expenses) } & 750 \\\text { Supplies purchased with cash } & 1,800\end{array}$

A)$11750
B)$14000
C)$9500
D)$12200

Question 65

Why was Apple required to spread their iPhone revenues over a two-year period?

A)Because of its newness their returns might exceed the normal level of returns.
B)Because they were required to provide software updates over that two year period.
C)Because that was the estimated life of the iPhone.
D)Because they needed to defer revenue recognition since they had a swap program available for future models.

Question 66

The primary difference between prepaid and accrued expenses is that prepaid expenses have:

A)been incurred and accrued expenses have not.
B)not been paid and accrued expenses have.
C)been recorded and accrued expenses have not.
D)not been recorded and accrued expenses have.

Question 67

Which of the following would not be an application of the revenue recognition or expense recognition principle?

A)Recording accrued salaries and wages expense.
B)Recording accrued interest revenue.
C)Recording the collection of an advance customer payment as revenue.
D)Recording prepaid expense adjustments.

Question 68

Accounts often need to be adjusted because:

A)there are never enough accounts to record all the transactions.
B)many transactions affect more than one time period.
C)there are always errors made in recording transactions.
D)management can't decide what they want to report.

Question 69

The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:

A)contra asset.
B)prepayment.
C)asset.
D)accrued.

Question 70

Given the data below for a firm in its first year of operation determine net income under the cash basis of accounting. $\begin{array} { l r } \text { Cash received from customers } & \$ 45,000 \\\text { Accounts receivable } & 12,000 \\\text { Cash paid for expenses } & 26,000 \\\text { Accounts payable (related to expenses) } & 3,000 \\\text { Prepaid rent for next period } & 7,000\end{array}$

A)$19000
B)$28000
C)$21000
D)$12000

Question 71

Given the data below for a firm in its first year of operation determine net income under the accrual basis of accounting. $\begin{array} { l r } \text { Cash received from customers } & \$ 45,000 \\\text { Accounts receivable } & 12,000 \\\text { Cash paid for expenses } & 26,000 \\\text { Accounts payable (related to expenses) } & 3,000 \\\text { Prepaid rent for next period } & 7,000\end{array}$

A)$19000
B)$28000
C)$21000
D)$12000

Question 72

The following is selected information from L Corporation for the fiscal year ending October 31 2022. $\begin{array} { | l | r | } \hline \text { Cash received from customers } & \$ 300,000 \\\hline \text { Revenue recognized } & 440,000 \\\hline \text { Cash paid for expenses } & 170,000 \\\hline \begin{array} { c } \text { Cash paid for computers on November 1, 2021 that will } \\\text { be used for } 3 \text { years }\end{array} & 48,000 \\\hline \begin{array} { l } \text { Expenses incurred including any depreciation }\end{array} &216,000 \\\hline \begin{array} { l } \text { Proceeds from a bank loan, part of which was used to } \\\text { pay for the computers }\end{array} &100,000 \\\hline\end{array}$ Based on the accrual basis of accounting what is L Corporation's net income for the year ending October 31 2022?

A)$254000
B)$224000
C)$208000
D)$270000

Question 73

The primary difference between accrued revenues and unearned revenues is that accrued revenues have:

A)been recognized and unearned revenues have not been.
B)been paid and unearned revenues have not.
C)been recorded and unearned revenues have not.
D)not been recorded and unearned revenues have.

Question 74

Which statement is correct?

A)As long as a company consistently uses the cash basis of accounting generally accepted accounting principles allow its use.
B)The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
C)The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D)As long as management is ethical there are no problems with using the cash basis of accounting.

Question 75

Given the data below for a firm in its first year of operation determine net income under the cash basis of accounting. $\begin{array}{c}\begin{array}{lll} \text { Revenue recognized}\\ \text { Accounts receivable}\\ \text { Expenses incurred}\\ \text { Accounts payable (related to expenses)}\\ \text { Supplies purchased with cash}\end{array}\begin{array}{r}\$ 19,000 \\3,000 \\7,250 \\750 \\1,800 \end{array}\end{array}$

A)$9500
B)$14000
C)$7700
D)$9950

Question 76

Which of the following is an example of a deferral adjustment?

A)Accrued expense
B)Accrued revenue
C)Prepaid expense
D)All of these choices are correct.

Question 77

Wang Company had the following transactions during 2022: Sales of $10800 on account
Collected $4800 for services to be performed in 2023
Paid $2600 cash in salaries for 2017
Purchased airline tickets for $600 in December for a trip to take place in 2023
What is Wang's 2022 net income using accrual accounting?

A)$8800
B)$13600
C)$13000
D)$8200

Question 78

La More Company had the following transactions during 2022: Sales of $9000 on account
Collected $4000 for services to be performed in 2023
Paid $3750 cash in salaries for 2017
Purchased airline tickets for $500 in December for a trip to take place in 2023
What is La More's 2022 net income using accrual accounting?

A)$5750
B)$9750
C)$9250
D)$5250

Question 79

The following is selected information from C Corporation for the fiscal year ending October 31 2022. $\begin{array}{|l|lcc|} \hline \text { Cash received from customers } &\$150,000\\\hline \text { Revenue recognized } & 225,000\\\hline \text { Cash paid for expenses } &85,000\\ \hline\text { Cash paid for computers on November 1, 2021 that } & { }\\ \text { will be used for 3 years } & 24,000\\\hline \text { Expenses incurred including any depreciation } & 119,000\\\hline \text { Proceeds from a bank loan, part of which was used to } & \\\hline \text { pay for the computers } &50,000\\\hline \end{array}$
Based on the accrual basis of accounting what is C Corporation's net income for the year ending October 31 2022?

A)$132000
B)$116000
C)$106000
D)$140000

Question 80

Wang Company had the following transactions during 2022: Sales of $10800 on account
Collected $4800 for services to be performed in 2023
Paid $2600 cash in salaries
Purchased airline tickets for $600 in December for a trip to take place in 2023
What is Wang's 2022 net income using cash basis accounting?

A)$1600
B)$2800
C)$13000
D)$2200