Question 1

Which of the following best describes the revenue recognition principle under accrual accounting?

Accepted Answer

Revenue is recognized when goods are delivered or services are completed, regardless of when cash is received.

Question 2

A company pays $6,000 for a one-year insurance policy on July 1. Using straight-line amortization, what is the insurance expense for the month of August?

Accepted Answer

$500

Question 3

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

Accepted Answer

A company incurs salaries expense that will be paid in the next accounting period.

Question 4

What is the main purpose of adjusting entries at the end of an accounting period?

Accepted Answer

To ensure that revenues and expenses are recorded in the correct period, regardless of when cash is received or paid.

Question 5

A company received $12,000 in advance for services to be provided evenly over 12 months. At the end of the third month, what is the balance in the Unearned Revenue account?

Accepted Answer

$9,000

Question 6

Which of the following statements about contra accounts is TRUE?

Accepted Answer

Accumulated Amortization is a contra account to property, plant, and equipment and has a normal credit balance.

Question 7

If a business records a prepaid expense as an expense at the time of payment, what adjusting entry is required at period end if some of the benefit remains?

Accepted Answer

Debit the prepaid asset account and credit the expense account for the unexpired portion.

Question 8

Which of the following is NOT a characteristic of accrual-basis accounting?

Accepted Answer

Transactions are recorded only when cash changes hands.

Question 9

A company purchased office supplies for $$2,000. At the end of the month, a physical count shows 1$$,200 of supplies remain. What is the adjusting entry?

Accepted Answer

Debit Supplies Expense $$800; Credit Office Supplies 800$$

Question 10

Which of the following best describes the matching principle?

Accepted Answer

Expenses should be matched to the revenues they help generate in the same period.

Question 11

A company provides services worth $5,000 in May but will not receive payment until June. Under accrual accounting, when should the revenue be recognized?

Accepted Answer

In May, when the service is provided.

Question 12

Which of the following is TRUE regarding adjusting entries?

Accepted Answer

Adjusting entries either increase a revenue account or increase an expense account.

Question 13

A company purchased equipment for $24,000 with an estimated useful life of 4 years and no residual value. Using straight-line amortization, what is the monthly amortization expense?

Accepted Answer

$500

Question 14

If a company receives $18,000 cash on October 1 for services to be provided evenly over 9 months and records the entire amount as revenue, what adjusting entry is required at December 31?

Accepted Answer

Debit Unearned Revenue $$12,000; Credit Consulting Revenue 12$$,000

Question 15

Which of the following is a potential ethical issue in accrual accounting?

Accepted Answer

Overstating revenues that have not yet been earned.

Question 16

Which of the following is the correct order for preparing financial statements from the adjusted trial balance?

Accepted Answer

Income statement, statement of owner's equity, balance sheet

Question 17

A company’s furniture account has a balance of $$45,000. After one month, 750 of $$amortization is recorded. What is the book value of the furniture at month-end?

Accepted Answer

$44,250

Question 18

Under International Financial Reporting Standards (IFRS), which term is used for the allocation of the cost of tangible assets over their useful lives?

Accepted Answer

Amortization

Question 19

If a company records unearned revenue as revenue at the time of cash receipt, what adjusting entry is needed at period end if some of the service is still unearned?

Accepted Answer

Debit Unearned Revenue; Credit Revenue for the unearned portion.

Question 20

Which of the following is NOT a category of adjusting entry?

Accepted Answer

Inventory purchase

Measuring Business Income: The Adjusting Process (Chapter 3 Study Notes)

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