Chapter 3: The Adjusting Process Multiple Choice

Deferred revenue would be classified as a(n): A) liability account. B) asset account. C) revenue account. D) equity account

A

Adjusting entries never involve: A) assets. B) cash. C) liabilities. D) revenues

B

Accrued revenue is revenue that: A) has been collected and earned. B) the business has collected, but not yet earned. C) the business has earned, but not collected. D) will be collected and earned in the future.

C

Ensuring that information is reported often is part of the: A) matching principle. B) revenue principle. C) time-period concept. D) expense principle.

C

The Supplies account is an example of a(n): A) accrued revenue. B) accrued expense. C) prepaid expense. D) unearned revenue.

C

Every adjustment affects which of the following accounts on the income statement? A) asset and equity accounts B) revenue and liability accounts C) revenue and asset accounts D) none of these accounts

D

Generally accepted accounting principles require the use of which of the following methods of accounting? A) Cash B) Deferral C) Receivable D) Accrual

D

TRUE OR FALSE The revenue principle is the basis for recording revenues―both when to record revenue and the amount of revenue to record.

True

An adjusting entry that credits Salaries payable is an example of a(n): A) accrued expense. B) unearned revenue. C) accrued revenue. D) prepaid expense.

A

TRUE OR FALSE "Matching" in accounting means to make an entry in the journal.

False

TRUE OR FALSE A contra account has two characteristics: (1) a contra account precedes a companion account, and (2) a contra account's balance is the same as that of the companion account.

False

True or False Accrual accounting records transactions ONLY when cash is received or paid

False

True or False The basic interim accounting period is one year.

False

TRUE OR FALSE In a prepaid adjustment, the cash payment occurs before an expense is recorded.

TRUE

TRUE OR FALSE The account "Prepaid insurance" is an asset account.

TRUE

TRUE OR FALSE The adjusting entry required for a prepaid expense consists of a debit to an expense and a credit to an asset

TRUE

TRUE OR FALSE The matching principle guides accounting for expenses―identifying all expenses incurred during the period, measuring the expenses, and matching them against the revenues earned during that time period

TRUE

TRUE OR FALSE The owner of Recipes.org purchases $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the $2,000 is paid

TRUE

TRUE OR FALSE An accrual of revenue records the cash receipt before the expense.

FALSE

A credit to a(n) _________ account is required as part of an adjusting entry when an accrued revenue was initially recorded as revenue. A) revenue B) liability C) contra liability D) unearned revenue

A

Employees of Robert Rogers, CPA, PC worked during the last two weeks of December. They received their paychecks on January 2. The matching principle would require that which of the following accounts appear on the income statement for the year ended December 31? A) Salary expense B) Accounting expense C) Salaries payable D) Accounts receivable

A

Making an adjusting entry that debits Rent expense on December 31 would indicate that the payment of rent was originally recorded as a: A) prepaid expense entry. B) depreciation entry. C) accrued expense entry. D) accrued revenue entry.

A

Robert Rogers, CPA, PC owns a computer used for the corporation's business. The matching principle would require that which of the following accounts appear on the income statement for the year ended December 31? A) Depreciation expense B) Service revenue C) Accumulated depreciation D) Accounts receivable

A

Under the accrual method of accounting, an expense is recorded at which of the following times? A) When the expense is incurred B) When payment for the expense is made C) At the end of the accounting period D) At both A and C

A

Under the accrual method of accounting, service revenue is recorded at which of the following times? A) When the services are completed B) When payment for the services is received C) At the end of the accounting period D) Both A and B

A

Under the cash-basis method of accounting, service revenue is recorded at which of the following times? A) When payment for the services is received B) At the end of the accounting period C) When the services are completed D) At both A and B

A

Under which of the following methods of accounting is revenue recorded ONLY when cash is received? A) Cash B) Receivable C) Deferral D) Accrual

A

What account type is debited in the adjusting entry when a prepaid expense was initially recorded as an expense? A) A debit to an asset account B) A debit to a deferred revenue account C) A debit to an unearned expense account D) A debit to a contra account

A

What account type is debited in the adjusting entry when unearned income was initially recorded as revenue? A) A debit to a deferred revenue account B) A debit to an unearned expense account C) A debit to an asset account D) A debit to a contra account

A

Which of the following is the time-period concept? A) The concept that ensures that information is reported at regular intervals B) The concept that determines when to record revenue C) The concept that determines when to record expenses D) None of the above

A

A prepaid expense is an expense that: A) has been paid and incurred. B) the business has paid, but not yet incurred . C) the business has incurred, but not yet paid. D) will be incurred and paid in the future.

