Deck 3: Accrual Accounting Concepts

Question 1

Current assets are assets that are expected to be converted to cash,sold or used up within
6 months.

Answer 1

False

Question 2

An adjusting entry would adjust an expense account so that the expense is reported when incurred.

Answer 2

True

Question 3

Expenses on the income statement are assets used up or services consumed in the process of generating revenues.

Answer 3

True

Question 4

An adjusting entry would adjust revenue so that it is reported when earned and not when cash is received.

Question 5

The matching concept requires expenses to be recorded in the same period that the related revenue is recorded.

Question 6

Rights that are short-term in nature are called intangible assets.

Question 7

Receiving cash in advance of performing a service creates a liability for the company.

Question 8

It is easy to objectively determine the physical decline in the ability of fixed assets to provide service.

Question 9

Accrued expenses are expenses that have been incurred and paid.

Question 10

"Brand name" recognition is an example of goodwill.

Question 11

The fixed asset section of a balance sheet may also be labeled as property,plant,and equipment.

Question 12

The accrual basis of accounting requires revenue to be recorded when the service is performed.

Question 13

The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.

Question 14

Under the accrual basis of accounting,the accounting records are normally updated after the preparation of the financial statements.

Question 15

The accrual basis recognizes liabilities at the time the business incurs the obligation to pay for the services or goods purchased.

Question 16

Liabilities that will NOT be due for more that one year are called long-term liabilities.

Question 17

Under the accrual basis of accounting,net cash flows from operating activities on the statement of cash flows will normally be the same as net income.

Question 18

Accrual accounting does NOT require that the accounting records be updated prior to preparing financial statements.

Question 19

Land is an example of a current asset.

Question 20

Physical assets of a long-term nature are referred to as fixed assets.

Question 21

Flyer Co.billed a client for flying lessons given in January.The payment was received in February.Under the accrual basis of accounting,when should Jedi record the revenue?

A)January
B)February
C)Some in January and some in February
D)Jedi should not record any revenue

Question 22

The process that begins with the analysis of transactions and ends with preparing the accounting records for the next accounting period is called the accounting cycle.

Question 23

Under the cash basis of accounting,a business records only transactions involving increases or decreases of its cash.

Question 24

Under accrual accounting,expenses are recorded when incurred regardless of when paid.

Question 25

Under the cash basis of accounting,no adjustments are necessary prior to the preparation of the financial statements.

Question 26

Unearned revenue is what type of an account?

A)Asset
B)Revenue
C)Stockholders' equity
D)Liability

Question 27

UNI Co.received $1,000 from Newbie as rent for the use of a building owned by UNI.How does this transaction affect UNI's accounts if UNI recognizes a liability?

A)Cash is increased and revenue is increased.
B)Cash is increased and revenue is decreased.
C)Cash is increased and unearned revenue is increased.
D)It is not recorded.

Question 28

To arrive at cash flows from operations,it is necessary to convert the income statement from an accrual basis to the cash basis of accounting.

Question 29

As time passes,fixed assets,other than land,lose their capacity to provide useful services.To account for this decrease in usefulness,the cost of fixed assets is systematically allocated to expense through a process called

A)equipment allocation.
B)depreciation.
C)accumulation.
D)matching.

Question 30

To determine cash payments for operating expenses for the cash flow statement using the direct method,depreciation expense is added to net income.

Question 31

On April 1,Smart,Inc.paid $7,200 for an insurance premium on a three-year insurance policy.How does this transaction affect Smart's accounts?

A)Increase insurance expense and decrease cash by $7,200 each
B)Increase prepaid insurance and decrease cash by $7,200 each
C)Increase unearned insurance and decrease cash by $7,200 each
D)Increase prepaid insurance and decrease retained earnings by $7,200 each

Question 32

A&M Co.purchased land for $50,000 with $10,000 paid in cash and $40,000 in a note payable due three years from now.What effect does this transaction have on the accounts under the accrual basis of accounting?

A)Net increase in assets of $40,000 and a net increase in liabilities of $40,000
B)Net increase in assets and liabilities of $50,000
C)Net increase in assets of $50,000 and a net decrease in liabilities of $40,000
D)Net increase in assets of $60,000 and a net decrease in liabilities of $40,000

Question 33

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 34

Which of the following accounts would likely be included in a deferral adjusting entry?

A)Interest Revenue
B)Unearned Revenue
C)Salaries Payable
D)Accounts Receivable

Question 35

If land costing $75,000 was sold for $135,000,the amount reported in the investing activities section of the statement of cash flows would be $135,000.

Question 36

Every company must use the cash basis of accounting.

Question 37

Eagle Eye,Inc. ,a corporation,received an additional investment of $6,000 cash in exchange for shares of capital stock.How does this transaction affect Eagle Eye's accounts?

