Question 1

Interim financial reports are financial reports
A)In which the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues.
B)That show the assets above the liabilities and the liabilities above the equity.
C)That are prepared before any adjustments have been recorded.
D)Covering less than one year, usually based on one- or three-month periods.
E)In which revenues are reported in the income statement when cash is received and expenses are reported when cash is paid.

Accepted Answer

Interim financial reports are financial reports covering less than one year, usually based on one- or three-month periods.

Question 2

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:
A)Operating cycle of a business.
B)Going-concern principle.
C)Matching principle.
D)Accrual basis of accounting.
E)Timeliness principle.

Accepted Answer

The timeliness principle requires that financial information be reported to users promptly, which involves identifying activities with specific time periods.

Question 3

The main purpose of adjusting entries is to
A)Recognize revenues received during the period.
B)Record external transactions and events.
C)Recognize expenses paid during the period.
D)Record internal transactions and events.
E)Adjust assets to their market value.

Accepted Answer

The purpose of adjusting entries is to record internal transactions and events that were not initially recorded, such as accrued expenses or unearned revenues. This ensures that financial statements accurately reflect the company's financial position and performance. Option A and C describe the recognition of revenues and expenses during the period, which is done through routine journal entries, not adjusting entries. Option B is incorrect because adjusting entries do not necessarily involve external transactions or events. Option E is incorrect because adjusting entries do not adjust assets to their market value, but rather to their proper carrying value based on accounting principles.

Question 4

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
A)The matching principle.
B)The operating cycle of a business.
C)Cash basis accounting.
D)Accrual basis accounting.
E)The revenue recognition principle.

Accepted Answer

The approach described is based on recognizing revenues when they are earned (rather than when cash is received) and matching expenses to those revenues. This is the fundamental principle of accrual basis accounting.

Question 5

The total amount of depreciation recorded for an asset during the entire time the asset has been owned:
A)Is shown on the statement of changes in equity.
B)Is referred to as accumulated depreciation.
C)Is not shown on the balance sheet.
D)Is shown on the income statement.
E)Is recorded in a liability account.

Accepted Answer

Accumulated depreciation is the total amount of depreciation recorded for an asset during the entire time the asset has been owned. It is recorded as a contra asset account on the balance sheet, and is used to reduce the carrying value of the asset.

Question 6

The timeliness principle assumes that an organization's activities can be divided intospecific time periods including:
A)Quarters.
B)Calendar year.
C)Fiscal year.
D)One month.
E)Any of the above.

Accepted Answer

The timeliness principle assumes that an organization's activities can be divided into specific time periods, including quarters, calendar year, fiscal year, or even one month. Therefore, any of the above options can be the best choice depending on the organization's preference and needs.

Question 7

Under the alternative method for recording unearned revenue, the receipt of cash inadvance of performing services would be recorded as a credit to Unearned Revenue and a debit to Cash.

Accepted Answer

The answer of Under the alternative method for recording unearned...

Question 8

The length of time covered by periodic financial statements and other reports is the
A)Operating cycle.
B)Fiscal year.
C)Accounting period.
D)Natural business year.
E)Business cycle.

Accepted Answer

The length of time covered by periodic financial statements and other reports is the accounting period. The accounting period can vary, but it is typically a month, quarter, or year. The fiscal year is a 12-month period set by a business for financial and accounting purposes. The operating cycle is the time it takes for a company to turn its inventory into cash. The natural business year is a 12-month period that aligns with a company's operating cycle. The business cycle refers to the fluctuations in the economy over time.

Question 9

The accrual basis of accounting
A)Recognizes revenues when received.
B)Recognizes expenses when paid.
C)Is generally accepted for external reporting because it gives more useful information.
D)Is not acceptable because it gives incomplete information about cash flows.
E)Eliminates the need for adjusting entries.

Accepted Answer

The accrual basis of accounting recognizes revenues when earned and expenses when incurred, regardless of when cash is received or paid. It is generally accepted for external financial reporting because it provides more useful information about a company's financial performance and position than the cash basis of accounting. Adjusting entries are necessary under the accrual basis to ensure that all revenues and expenses are properly recognized in the period they relate to.

Question 10

The broad principle that requires expenses to be reported in the same period as therevenues that were earned as a result of the expenses is the:
A)Matching principle.
B)Timeliness principle.
C)Cash basis of accounting.
D)Cost principle.
E)Revenue recognition principle.

Accepted Answer

The matching principle is a fundamental principle of accounting that requires expenses to be recognized in the same period as the revenues that were earned as a result of the expenses. This principle ensures that financial statements provide accurate and timely information about a company's operating results and financial position.

Question 11

A Company received a $10,000 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively thedeposit would be recorded as:
A)Accrual Basis: income | Cash Basis: income
B)Accrual Basis: income | Cash Basis: a liability
C)Accrual Basis: a liability | Cash Basis: income
D)Accrual Basis: a liability | Cash Basis: a liability
E)Accrual Basis: an asset | Cash Basis: an asset

Accepted Answer

Under the accrual basis, the deposit is recorded as a liability because the company has an obligation to deliver goods. Under the cash basis, it is recorded as income because the cash has been received.

Question 12

The approach to preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:
A)Cash basis accounting.
B)The matching principle.
C)The operating cycle of a business.
D)The revenue recognition principle.
E)Accrual basis accounting.

