Question 1

Which of the following is the usual final step in the accounting cycle?
A)Journalizing transactions
B)Preparing an adjusted trial balance
C)Preparing a post-closing trial balance
D)Preparing the financial statements
E)Preparing a work sheet

Accepted Answer

The usual final step in the accounting cycle is preparing a post-closing trial balance. This step is done after all the financial statements have been prepared and all temporary accounts have been closed to ensure that the ledger is balanced and ready for the next accounting period.

Question 2

Each letter below contains three of the steps found in the accounting cycle.Which presents the given steps in the proper sequence,first to last?
A)Adjust,Analyze transactions,Close
B)Analyze transactions,Adjust,Close
C)Prepare post-closing trial balance,Prepare statements,Close
D)Prepare statements,Post,Close
E)Prepare adjusted trial balance,Journalize,Close

Accepted Answer

The correct sequence in the accounting cycle is to first analyze transactions, then adjust entries, and finally close the books.

Question 3

The recurring steps performed each accounting period,starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance,are referred to as the:
A)Accounting period
B)Operating cycle
C)Accounting cycle
D)Closing cycle
E)Natural business year

Accepted Answer

The accounting cycle refers to the recurring steps performed each accounting period, from analyzing transactions to preparing financial statements. It includes steps such as journalizing transactions, posting to the ledger, preparing a trial balance, adjusting entries, preparing an adjusted trial balance, preparing financial statements, and closing entries.

Question 4

Adjusting entries:
A)Affect only income statement accounts
B)Affect only balance sheet accounts
C)Affect both income statement and balance sheet accounts
D)Affect only cash flow statement 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 company's financial position and performance. As a result, these entries can affect both income statement and balance sheet accounts. For example, an accrual entry for unpaid expenses would increase expenses on the income statement and increase liabilities on the balance sheet.

Question 5

Which of the following accounts would not be impacted by adjusting journal entries?
A)Accounts Receivable
B)Consulting Fee Earned
C)Unearned Consulting Fees
D)Cash
E)Wages Payable

Accepted Answer

Cash is a real account and not affected by adjusting entries. Adjusting entries are made for nominal accounts (revenues, expenses, gains, and losses) and accounts related to accruals and deferrals.

Question 6

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

Accepted Answer

Interim financial statements cover a period of less than one year, usually spanning one, three, or six-month periods.

Question 7

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

Accepted Answer

Prepaid expenses, depreciation, accrued expenses, unearned revenues and accrued revenues are all examples of items that require adjusting entries at the end of an accounting period to reflect their correct amounts on the financial statements. These are not contra accounts or income statement accounts, but rather affect asset and equity accounts.

Question 8

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)Time period principle
C)Going-concern principle
D)Matching principle
E)Accrual basis of accounting

Accepted Answer

The Time period principle requires that a business identifies the activities with specific time periods, such as months, quarters, or years. This principle allows for the comparison of financial information over different periods and enables stakeholders to analyze a business's performance and financial position. The other options are accounting principles, but they do not specifically relate to identifying activities with time periods.

Question 9

A classified balance sheet:
A)Measures a company's ability to pay its bills on time
B)Organizes assets and liabilities into important subgroups
C)Presents revenues,expenses and net income
D)Reports operating,investing and financing activities
E)Reports the effect of profit and dividends on retained earnings

Accepted Answer

A classified balance sheet organizes assets and liabilities into important subgroups such as current assets, non-current assets, current liabilities, and long-term liabilities, providing a clearer picture of a company's financial position. It does not include revenues, expenses, net income, operating, investing and financing activities or the effect of profit and dividends on retained earnings.

Question 10

Western Company has an annual reporting period that runs from July 1^st through June 30^th.Based on this information which of the following is a true statement? A)Western probably has little seasonal variation in their sales B)Western has violated the time period principle C)Western must prepare financial statements as of December 31 each year D)Western has adopted a fiscal year E)Western does not have an accountant

Accepted Answer

Western Company has adopted a fiscal year that runs from July 1^st through June 30^th. This means that their reporting period is different from a calendar year, which is from January 1st to December 31st. By adopting a different fiscal year, Western Company can align their financial reporting period with their operations and business cycle.