A)Increase in stock expense and decrease cash by $6,000 each
B)Increase capital stock and increase cash by $6,000 each
C)Increase capital stock and increase revenue by $6,000 each
D)Increase capital stock and decrease retained earnings by $6,000 each

Question 38

A&M Co.provided services of $1,000,000 to clients on account.How does this transaction affect A&M's accounts?

A)Increase accounts receivable and cash by $1,000,000 each
B)Increase accounts receivable and revenues by $1,000,000 each
C)Increase accounts receivable and unearned revenues by $1,000,000 each
D)Increase cash and decrease accounts receivable by $1,000,000 each

Question 39

Under the cash basis of accounting,expenses are recorded when paid.

Question 40

Using accrual accounting,revenue is recorded and reported only

A)when cash is received without regard to when the services are rendered.
B)when the services are rendered without regard to when cash is received.
C)when cash is received at the time services are rendered.
D)if cash is received after the services are rendered.

Question 41

Accrued revenues would appear on the balance sheet as

A)assets.
B)liabilities.
C)stockholders' equity.
D)prepaid expenses.

Question 42

If prepaid insurance expires over time,this asset account becomes a(n)

A)liability.
B)another asset.
C)revenue.
D)expense.

Question 43

Deferred expenses (prepaid expenses)are items initially recorded as assets but are expected to become __________ over time.

A)liabilities
B)assets
C)stockholders' equity
D)expenses

Question 44

XYZ Co.paid $1,000 in dividends to stockholders.How does this transaction affect the accounts of XYZ?

A)Cash will decrease by $1,000 and retained earnings will decrease by $1,000.
B)Cash will decrease by $1,000 and expenses will increase $1,000.
C)Cash will decrease by $1,000 and revenues will decrease $1,000.
D)Net income will decrease by $1,000.

Question 45

Which of the following is an example of an accrued expense?

A)Salary owed but not yet paid
B)Fees received but not yet earned
C)Supplies on hand
D)A two-year premium paid on a fire insurance policy

Question 46

On June 1,Green Pea,Inc.purchased $1,200 worth of supplies on account.Prior to the purchase,the balance in the supplies account was $0.On December 31,the fiscal year-end for Green Pea,it is determined that $700 of supplies still remain.What is the balance in the supplies account after adjustment?

A)$0
B)$700
C)$500
D)$1,200

Question 47

Accrued expenses are ordinarily reported on the balance sheet as

A)assets.
B)liabilities.
C)fixed assets.
D)prepaid expenses.

Question 48

The unearned rent account has a balance of $50,000.If $3,000 of the $50,000 is unearned at the end of the accounting period,the amount of the adjusting entry is

A)$47,000.
B)$53,000.
C)$50,000.
D)$3,000.

Question 49

X&Y Co.received $4,000 in payments from clients for services billed in a previous month.What effect does this transaction have on the accounts under the accrual basis of accounting?

A)Total assets increase by $4,000.
B)Assets will increase by $4,000 and revenues will increase $4,000.
C)Total assets will be decrease by $4,000.
D)The net effect on assets is zero.

Question 50

Updating accrual accounting records prior to preparing financial statements is called

A)the closing process.
B)converting to cash basis accounting.
C)the adjustment process.
D)going concern adjustments.

Question 51

When cash is paid to suppliers on account,which section of the Statement of Cash Flows is affected?

A)Cash Flow from Operating Activities.
B)Cash Flow from Investing Activities.
C)Cash Flow from Financing Activities
D)There is no effect on the Statement of Cash Flows.

Question 52

When cash is received in payment of an account receivable,which section of the Statement of Cash Flows is affected?

A)Cash Flow from Operating Activities
B)Cash Flow from Investing Activities
C)Cash Flow from Financing Activities
D)There is no effect on the Statement of Cash Flows.

Question 53

Depreciation Expense and Accumulated Depreciation are classified,respectively,as

A)expense and contra asset.
B)asset and contra liability.
C)revenue and asset.
D)contra asset and expense.

Question 54

Fees receivable would appear on the balance sheet as a(n)

A)asset.
B)liability.
C)fixed asset.
D)unearned revenue.

Question 55

Which of the following is an example of a deferred expense?

A)Prepaid advertising
B)Unearned revenue
C)Accounts payable
D)Accounts receivable

Question 56

XYZ Co.received $3,000 in payments from clients for services billed in a previous month.Which accounts will be affected and by what amounts under the accrual basis of accounting?

A)Cash will increase by $3,000 and accounts receivable decrease by $3,000.
B)Cash will increase by $3,000 and revenues will increase $3,000.
C)Accounts receivable will increase by $3,000 and revenue will increase by $3,000.
D)Accounts receivable will increase by $3,000 and cash will increase by $3,000.

Question 57

On April 1,Bear,Inc.paid $2,400 for an insurance premium on a three-year insurance policy.At the end of December,Bear's fiscal year-end,what should be the balance in the prepaid insurance account?