Accepted Answer

The approach of recognizing revenues when the cash is received and reporting expenses when the cash is paid is known as cash basis accounting. This is in contrast to the accrual basis accounting, where revenues and expenses are recognized when they are earned or incurred, regardless of when the cash is received or paid. The matching principle is also a fundamental concept of accounting, which requires that expenses be matched with the revenues they generate. The operating cycle of a business refers to the time it takes for a company to convert cash into inventory, sell the inventory, and receive cash from customers. The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when the cash is received.

Question 13

Adjusting entries
A)Affect only income statement accounts.
B)Affect both income statement and balance sheet accounts.
C)Affect only balance sheet accounts.
D)Affect only statement of cash flows accounts.
E)Affect only equity accounts.

Accepted Answer

Adjusting entries are made at the end of an accounting period to ensure that the financial statements accurately reflect the economic transactions that have occurred. These entries may affect both income statement accounts (such as revenue and expenses) and balance sheet accounts (such as assets, liabilities, and equity). Therefore, the best choice is B.

Question 14

The accounting basis that attempts to measure performance in the period in which itoccurred is the:
A)IFRS basis.
B)Accrual Basis.
C)Matching Basis.
D)Cash basis.
E)Revenue Recognition Basis.

Accepted Answer

The accrual basis of accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid. This basis of accounting provides a better measurement of performance as it matches expenses against the revenues they help generate, allowing for a more accurate picture of the company's profitability. The other options (IFRS basis, matching basis, cash basis, and revenue recognition basis) do not specifically address the timing of when revenues and expenses are recognized.

Question 15

An account the balance of which is subtracted from the balance of a related account sothat more complete information than simply the net amount is provided is a(n):
A)Accrued revenue.
B)Accrued expense.
C)Withdrawal.
D)Contra account.
E)Prepaid expense.

Accepted Answer

A contra account is an account that is related to another account and has a balance that is subtracted from that account to provide more information.

Question 16

Adjusting entries are journal entries made at the end of an accounting period for the purpose of:
A)Recording internal transactions.
B)Updating related liability and asset accounts.
C)Assigning revenues to the period in which they are earned.
D)Assigning expenses to the period in which the expiration of benefit has incurred.
E)All of these answers are correct.

Accepted Answer

Adjusting entries serve multiple purposes like recording internal transactions, updating liability and asset accounts, assigning revenues to the period in which they are earned, and assigning expenses to the period in which the expiration of benefit has incurred. Therefore, option E - "All of these answers are correct" is the best choice.

Question 17

The accounting principle that requires revenue to be reported when earned is the
A)Matching principle.
B)Revenue recognition principle.
C)Going concern principle.
D)Cost principle.
E)Timeliness principle.

Accepted Answer

The revenue recognition principle requires that revenue be recognized and reported when it is earned, regardless of when payment is received. This principle is important in accurately reflecting a company's financial performance in a given period.

Question 18

Which of the following statements is correct? 98)
A)Adjusting entries are used to record both accrued expenses and accrued revenues
B)Prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities.
C)Accrued expenses and accrued revenues involve assets and liabilities that have not yet been recorded.
D)Prepaid expenses, depreciation, and unearned revenues require adjusting entries to record the effects of the passage of time.
E)All of these answers are correct.

Accepted Answer

All the statements are correct as they describe different aspects of adjusting entries in accounting.

Question 19

The 12-month period that ends when a company's activities are at their lowest point iscalled the:
A)Natural business year.
B)Calendar year.
C)Fiscal year.
D)Accounting period.
E)Interim period.

Accepted Answer

The natural business year refers to the 12-month period when a company's activities reach their lowest point. This period may not correspond to a calendar year, fiscal year, or accounting period, as those periods are often determined by external factors such as tax laws or accounting regulations. The natural business year is relevant because it can help companies plan for and manage their cash flow and expenses during the slowest part of their business cycle.

Question 20

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:
A)Classified balance sheet accounts.
B)Income statement accounts.
C)Assets.
D)Items that require adjusting entries.
E)Items that require contra accounts.

Accepted Answer

These are all items that require adjusting entries. Prepaid expenses and unearned revenues are assets that need to be adjusted for the portion used or earned during the period. Depreciation is an expense that needs to be recognized as the asset is used over time. Accrued expenses and revenues are also adjusting entries needed to recognize expenses or revenues that have been incurred or earned but not yet recorded in the accounting records.

Quiz 3: Adjusting Accounts for Financial Statements

Interim financial reports are financial reports

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

The main purpose of adjusting entries is to

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

The total amount of depreciation recorded for an asset during the entire time the asset has been owned:

The timeliness principle assumes that an organization's activities can be divided intospecific time periods including:

Under the alternative method for recording unearned revenue, the receipt of cash inadvance of performing services would be recorded as a credit to Unearned Revenue and a debit to Cash.

The length of time covered by periodic financial statements and other reports is the

The accrual basis of accounting

The broad principle that requires expenses to be reported in the same period as therevenues that were earned as a result of the expenses is the:

A Company received a $10,000 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively thedeposit would be recorded as:

The approach to preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Adjusting entries

The accounting basis that attempts to measure performance in the period in which itoccurred is the:

An account the balance of which is subtracted from the balance of a related account sothat more complete information than simply the net amount is provided is a(n) :

Adjusting entries are journal entries made at the end of an accounting period for the purpose of:

The accounting principle that requires revenue to be reported when earned is the

Which of the following statements is correct? 98)

The 12-month period that ends when a company's activities are at their lowest point iscalled the:

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: