Q: Which of the following formulas correctly calculates net income for a period under the matching principle?

$$\text{Net Income} = \text{Total Revenues} - \text{Total Expenses}$$

Question 1

Which of the following best describes the main difference between cash basis accounting and accrual basis accounting?

Accepted Answer

Cash basis accounting records revenues and expenses only when cash is exchanged, while accrual basis accounting records revenues when earned and expenses when incurred.

Question 2

Smart Touch Learning paid $1,200 for insurance on May 1 to cover the next six months. Under accrual basis accounting, how much insurance expense should be recognized for the month of May?

Accepted Answer

$200

Question 3

Which of the following is NOT a step in the five-step revenue recognition process under the revenue recognition principle?

Accepted Answer

Record revenue when cash is received.

Question 4

A company receives $600 on April 30 for services to be performed over the next six months. Under accrual basis accounting, how much revenue should be recognized in May?

Accepted Answer

$100

Question 5

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching principle

Question 6

Which of the following statements about the time period concept is TRUE?

Accepted Answer

It allows businesses to prepare financial statements for specific periods, such as a month, quarter, or year.

Question 7

A company signs a contract to provide services over a 12-month period for $12,000. According to the revenue recognition principle, how much revenue should be recognized each month if the services are provided evenly?

Accepted Answer

$1,000

Question 8

Which of the following best explains why accrual basis accounting provides a better picture of a business’s revenues and expenses than cash basis accounting?

Accepted Answer

It matches revenues and expenses to the periods in which they are earned or incurred, regardless of when cash is exchanged.

Question 9

Which of the following is an example of applying the matching principle?

Accepted Answer

Recording depreciation expense for equipment used to generate revenue during the period.

Question 10

A company receives cash in advance for services to be performed in the future. Under accrual basis accounting, when should the revenue be recognized?

Accepted Answer

When the services are performed.

Question 11

Which of the following formulas correctly calculates net income for a period under the matching principle?

Accepted Answer

$$	ext{Net Income} = 	ext{Total Revenues} - 	ext{Total Expenses}$$

Question 12

If a company’s fiscal year runs from July 1 to June 30, which of the following statements is TRUE?

Accepted Answer

The company’s fiscal year does not coincide with the calendar year.

Question 13

Which of the following best describes a performance obligation under the revenue recognition principle?

Accepted Answer

A contractual promise to transfer a distinct good or service to a customer.

Question 14

A company allocates the transaction price to multiple performance obligations in a contract. Which step of the revenue recognition process is this?

Accepted Answer

Step 4

Question 15

Which of the following is NOT a characteristic of cash basis accounting?

Accepted Answer

Revenues are recorded when earned, regardless of cash receipt.

Question 16

A company incurs $3,000 in expenses in December but pays them in January. Under accrual basis accounting, when should the expenses be recorded?

Accepted Answer

In December, when the expenses are incurred.

Question 17

Which of the following best describes the purpose of the matching principle?

Accepted Answer

To ensure expenses are recorded in the same period as the revenues they help generate.

Question 18

If a company provides services in March but does not receive payment until April, under accrual basis accounting, when should the revenue be recognized?

Accepted Answer

In March, when the services are provided.

Question 19

Which of the following is an example of the time period concept in practice?

Accepted Answer

Preparing monthly financial statements for a business.

Question 20

A company enters into a contract to deliver goods and services. According to the revenue recognition principle, when is revenue recognized?

Accepted Answer

When the company satisfies each performance obligation by transferring control of the goods or services to the customer.

Accrual Accounting Concepts: Cash vs. Accrual, Time Period, Revenue Recognition, and Matching Principles

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