A)$2,700
B)$3,000
C)$2,400
D)$1,800

Question 58

On June 1,Green Pea,Inc.purchased $1,200 worth of supplies on account.Prior to the purchase,the balance in the supplies account was $0.On December 31,the fiscal year-end for Green Pea,it is determined that $500 of supplies have been used up.What is the balance in the supplies account after adjustment?

A)$0
B)$700
C)$500
D)$1,200

Question 59

Unearned rent,representing rent paid for the next six months' occupancy,would be reported on the landlord's balance sheet as a(n)

A)asset.
B)liability.
C)capital stock.
D)revenue.

Question 60

The balance in the office supplies account on June 1 was $5,200,supplies purchased during June were $2,500,and the supplies on hand at June 30 were $1,500.The amount to be used for the appropriate adjusting entry is

A)$6,700.
B)$2,500.
C)$9,200.
D)$6,200.

Question 61

Refer to Donald Duck Co.How much cash will be paid on Friday?

A)$500
B)$1,500
C)$2,500
D)$1,000

Question 62

The financial statements are affected by which type(s)of adjustments?

A)Deferrals
B)Accruals
C)Both deferrals and accruals
D)Neither deferrals nor accruals

Question 63

Deferred revenues (unearned revenues)are items initially recorded as liabilities,but expected to become __________ over time.

A)liabilities
B)assets
C)revenues
D)expenses

Question 64

Cash and other assets that are expected to be converted to cash or sold or used up within one year or less through the normal operations of the business are called

A)current assets.
B)intangible assets.
C)fixed assets.
D)notes receivable.

Question 65

Which of the following is NOT reported as revenue on the income statement?

A)Unearned revenue
B)Fees revenue
C)Commissions revenue
D)Rent revenue

Question 66

Which of the following is an example of an intangible asset?

A)Goodwill
B)Patents
C)Copyrights
D)All of these

Question 67

When an entry is made to adjust the supplies account and recognize supplies expense for the period,which section of the statement of cash flows is affected?

A)Cash Flow from Operating Activities
B)Cash Flow from Investing Activities
C)Cash Flow from Financing Activities
D)There is no effect on the statement of cash flows.

Question 68

St.Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of $800.There were $400 of supplies on hand at year-end.The year-end adjustment would include an increase in Toy-Making Supplies Expense for

A)$1,000.
B)$800.
C)$600.
D)$400.

Question 69

For a corporation,stockholders' equity consists of

A)assets plus liabilities.
B)current assets plus long-term assets.
C)intangible assets.
D)capital stock and retained earnings.

Question 70

Refer to Donald Duck Cricket Co.If the month ends on Tuesday,and wages will not be paid until Friday,how much wage expense should be accrued on Tuesday?

A)$500
B)$1,500
C)$2,500
D)$1,000

Question 71

Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week).Assume that the last day of the month falls on Thursday.Which of the following is the required month-end adjusting entry?

A)Increase Salaries Expense $200 and increase Salaries Payable $200
B)Increase Salaries Expense $50 and increase Salaries Payable $50
C)Increase Salaries Payable $200 and increase Cash $200
D)Increase Salaries Expense $250 and increase Cash $250

Question 72

Expenses NOT related to the primary operations of the business are sometimes reported as

A)administrative expense.
B)operating expense.
C)other expense.
D)all of these.

Question 73

In October,cash is received in advance of rendering services.Assuming that half of the services have been performed by December 31,the year-end adjustment would

A)decrease Unearned Service Revenue and decrease Cash.
B)increase Accounts Receivable and increase Service Revenue.
C)increase Cash and increase Service Revenue.
D)decrease Unearned Service Revenue and increase Service Revenue.

Question 74

The __________ is prepared with various sections,subsections,and captions that aid in its interpretation and analysis.

A)accounting equation
B)retained earnings statement
C)intangible asset section
D)classified balance sheet

Question 75

Current liabilities are usually due within

A)one month or less.
B)one week or less.
C)one year or less.
D)more than one year.

Question 76

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account,which section of the statement of cash flows is affected?

A)Cash Flow from Operating Activities
B)Cash Flow from Investing Activities
C)Cash Flow from Financing Activities
D)There is no effect on the statement of cash flows.

Question 77

__________ is/are created when a revenue or expense has NOT been recorded by the end of the accounting period.

A)Prepaid advertising
B)Premiums received in advance
C)Unearned revenue
D)Accruals

Question 78

The following assets are included in Bruce Auto Parts,Inc.'s December 31,2010,balance sheet.

The total dollar amount of assets classified as property,plant,and equipment on Ace Auto Parts' December 31,2010,classified balance sheet is

A)$200,000.
B)$230,000.
C)$240,000.
D)$310,000.

Question 79

Which asset is NOT depreciated as it usually does NOT lose its ability to provide service?

A)Prepaid insurance
B)Equipment
C)Building
D)Land

Question 80

Accumulated depreciation is __________ to get the carrying value.

A)added to equipment
B)subtracted from equipment
C)added to accounts payable
D)subtracted from accounts payable