Accounting Chapter 4

An accounting time period that is one year in length is called: -a fiscal year. -the time period assumption. -a reporting period. -an interim period.

Which principle dictates that efforts (expenses) be matched with results (revenues)? -Revenue recognition principle. -Periodicity principle. -Expense recognition principle. -Historical cost principle.

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the -accrued revenues principle. -expense recognition principle. -periodicity assumption. -revenue recognition principle.

If revenues are recognized only when a customer pays, what method of accounting is being used? -Recognition basis -Cash-basis -Accrual-basis -Matching basis

Which statement is correct? -As long as management is ethical, there are no problems with using the cash basis of accounting. -As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. -The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles. -The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.

Which of the following is not a type of adjusting entry? Accrued expenses Prepaid expenses Earned revenues Accrued revenues

Adjusting entries are made to ensure that: -revenues are recorded in the period in which the performance obligation is satisfied. -expenses are recognized in the period in which they are incurred. -balance sheet and income statement accounts have correct balances at the end of an accounting period. -All of these answer choices are correct.

Which one of the following is not a justification for adjusting entries? -Adjusting entries are necessary to ensure that the revenue recognition principle is followed. -Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. -Adjusting entries are necessary to ensure that the expense recognition principle is followed. -Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Cash received before services are performed which is recorded as a debit to a Cash account and a credit to a liability account is called -None of these answer choices are correct. -an accrued revenue. -an unearned revenue. -an unrecorded revenue.

Adjustments for unearned revenues: -increase liabilities and increase revenues. -increase assets and increase revenues. -decrease revenues and decrease assets. -decrease liabilities and increase revenues.

Adjustments for prepaid expenses -decrease assets and increase revenues. -decrease expenses and increase assets. -decrease assets and increase expenses. -decrease revenues and increase assets.

Ignatenko Company purchased office supplies costing $5,000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be Supplies Expense $1,300 Supplies $1,300 Supplies Expense $3,700 Supplies $3,700 Supplies $3,700 Supplies Expense $3,700 Supplies $1,300 Supplies Expense $4,000

If the adjusting entry is not made for unearned revenues the result will be to -overstate assets and understate liabilities. -overstate liabilities and understate revenues. -understate net income and overstate retained earnings. -understate retained earnings and overstate revenues.

Adjustments for accrued revenues: -increase assets and increase revenues. -decrease assets and decrease revenues. -increase assets and increase liabilities. -decrease liabilities and increase revenues.

Which statement is incorrect concerning the adjusted trial balance? -The adjusted trial balance lists the account balances segregated by assets and liabilities. -The adjusted trial balance provides the primary basis for the preparation of financial statements. -The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries. -An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.

Which types of accounts will appear in the post-closing trial balance? -None of these answer choices are correct. -Accounts shown in the income statement columns of a work sheet. -Permanent accounts. -Temporary accounts.

The closing entry process consists of closing -all permanent accounts. -all asset and liability accounts -out the Retained Earnings account. -all temporary accounts.

All of the following are required steps in the accounting cycle except: -preparing a post-closing trial balance. -preparing a worksheet. -preparing an adjusted trial balance. -journalizing and posting closing entries.

Under the accrual basis of accounting: -net income is calculated by matching cash outflows against cash inflows. -cash must be received before revenue is recognized. -events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. -the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

Using accrual accounting, expenses are recorded and reported only: -when they are incurred and paid at the same time. -when they are incurred whether or not cash is paid. -if they are paid after they are incurred. -if they are paid before they are incurred.

Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n): revenue prepaid expense expense liability

Adjusting entries affect at least: -one revenue and one expense account. -one asset and one liability account. -one revenue and one balance sheet account. -one income statement account and one balance sheet account.

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a: -debit to an expense account and a credit to an asset account. -debit to an asset account and a credit to an asset account. -debit to an expense account and a credit to an expense account. -debit to an asset account and a credit to an expense account.

If a company fails to adjust for accrued revenues: -assets will be understated and revenues will be understated. -assets will be overstated and revenues will be understated. -liabilities will be overstated and revenues will be understated. -liabilities will be understated and revenues will be understated.

If a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements? -Assets will be overstated and net income and stockholders' equity will be overstated. -Expenses will be understated and net income and stockholders' equity will be overstated. -Failure to make an adjustment does not affect the financial statements. -Assets will be overstated and net income and stockholders' equity will be understated.

Transactions recorded in the periods in which the events occur

Economic life of a business can be devided into artificial periods

Expenses matched with revenues in the period when efforts are expanded to generate revenues

Revenue recognizes in the accounting period in which it is earned

A list of accounts and their balances at a given time.

______________ make it possible to report correct amounts on the balance sheet and on the income statement.

Includes one income statement account and one balance sheet account.

The basis of adjusting entries is to

two types of adjusting entries

Expenses paid in cash and recorded as assets before they are used or consumed.

Cash received and reported as liabilities before revenue is earned.

Insurance, Supplies, Advertising, Rent, Depreciation are all examples of

Assets overstated. Expenses understated

Rent, Magazine Subscriptions, Customer deposits for future service are all examples of

Liabilities overstated. Revenues understated

interest, rent, services performed but not collected are examples of

Assets understated, Revenues understated

Closing the books: All revenue accounts, all expense accounts, dividends are considered temporary or permanent

Closing the books: All Asset accounts All liability accounts stockholders' equity accounts temporary or permanent