Chapter 3 & 4 Quiz

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

False

It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.

False

The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

False

A liability-revenue account relationship exits with an unearned rent revenue adjusting entry.

True

Closing entries are journalized after adjusting entries have been journalized.

True

Crue Company had the following transactions during 2022: • Sales of $4,800 on account to be collected in 2023 • Collected $2,000 for services to be performed in 2023 • Paid $1,625 cash in salaries • Purchased airline tickets for $250 in December for a trip to take place in 2023 What is Crue's 2022 net income using accrual accounting-basis?

$3,175 $4,800 - $1,625 = $3,175 (Sales - Cash Paid for Sale = Net Income)

Crue Company had the following transactions during 2022: • Sales of $4,500 on account to be collected in 2023 • Collected $2,500 for services to be performed in 2023 • Paid $1,625 cash in salaries • Purchased airline tickets for $250 in December for a trip to take place in 2023 What is Crue's net income using cash-basis accounting?

$625 $2,500 - $1,625 - $250 = $625 (Cash collected for service - Cash paid for sale - Purchase airline tickets = Net Income)

A company's calendar year and fiscal year are always the same.

False

Adjusting entries are not necessary if the trial balance debit and credit column balances are eual.

False

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?

July 31

Which of the following is a true statement about closing the books of a corporation?

Revenues and expenses are closed to the Income Summary account.

When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?

They should be inserted on the lines immediately below the trial balance totals.

An accounting time period that is one year in length, but does not begin on January 1, is referred to as

a fiscal year.

Balance sheet accounts are considered to be

permanent accounts.

On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:

debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

Merriweather Post Pavillion received a $820 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $280 and a credit to Service Revenue $280. The correcting entry is

debit Cash, $540 and Service Revenue, $280; credit Accounts Receivable, $820. $820 - $280 = $540

The information for preparing a trial balance on a worksheet is obtained from

general ledger accounts.

A law firm received $3,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

revenues to be understated.

Closing entries are necessary for

temporary accounts only

The time period assumption states that

the economic life of a business can be divided into artificial time periods.