Question 1

Accrual accounting is an accounting system in which ________.

Accepted Answer

Accrual accounting records revenue and expenses when they are earned or incurred, regardless of the timing of cash receipts and disbursements. This means that there may be timing differences between when revenue and expenses are recorded and when cash is actually received or paid out.

Question 2

Indicate with an "X" the one financial statement where you would expect to find each line item:

Accepted Answer

The answer of Indicate with an "X" the one financial...

Question 3

Prepaid insurance is ________.

Accepted Answer

Prepaid insurance is a payment for future insurance coverage, which means it is an amount paid in advance (deferral) and will be recognized as an expense over time as the insurance coverage is utilized.

Question 4

During the year,Mega,Inc.had revenues of $400,000 of which $310,000 was collected from customers.It also had expenses of $360,000 of which $280,000 was paid.The shareholders were paid $20,000 in dividends.Net income for the year equals ________.

Accepted Answer

Net income equals revenues minus expenses. 
Therefore, net income = $400,000 - $360,000 = $40,000.

However, shareholders were paid $20,000 in dividends, which reduces the net income to: 
$40,000 - $20,000 = $20,000.

Therefore, the correct answer is C.

Question 5

An account receivable is ________.

Accepted Answer

An account receivable is an accrual, which means that revenue has been earned but hasn't been received yet. This is because the business has provided the goods or services to the customer on credit and the payment is due at a later date. Option B is incorrect because a deferral refers to the postponement of recognizing revenue or expense. Option C is incorrect because a cash sale is a transaction where cash is received at the time of the sale. Option D is incorrect because it refers to cash already collected and not an amount owed by the customer.

Question 6

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using cash-basis accounting?

Accepted Answer

Under cash-basis accounting, expenses are recognized when the cash is actually paid, regardless of when the goods or services were delivered. In this scenario, Team Shirts paid the bill in August, so the expense should be recognized in August.

Question 7

Team Shirts purchased T-shirts in July.The T-shirts were sold to customers in August.Team Shirts received the final cash payments in September.According to the revenue-recognition principle,when should revenue be recorded?

Accepted Answer

According to the revenue-recognition principle, revenue should be recorded when it is earned, which is when the goods or services are delivered or performed. In this case, the T-shirts were sold to customers in August, so revenue should be recorded in August. The final cash payments received in September are simply the collection of the revenue earned in August.

Question 8

For each description,identify with an "X" whether the item is either an asset (A),liability (L)or shareholders' equity (SE)account on the balance sheet or a revenue (R)or expense (E)on the income statement.There is only one correct answer for each description.

Accepted Answer

The answer of For each description,identify with an "X" whether...

Question 9

During May,Team Shirts spent $4,000 to buy 800 T-shirts and sold 300 of them for $15 each.Team Shirts should recognize ________ as expense for May.

Accepted Answer

The cost of goods sold (COGS) for the 300 T-shirts sold is 300 x (4000/800) = $1,500. This should be recognized as an expense for May. The other choices do not accurately reflect the expenses for May. Option A includes the COGS and the revenue from selling the T-shirts, which would result in a profit rather than an expense. Option C includes the total cost of the T-shirts without taking into account the revenue from selling them. Option D includes only the cost of the T-shirts without considering any other expenses for the month.

Question 10

An accrual transaction is one in which revenue is earned before cash is received.

Accepted Answer

An accrual transaction recognizes revenue when it is earned, regardless of when the cash is received.

Question 11

Clean Sweep performed cleaning services and billed the customer for $900.This transaction includes ________.

Accepted Answer

Clean Sweep performed a service and billed the customer, which means they provided a service and earned revenue. Since they billed the customer, they have an account receivable, meaning the customer owes them money. Therefore, the transaction includes revenue and an account receivable.

Question 12

Identify the appropriate financial statement for each of the items listed below.Some items may be found on more than one financial statement.
a.Balance sheet
b.Income statement
c.Statement of changes in shareholders' equity
d.Statement of cash flows
_____ 1.Cash paid for supplies
_____ 2.Net income
_____ 3.Sales revenue
_____ 4.Rent expense
_____ 5.Inventory
_____ 6.Retained earnings
_____ 7.Cash received from customers
_____ 8.Cash

Accepted Answer

The answer of Identify the appropriate financial statement for each...

Question 13

A deferral transaction is one in which ________.

Accepted Answer

In a deferral transaction, cash is received or paid before the related revenues are earned or expenses are incurred, meaning the cash transaction precedes the action or recognition of the revenue or expense in the accounting records.

Question 14

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using accrual accounting?

Accepted Answer

Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when the money is actually received or paid. In this case, the T-shirts were sold in September, so that is when the expense should be recognized.

Question 15

An accrual transaction is one in which ________.

Accepted Answer

An accrual transaction is one in which the action (such as goods or services provided, or revenue earned) comes before the cash. In other words, the transaction is recognized when it occurs, regardless of when the cash exchange actually takes place. This allows for more accurate financial reporting and matching of expenses with revenues.

Question 16

Clean Sweep contracted to clean an office building in July for $1,500.The work was contracted in July.The building was completely cleaned in August and Clean Sweep received a payment of $500.The remaining payment of $1,000 was received in September.Discuss how this event would be reported in the monthly financial statements for July,August and September.

Accepted Answer

The answer of Clean Sweep contracted to clean an office...

Question 17

Clean Sweep agreed to clean an office building on a weekly basis for $1,000 per week.The contract began on August 15,and Clean Sweep cleaned the building twice during August.Clean Sweep received $1,000 cash in August.During August,Clean Sweep spent $400 on wages for the workers who cleaned the building,$90 for the cleaning supplies used,and $4,000 to purchase specialized cleaning equipment.How much revenue should Clean Sweep recognize in August using accrual accounting?

Accepted Answer

The answer of Clean Sweep agreed to clean an office...

Question 18

The current ratio measures the ________.

Accepted Answer

The answer of The current ratio measures the ________.
...

Question 19

Identify each of the following items as either an accrual or deferral.
a.Accrual
b.Deferral
_____ 1.Account receivable
_____ 2.Account payable
_____ 3.Prepaid insurance
_____ 4.Interest receivable
_____ 5.Prepaid advertising

Accepted Answer

The answer of Identify each of the following items as...

Question 20

Clean Sweep agreed to clean an office building on a weekly basis for $1,000 per week.The contract began on August 15,and Clean Sweep cleaned the building twice during August.Clean Sweep received $2,000 cash in September for the cleaning performed in August.How much revenue should Clean Sweep recognize in August using accrual accounting?

Accepted Answer

The answer of Clean Sweep agreed to clean an office...

Quiz 2: Qualities of Accounting Information

Accrual accounting is an accounting system in which ________.

Indicate with an "X" the one financial statement where you would expect to find each line item:

Prepaid insurance is ________.

During the year,Mega,Inc.had revenues of $400,000 of which $310,000 was collected from customers.It also had expenses of $360,000 of which $280,000 was paid.The shareholders were paid $20,000 in dividends.Net income for the year equals ________.

An account receivable is ________.

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using cash-basis accounting?

Team Shirts purchased T-shirts in July.The T-shirts were sold to customers in August.Team Shirts received the final cash payments in September.According to the revenue-recognition principle,when should revenue be recorded?

For each description,identify with an "X" whether the item is either an asset (A),liability (L)or shareholders' equity (SE)account on the balance sheet or a revenue (R)or expense (E)on the income statement.There is only one correct answer for each description.

During May,Team Shirts spent $4,000 to buy 800 T-shirts and sold 300 of them for $15 each.Team Shirts should recognize ________ as expense for May.

An accrual transaction is one in which revenue is earned before cash is received.

Clean Sweep performed cleaning services and billed the customer for $900.This transaction includes ________.

A deferral transaction is one in which ________.

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using accrual accounting?

An accrual transaction is one in which ________.

The current ratio measures the ________.

Identify each of the following items as either an accrual or deferral. a.Accrual b.Deferral ___ 1.Account receivable _ 2.Account payable _ 3.Prepaid insurance _ 4.Interest receivable ___ 5.Prepaid advertising

Quiz 2: Qualities of Accounting Information

Accrual accounting is an accounting system in which ________.

Indicate with an "X" the one financial statement where you would expect to find each line item:

Prepaid insurance is ________.

During the year,Mega,Inc.had revenues of $400,000 of which $310,000 was collected from customers.It also had expenses of $360,000 of which $280,000 was paid.The shareholders were paid $20,000 in dividends.Net income for the year equals ________.

An account receivable is ________.

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using cash-basis accounting?

Team Shirts purchased T-shirts in July.The T-shirts were sold to customers in August.Team Shirts received the final cash payments in September.According to the revenue-recognition principle,when should revenue be recorded?

For each description,identify with an "X" whether the item is either an asset (A),liability (L)or shareholders' equity (SE)account on the balance sheet or a revenue (R)or expense (E)on the income statement.There is only one correct answer for each description.

During May,Team Shirts spent $4,000 to buy 800 T-shirts and sold 300 of them for $15 each.Team Shirts should recognize ________ as expense for May.

An accrual transaction is one in which revenue is earned before cash is received.

Clean Sweep performed cleaning services and billed the customer for $900.This transaction includes ________.

A deferral transaction is one in which ________.

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using accrual accounting?

An accrual transaction is one in which ________.

The current ratio measures the ________.

Identify each of the following items as either an accrual or deferral. a.Accrual b.Deferral _____ 1.Account receivable _____ 2.Account payable _____ 3.Prepaid insurance _____ 4.Interest receivable _____ 5.Prepaid advertising

Identify each of the following items as either an accrual or deferral. a.Accrual b.Deferral ___ 1.Account receivable _ 2.Account payable _ 3.Prepaid insurance _ 4.Interest receivable ___ 5.Prepaid advertising