Ch 3 Questions

Which of the following is true of accrual basis accounting and cash basis accounting: a) Accrual accounting records revenue only when it is earned b) Accrual accounting is not allowed under GAAP c) Cash basis accounting records all transactions d) All of the above are true

a) Accrual accounting record revenue only when it is earned

Which of the following is an example of a deferral (or prepaid) adjusting entry? a) Recording the usage of office supplies during the period b) Recording salaries expense for employees not yet paid c) Recording revenue that has been earned but not yet received d) Recording interest expense incurred on a notes payable not due until next year

a) Recording the usage of office supplies during the period

Get Fit Now gains a client who prepays $540 for a package of six physical training sessions. Get Fit Now collects the $540 in advance and will provide the training later. AFter four training sessions, what should Get Fit Now report on its income statement assuming it uses the accrual basis accounting method? a. service revenue of $360 b. service revenue of $540 c. unearned service revenue of $360 d. cash of $180

a) service revenue of $360

The adjusted trial balance shows a) amounts that may be out of balance b) account balances after adjustment c) assets and liabilities only d) revenues and expenses only

b) account balances after adjustment

The revenue recognition principle requires a) time to be divided into annual periods to measure revenue properly b) revenue to be recorded only after the business has earned it c) expenses to be matched with revenue of the period d) revenue to be recorded only after the cash is received

b) revenue to be recorded only after the business has earned it

A worksheet: a) is a journal used to record transactions b) is a financial statement that reports net income during the period c) is an internal document that helps summarize data for the preparation of financial statements d) is a ledger listing the account balances and changes in those accounts

c) an internal document that helps summarize data for the preparation of financial statements

Adjusting the accounts is the process of a) subtracting expenses from revenues to measure net income b) recording transactions as they occur during the period c) updating the accounts at the end of the period d) zeroing our account balances to prepare for the next period

c) updating the account at the end of the period

A & D Window Cleaning performed $450 of services but have not yet billed customers for the month. If A & D fails to record the adjusting entry, what is the impact of the financial statements? a) balance sheet: assets understated; equity overstated income statement: expense understated b) balance sheet: liabilities overstated; equity understated income statement: revenues understated c) balance sheet: assets overstated; equity understated income statement: expense understated d) balance sheet: assets understated; equity understated income statement: revenues understated

d) balance sheet: assets understated; equity understated income statement: revenues understated