Question 1

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Accepted Answer

Under cash basis accounting, revenue is recorded only when cash is received.

Question 2

Under accrual basis accounting, an expense is recorded only when cash is paid.

Accepted Answer

Under accrual basis accounting, expenses are recorded when they are incurred, regardless of when cash is paid. This means that expenses can be recorded even if payment is not made until a later date.

Question 3

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?
A)

B)

C)

D)

Accepted Answer

A

Question 4

Under cash basis accounting, an expense is recorded only when cash is paid.

Accepted Answer

Under cash basis accounting, expenses are recorded when cash is paid rather than when the expense is incurred.

Question 5

At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis accounting?
A) purchase of supplies for cash
B) performance of services on account
C) use of supplies purchased earlier
D) receipt of cash for services that were performed earlier on account

Accepted Answer

Performance of services on account would increase revenue and therefore net income under accrual basis accounting, but cash basis accounting only recognizes revenue when cash is received, so there would be no increase in net income in this scenario. The other options do not directly impact net income under either basis of accounting.

Question 6

Which of the following statements is true of accrual basis accounting?
A) Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP).
B) Accrual basis accounting records expenses only when cash has been paid for them.
C) Accrual basis accounting records revenue only when cash is received.
D) Accrual basis accounting always results in greater net income than cash basis accounting.

Accepted Answer

Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP). This means that companies must use this method of accounting to ensure consistency and accuracy in financial reporting. Accrual accounting records revenue and expenses when they are incurred, regardless of when cash is received or paid, providing a more accurate picture of a company's financial health.

Question 7

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenues and assets.

Accepted Answer

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenue or expense.

Question 8

The cash basis of accounting ignores ________.
A) payables
B) revenue
C) cash
D) expenses

Accepted Answer

The cash basis of accounting ignores payables because it only records transactions when cash actually changes hands, not when obligations are incurred.

Question 9

Generally Accepted Accounting Principles (GAAP) require the use of accrual basis of accounting.

Accepted Answer

GAAP require the use of accrual basis of accounting which recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid. This provides a more accurate picture of a company's financial performance and position.

Question 10

Recipes, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

Accepted Answer

Under the accrual basis of accounting, the expense should be recorded when the supplies are received, regardless of when payment is made. Therefore, an entry should be made to record the purchase on account.

Question 11

If a company is using accrual basis accounting, when should it record revenue?
A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) when services are performed and cash is received
D) when cash is received, 30 days after the completion of the services

Accepted Answer

Accrual basis accounting records revenue when services are performed, regardless of when cash is received. This helps provide a more accurate representation of the company's financial performance during a given period.

Question 12

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?
A) Cash
B) Unearned Revenue
C) Service Revenue
D) Salaries Expense

Accepted Answer

The unearned revenue account represents revenue that has been received in advance but has not yet been earned. This type of account is recognized under accrual accounting because revenue is recognized when earned, regardless of when payment is received. Under cash accounting, the revenue would only be recognized when payment is received. Therefore, unearned revenue would be used under accrual accounting but not under cash accounting.

Question 13

What is the difference between cash basis accounting and accrual basis accounting?

Accepted Answer

The answer of What is the difference between cash basis...

Question 14

Which of the following entries would be recorded by a company that uses the cash basis method of accounting?
A)

B)

C)

D)

Accepted Answer

The answer of Which of the following entries would be...

Question 15

When does a company account for revenue if it uses cash basis accounting?
A) when services are performed, even though cash may be received at a later date
B) when cash is received after the service is performed
C) when the services are being performed
D) when cash is received, either prior to, at the time of, or after the services are performed

Accepted Answer

The answer of When does a company account for revenue...

Question 16

The Brighton Dental Company prepays the rent on its dental office. On July 1, the business paid $18,000 for 6 months of rent. How much Rent Expense should Brighton Dental Company record the three months ended September 30 under the accrual basis? Why?

Accepted Answer

The answer of The Brighton Dental Company prepays the rent...

Question 17

In cash basis accounting, revenue is recorded when cash is received, and expenses are recorded when they are paid.

Accepted Answer

In cash basis accounting, revenue and expenses are only recorded when cash is physically received or paid, rather than when they are earned or incurred.

Question 18

The Family Dental Company prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. How much Rent Expense should Family Dental Company record the three months ended September 30 under the cash basis? Why?

Accepted Answer

The answer of The Family Dental Company prepays the rent...

Question 19

List and briefly discuss three accounting concepts and principles that apply to accrual basis accounting.

Accepted Answer

The answer of List and briefly discuss three accounting concepts...

Question 20

Under accrual basis accounting, revenue is recorded only when cash is received.

Accepted Answer

Under accrual basis accounting, revenue is recorded when it is earned, regardless of when cash is received. Cash accounting, on the other hand, records revenue only when cash is received.

Quiz 3: The Adjusting Process

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Under accrual basis accounting, an expense is recorded only when cash is paid.

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?

Under cash basis accounting, an expense is recorded only when cash is paid.

At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis accounting?

Which of the following statements is true of accrual basis accounting?

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenues and assets.

The cash basis of accounting ignores ________.

Generally Accepted Accounting Principles (GAAP) require the use of accrual basis of accounting.

Recipes, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

If a company is using accrual basis accounting, when should it record revenue?

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?