Deck 3: Adjusting the Accounts

Question 1

All increases to owner's equity are from revenues.

Answer 1

False

Question 2

The continuity assumption states that the business will continue to operate indefinitely.

Answer 2

True

Question 3

When a net loss occurs,the Owner's Capital account will contain a negative balance.

Answer 3

False

Question 4

All decreases in owner's equity are a result of expenses.

Question 5

The primary purpose of an expense is to generate revenue.

Question 6

Net income results when expenses exceed revenues.

Question 7

Accrual accounting is an application of the matching rule.

Question 8

Accounting periods of greater than a year are called interim periods.

Question 9

A company's fiscal year need not correspond to the calendar year.

Question 10

When preparing financial statements,the accountant assumes that the business will continue to operate for at least 5 years,unless there is evidence to the contrary.

Question 11

Revenue is produced when accounts receivable are collected.

Question 12

Direct cause-and-effect relationships between revenues and costs can usually be demonstrated.

Question 13

Assets are converted to revenues as they benefit the company.

Question 14

Revenue is equal to the cash received by a company during an accounting period.

Question 15

If a company is expected to survive,it is considered a going concern.

Question 16

Net income can be used to assess a company's progress in meeting the goal of profitability.

Question 17

Accounting periods should be of equal length to facilitate comparisons between periods.

Question 18

The matching rule is most closely related to the cash basis of accounting.

Question 19

When there is no direct connection between revenues and costs,the costs are systematically allocated among the periods benefited.

Question 20

In applying the matching rule,revenue recognition should come before the matching (assignment)of expense.

Question 21

In accounting,depreciation refers to the decline in fair value of a plant asset.

Question 22

Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

Question 23

Adjusting entries are useful in apportioning costs among two or more accounting periods.

Question 24

A deferral is the recognition of an expense that has arisen but has not yet been recorded.

Question 25

In order for revenue to be recognized,the seller's price to the buyer must be fixed or determinable.

Question 26

An adjusting entry includes at least one balance sheet account and at least one income statement account.

Question 27

Revenue should be recognized,even when collectibility is not reasonably assured.

Question 28

The accrual basis of accounting results in a more accurate measurement of net income for the period than does the cash basis of accounting.

Question 29

As an asset's depreciation is recorded,its carrying value decreases.

Question 30

A revenue for which the service has been performed but that has not been recorded is a deferred revenue.

Question 31

A contra account is an account whose balance is subtracted from an associated account in the financial statements.

Question 32

The amount of a depreciable asset's annual depreciation expense can typically be obtained by referring to the balance sheet.

Question 33

One application of accrual accounting is adjusting the accounts.

Question 34

Expenses that have been paid for and recorded are called accrued expenses.

Question 35

The cash basis of accounting is prohibited for income tax purposes.

Question 36

Recording incurred but unpaid expenses is an example of an accrual.

Question 37

The heading of an adjusted trial balance might contain the line "For the Month Ended May 31,20xx."

Question 38

Depreciation Expense-Equipment is an example of a contra account.

Question 39

Adjusting entries affect cash flows in the current period.

Question 40

The recognition of an expense does not depend on the payment of cash.

Question 41

Due to the recording of adjusting entries,the dollar amount of Cash on the trial balance is usually less than the dollar amount of Cash on the adjusted trial balance.

Question 42

An adjusted trial balance proves the balance of the ledger accounts after the adjusting entries have been posted.

Question 43

Which of the following transactions results in an increase in revenues?

A)Receipt of accounts receivable.
B)Purchase of inventory.
C)Receipt of principal from a bank loan.
D)Delivery of a service in exchange for future payment.

Question 44

Financial statements may be prepared from an adjusted trial balance.

Question 45

The adjusted trial balance may contain accounts that did not appear in the trial balance.

Question 46

Net income is misleading when revenue is overstated or expenses are understated by significant amounts.

Question 47

Net income results in a(n)

A)increase in owner's equity.
B)increase in revenues.
C)decrease in expenses.
D)increase in assets.

Question 48

An adjusted trial balance will probably list fewer accounts than are listed in the trial balance.

Question 49

Which of the following transactions results in the recognition of an expense?

A)Expiration of the usefulness of equipment during the accounting period.
B)Payment on an account payable.
C)Withdrawal of cash by the owner.
D)Payment on the principal portion of a loan.

Question 50

An adjusted trial balance must be prepared before the adjusting entries can be recorded.

Question 51

Profitability is best determined from cash flow information.

Question 52

When a credit sale takes place,

A)a revenue account will increase.
B)liabilities will increase.
C)one asset account will increase and another will decrease.
D)assets will be unaffected.

Question 53

A net loss results in a decrease in

A)revenues.
B)expenses.
C)owner's equity.
D)liabilities.