B

Employees of Robert Rogers, CPA, PC worked during the last two weeks of December. They received their paychecks on January 2. The matching principle would require that which of the following accounts appear on the balance sheet for December 31? A) Accounts receivable B) Salaries payable C) Salary expense D) Accounting expense

B

If a company is using the accrual method of accounting, when is revenue recorded? A) When cash is received, even though services may be rendered at a later date B) When services are rendered, even though cash may be received at a later date C) Only when cash is received before the completion of the services D) Only when cash is received during the completion of the services

B

If a company is using the cash-basis method of accounting, when is revenue recorded? A) When services are rendered, even though cash may be received at a later date B) When cash is received C) Only when cash is received before the completion of the services D) Only when cash is received during the completion of the services

B

Robert Rogers, CPA, PC completed accounting services in December. A bill was mailed on December 30. A check arrived in the mail and was deposited on January 5. The revenue principle would require that which of the following accounts appear on the balance sheet for December 31? A) Accounting expense B) Accounts receivable C) Service revenue D) Accounts payable

B

Under which of the following methods of accounting is an expense recorded when it is incurred, regardless of when cash is paid? A) Cash B) Accrual C) Deferral D) Receivable

B

Unearned revenue is revenue that: A) will be collected and earned in the future . B) the business has collected, but not yet earned. C) has been collected and earned. D) the business has earned, but not collected.

B

Which of the following would be considered a contra-account? A) Depreciation expense B) Accumulated depreciation C) Unearned revenue D) Earned revenue

B

A credit to a(n) _________ account is required as part of an adjusting entry when an accrued expense was initially recorded as an expense. A) contra liability B) unearned revenue C) liability D) revenue

C

An accrued expense is an expense that: A) the business has paid, but not yet incurred. B) will be incurred and paid in the future. C) the business has incurred, but not yet paid. D) has been paid and incurred

C

Under the cash-basis method of accounting, an expense is recorded at which of the following times? A) At the end of the accounting period B) When the expense is incurred C) When payment for the expense is made D) At both A and B

C

What account type is debited in the adjusting entry when unearned income was initially recorded as revenue? A) A debit to a deferred revenue account B) A debit to an unearned expense account C) A debit to an asset account D) A debit to a contra account

C

Which of the following is NOT considered an interim accounting period? A) Monthly B) Quarterly C) Annually D) Semi-annually

C

Which of the following is the revenue principle? A) The principle that ensures that information is reported at regular intervals B) The principle that determines when to record expenses C) The principle that determines when to record revenue D) None of the above

C

Which of the following statements best mirrors the matching principle? A) The principle that ensures that information is reported at regular intervals B) The principle that determines when to record revenue C) The principle that determines when to record expenses D) None of the above

C

Cash-basis accounting ignores all of the following except: A) payables. B) depreciation. C) receivables. D) expenses.

D

Every adjustment affects which of the following accounts on the balance sheet? A) revenue or liability accounts B) revenue or expense accounts C) asset or expense accounts D) asset or liability accounts

D

Making an entry to write off a portion of a fixed asset's value would indicate it would be a(n): A) prepaid expense entry. B) accrued expense entry. C) accrued revenue entry. D) depreciation entry

D

Recording the amount of earned revenue from an account that was originally recorded as unearned revenue is an example of: A) the accounting period concept. B) the revenue concept. C) the matching principle. D) all of the above.

D

Under which of the following methods of accounting is an expense recorded ONLY when cash is paid? A) Receivable B) Accrual C) Deferral D) Cash

D

Under which of the following methods of accounting is revenue recorded when it is earned, regardless of when cash is received? A) Deferral B) Cash C) Receivable D) Accrual

D

What are the two most common methods of accounting? A) Managerial and accrual B) Managerial and cash-basis C) Financial and cash-basis D) Accrual and cash-basis

D

Which of the following accounts would be adjusted at the end of an accounting period? A) Accounts receivable B) Accounts payable C) Cash D) Prepaid insurance

D

Which of the following are differences in the accrual method and cash-basis method of accounting? A) Accrual accounting is required by generally accepted accounting principles. B) Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash is paid. C) Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue when cash is received. D) All of the above are true.

D

True or False The owner of Recipes.org purchases $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the $2,000 is paid

False

True or False There are two ways to do accounting: accrual accounting and cash-basis accounting.

True