Question 1

Which of the following best describes the Revenue Recognition Principle under accrual accounting?

Accepted Answer

Revenue is recognized when it is earned, meaning when goods are transferred or services are performed, regardless of when cash is received.

Question 2

A company pays $2,400 for a two-year insurance policy on October 1. What is the adjusting entry for insurance expense on December 31 of the same year?

Accepted Answer

Insurance Expense $$300; Prepaid Insurance 300$$

Question 3

Which of the following is a key difference between accrual basis and cash basis accounting?

Accepted Answer

Accrual basis recognizes revenues when earned and expenses when incurred, regardless of cash flow.

Question 4

A company receives $1,800 for 6 months rent in advance on November 1. What is the adjusting entry on December 31?

Accepted Answer

Unearned Rent Revenue $$600; Rent Revenue 600$$

Question 5

Which of the following is NOT a characteristic of adjusting journal entries (AJE)?

Accepted Answer

They always include cash as one of the accounts.

Question 6

A company acquires a truck for $$19,000 with an estimated salvage value of 2$$,000 and a useful life of 4 years. Using straight-line depreciation, what is the annual depreciation expense?

Accepted Answer

$$ \frac{19,000 - 2,000}{4} = 4,250 $$

Question 7

Which of the following is an example of indirect matching under the expense recognition (matching) principle?

Accepted Answer

Recording depreciation expense for a building each period.

Question 8

Which account type is NOT closed at the end of the accounting period?

Accepted Answer

Land

Question 9

A company earned $5,000 in landscaping services and billed the client. The client has not yet paid. What is the correct journal entry?

Accepted Answer

Accounts Receivable $$5,000; Landscaping Revenue 5$$,000

Question 10

Which of the following best describes the periodicity assumption?

Accepted Answer

The life of the business is divided into artificial time periods for reporting purposes.

Question 11

Which of the following is a current asset according to a classified balance sheet?

Accepted Answer

Accounts Receivable

Question 12

A company prepaid $1,200 for annual rent on December 1. What is the adjusting entry on December 31?

Accepted Answer

Rent Expense $$100; Prepaid Rent 100$$

Question 13

Which of the following is the correct formula for Net Assets?

Accepted Answer

$$ 	ext{Net Assets} = 	ext{Assets} - 	ext{Liabilities} $$

Question 14

Which of the following statements about closing entries is TRUE?

Accepted Answer

Closing entries transfer balances from nominal accounts to Retained Earnings.

Question 15

If a company incurs salaries expense of $650 at year-end but has not yet paid employees, what is the adjusting entry?

Accepted Answer

Salaries Expense $$650; Salaries Payable 650$$

Question 16

Which of the following is an example of a deferral?

Accepted Answer

Recognizing revenue after cash is received for services to be performed in the future.

Question 17

Which of the following is the correct order for preparing financial statements?

Accepted Answer

Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows

Question 18

A company has the following: Sales Revenue $$708,255, Cost of Goods Sold 525$$,305, Operating Expenses $122,550. What is the Net Income?

Accepted Answer

$$ 708,255 - 525,305 - 122,550 = 60,400 $$

Question 19

Which of the following is a long-term liability?

Accepted Answer

Bonds Payable

Question 20

Which of the following is the correct formula for straight-line depreciation expense?

Accepted Answer

$$ 	ext{Depreciation Expense} = \frac{	ext{Historical Cost} - 	ext{Estimated Salvage Value}}{	ext{Estimated Useful Life}} $$

Accrual Accounting and the Accounting Cycle: Chapter 3 Study Guide

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