Question 54

Almost every revenue or expense account on the income statement has one or more related accounts on the balance sheet.

Question 55

When the estimates involved in earnings management begin moving outside a reasonable range,the financial statements can become misleading.

Question 56

Major assumptions made in measuring business income include all of the following except

A)continuity.
B)periodicity.
C)matching.
D)accrual accounting.

Question 57

Revenues

A)are decreases in equity resulting from rendering services.
B)are a cost of doing business.
C)are called expired costs.
D)are earned through the sale of goods,even though the cash may not be collected until later.

Question 58

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Question 59

Net income provides a good measure of a business's debt-paying ability.

Question 60

The general rule for determining the cash flow received from any revenue or paid for any expense (except depreciation,which is a special case)is to determine the potential cash payments or cash receipts and add the amount not paid or not received.

Question 61

Which of the following transactions will result in the recognition of an expense?

A)Interest accrued on a bank loan.
B)A cash withdrawal by the owner.
C)Payment on accounts payable.
D)All of these choices.

Question 62

The matching rule relates the least to

A)income measurement.
B)the cash basis of accounting.
C)revenues and expenses.
D)a direct relationship between expenses and revenues.

Question 63

The matching rule is applied

A)because it is required by the Internal Revenue Code.
B)by expensing certain items immediately and in their entirety.
C)to help make the bookkeeper's job easier.
D)to help produce an accurate measurement of a company's performance.

Question 64

When expenses exceed revenues,

A)a liability is created.
B)a net loss occurs.
C)owner's equity increases.
D)All of these choices.

Question 65

Which of the following conditions is not a requirement by the SEC for the recognition of revenue?

A)Delivery has occurred or services have been rendered.
B)Collectibility is reasonably certain.
C)A written agreement has been signed.
D)The seller's price to the buyer is fixed or determinable.

Question 66

Expenses are incurred

A)to generate revenue.
B)to produce liabilities.
C)only during the adjustment process.
D)to produce assets.

Question 67

Which of the following transactions will not result in an increase in revenues?

A)Sale of goods on credit.
B)Sale of services for cash.
C)Accumulation of interest in bank account.
D)An investment into the business by the owner.

Question 68

A customer's promise to pay for goods or services

A)increases the company's liabilities.
B)decreases the company's Cash account.
C)creates a liability for the company.
D)increases the assets of the company.

Question 69

Which of the following is not a condition required by the SEC for the recognition of revenue?

A)Delivery of goods or rendering of services.
B)Transfer of cash from the buyer to the seller.
C)Fixed or determinable price.
D)Existence of an arrangement.

Question 70

When a direct cause-and-effect relationship cannot be established between revenues and costs,the costs are

A)not expensed and remain as assets on the balance sheet.
B)expensed among the accounting periods that benefit from the costs.
C)expensed immediately in their entirety.
D)expensed equally each year.

Question 71

The going concern assumption helps solve the

A)matching issue.
B)accounting period issue.
C)revenue recognition issue.
D)continuity issue.

Question 72

Which of the following is a condition required by the SEC for the recognition of revenue?

A)Completion of goods manufactured.
B)Execution of a promissory note.
C)Price in excess of $100.
D)Reasonable assurance of collection.

Question 73

Which of the following transactions does not result in an increase in expenses?

A)Payment of accounts payable.
B)Usage of utlities.
C)Allocation of the cost of a building.
D)Expiration of prepaid insurance.

Question 74

Retailers often end their fiscal years .

A)during the slack season.
B)during the peak of the busy season.
C)at different times each year,depending on the tax consequences.
D)on June 30.

Question 75

The periodicity assumption recognizes that

A)the company may continue indefinitely.
B)all financial statements should cover a fiscal year.
C)net income is an estimate.
D)the value of an asset may vary from month to month.

Question 76

Financial statement time periods should be of equal length

A)and should end during the peak season.
B)to make comparison easier.
C)and should correspond to the calendar year.
D)to comply with income tax regulations.

Question 77

Net income

A)is accumulated in Owner's Capital.
B)is reported on the income statement.
C)occurs when revenues exceed expenses.
D)All of these choices.

Question 78

As the usefulness of a plant asset expires,

A)an amount is transferred from one asset account to another.
B)a related expense account is reduced.
C)a liability is created.
D)the cost of the asset is allocated to an expense account.

Question 79

Equipment might be depreciated over 15 years because

A)it will lose most of its market value in 15 years.
B)it will be paid for in 15 years.
C)it will help to generate revenue for the company over 15 years.
D)income tax provisions require depreciation over 15 years.

Question 80

The recording of an expense could result in a corresponding increase in

A)owner's equity.
B)revenue.
C)a liability.
D)an asset.