AC 210 Chapter 3

In June, Cellars, Inc. collected $1,000 from a customer in advance. In July, Cellars completed the first half of the job. In August, Cellars completed the work. If Cellars uses the cash basis of accounting, it will record revenues of ______.

$1,000 in June when the cash is collected

Monster Music Company provided music lessons for customers for $10,000, receiving $6,000 in cash and the rest on account. What is Monster Music Company's revenue if it used the cash basis of accounting instead of accrual basis accounting?

$6,000

Accruix, Inc. uses accrual basis accounting. Its balance sheets reported Accounts Receivable of $5,000 at the end of its first year of business. Its income statement reported Sales Revenue of $100,000 for its first year. What would Accruix's revenues have been if it had used cash basis accounting?

$95,000

Credits will increase which of these T-accounts?

Accounts Payable Deferred Revenue Sales Revenue

basis accounting is the only acceptable method for external reporting of net income.

Accrual

If Revenues is credited, then the possible debits are ______.

Cash Accounts Receivable Deferred Revenue

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period?

Cash is paid in advance of services being provided

True or false: In accordance with generally accepted accounting principles, the timing of cash receipts dictates when revenues are recognized.

False

Which of the following is not one of the five steps to apply when determining revenue?

Identify that the cash has been received

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in March. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January

Which of the following is correct?

Measurement of net income involves estimations.

ABC Company paid $6,000 cash for insurance in June that provides coverage for 6 months, from July through December. How much expense should be recognized in June to be in accordance with generally accepted accounting principles?

No expense should be recognized in June.

On October 31, Pizza Company sold pumpkin spice pizzas for Halloween parties on account. The customers have 30 days to pay for the pizzas. In which month should Pizza Company record the revenue under accrual accounting?

October

In its first year of business, Wok 'n' Roll, Inc. provided $100,000 of goods to its customers of which $80,000 was collected. It also incurred $90,000 in expenses for which $80,000 was paid. Which of the following statements are correct?

Wok 'n' Roll should use accrual basis accounting for external reporting purposes to conform with GAAP and IFRS. Wok 'n' Roll should report net income of $10,000 for external reporting purposes.

Reporting revenues only when cash is received and expenses only when cash is paid is called the _______ basis of accounting

cash or cash basis

The entry to record cash collected from customers in advance includes a ______.

credit to Deferred Revenue debit to Cash

The totals on a trial balance reveal whether the total _______ equal the total _______

debits, credits

Assets, on the balance sheet, provide future benefits for a company, while _____ , on the income statement, are used-up benefits.

expenses

Identifying the performance obligation is an important step in determining whether to recognize revenue especially when the contract involves ______.

multiple obligations

Revenues are recognized when ______, even when the cash is collected in a different accounting period than the obligation to the customer has been performed.

services are performed goods are delivered