ACIS 2115 Module 3

The Revenue Recognition Principle states that Revenue is added to the accounting equation when:

services are provided or goods are delivered.

If a company recognizes accrued salary expense:

the employees have completed work but have not been paid.

When a company collects cash from accounts receivable:

total assets are not affected.

If a company accrues Salary Expense in Year 1 and pays that expense in Year 2, in which year is the Income Statement affected?

year 1

When a company incurs accrued expenses:

stockholders' equity decreases. the liability account, such as Accounts Payable, increases. assets are not affected.

The Accounts Payable account appears on:

the Balance sheet

Accounts Receivable will appear on which of the following financial statements?

Balance Sheet Accounts Receivable is an asset account.

Mary Company collected cash from an account receivable. The recognition of the cash collection will affect which of the following financial statements?

Balance Sheet and the Statement of Cash Flows When customers pay for goods or services purchased on account, Accounts Receivable is reduced and Cash is increased. Both of these accounts appear on the Balance Sheet. This cash collection appears as an inflow from Operating Activities on the Statement of Cash Flows.

The Matching Accounting Principles states that:

Expenses are matched to Revenues.

Yang Company recognized accrued salary expense. The recognition will affect which of the following financial statements?

Income Statement and the Balance Sheet An expense account on the Income Statement and a liability account on the Balance Sheet increases when an expense is accrued.

Garcia Company recognized revenue on account. The recognition will affect which of the following financial statements?

Income Statement and the Balance Sheet Recognizing revenue on account increases the Revenue account on the Income Statement and Accounts Receivable on the Balance Sheet.

Paying cash to settle a salaries payable obligation will affect which section of the Statement of Cash Flows?

OA (salaries are an expense)

If a company accrues Salary Expense in Year 1 and pays that expense in Year 2, when is the Salaries Payable account affected?

Salaries Payable increases in Year 1 and decreases in Year 2.

Assume a utility bill has arrived and you plan to pay it in 30 days. The accounting period ends in 10 days. The bill is received in the current accounting period but paid in the next accounting period. Further assume that it's difficult to determine which revenues that utility cost helped to generate. According to the Conservatism Accounting Principle, in which accounting period should you record the Utility Expense?

The current accounting period

This Historical Cost Accounting Principles states that when you purchase an asset, such as an automobile, that asset should be added to the accounting equation at what value? Group of answer choices

The price paid

A company using accrual accounting may report revenue on the Income Statement even if it does not collect cash.

True Revenue Recognition Principle: Revenue is recognized when it is earned

The amount of revenue shown on the Income Statement may differ from the amount of cash inflow from operating activities shown on the Statement of Cash Flows.

True Whenever revenue is earned on account and paid in full or in part during a different accounting period, the Revenue shown on the Income Statement will not equal the Cash Inflow from Operating Activities in neither the accounting period when the revenue is earned nor the accounting period when the cash is collected.

If a company provides services in Year 1 but does not collect that cash from the customers until Year 2, in which year will the revenue be recognized?

Year 1

If a company provides services in Year 1 but does not collect that cash from the customers until Year 2, in which year will the Statement of Cash Flows be affected?

Year 2

If a company accrues Salary Expense in Year 1 and pays that expense in Year 2, in which year is the Statement of Cash Flows affected?

year 2