Question 11

The main purpose of adjusting entries is to:
A)Record external transactions and events
B)Record internal transactions and events
C)Recognize assets purchased during the period
D)Recognize debts paid during the period
E)Correct errors

Accepted Answer

Adjusting entries are primarily made to record internal transactions and events that have not been recorded through daily entries. They are used to update the accounts to their correct balances before financial statements are prepared, ensuring that revenues and expenses are recognized in the period in which they occur, regardless of when cash transactions related to them happen.

Question 12

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

Accepted Answer

The natural business year is a 12-month period in which a company's activities are at their lowest point, which makes it the best choice for this question. The fiscal year is a 12-month period chosen by a company for financial reporting purposes, the calendar year is the 12-month period that starts on January 1st and ends on December 31st, the accounting period is the 12-month period for which a company prepares financial statements, and the interim period is a shorter period of time, such as a quarter or a month, between financial reporting periods.

Question 13

The length of time covered by a set of periodic financial statements is referred to as the:
A)Fiscal cycle
B)Natural business year
C)Accounting period
D)Business cycle
E)Operating cycle

Accepted Answer

The length of time covered by a set of periodic financial statements is referred to as the accounting period. This period can be a month, a quarter or a year.

Question 14

Which of the following statements is incorrect?
A)Prepaid expenses,depreciation and unearned revenues involve previously recorded assets and liabilities
B)Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded
C)Adjusting entries can be used to record both accrued expenses and accrued revenues
D)Prepaid expenses,depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time
E)Adjusting entries affect the cash account

Accepted Answer

Adjusting entries do not affect the cash account as they are only used to update the accounts on the balance sheet and income statement.

Question 15

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
A)Cash basis accounting
B)The matching principle
C)The time period principle
D)Accrual basis accounting
E)Revenue basis accounting

Accepted Answer

The approach of recognizing revenues when they are earned and matching expenses to those revenues is known as the accrual basis of accounting. This method follows the matching principle that requires recognizing revenues and expenses in the same period. Thus, option D is the correct answer. Option A (Cash basis accounting) recognizes transactions only when cash exchanges hands. Option B (The matching principle) is a concept used in the accrual accounting method. Option C (The time period principle) is a principle stating that the life of a business should be reported in small time periods to provide timely and accurate information to stakeholders. Option E (Revenue basis accounting) is not a recognized basis of accounting.

Question 16

The asset section of a classified balance sheet usually includes:
A)Current assets,investments,plant assets and intangible assets
B)Current assets,long-term assets,revenues and intangible assets
C)Current assets,investments,plant assets and equity
D)Current liabilities,investments,plant assets and intangible assets
E)Current assets,liabilities,plant assets and intangible assets

Accepted Answer

The asset section of a classified balance sheet usually includes current assets (which are expected to be converted into cash within one year), investments (such as stocks or bonds), plant assets (which are long-term assets used in the production of goods or services), and intangible assets (such as patents or trademarks). Option A includes all of these categories. Option B includes revenues, which are not assets, and option C includes equity, which belongs in the equity section of the balance sheet. Option D includes current liabilities, which belong in the liabilities section of the balance sheet, and option E includes both assets and liabilities without specifying the categories of assets.

Question 17

The accounting principle that requires revenue to be reported when earned is the:
A)Matching principle
B)Revenue recognition principle
C)Time period principle
D)Accrual reporting principle
E)Going-concern principle

Accepted Answer

The revenue recognition principle states that revenue should be recorded when earned, regardless of when payment is received. This principle determines the timing of revenue recognition and is a key element of accrual accounting.

Question 18

The accrual basis of accounting:
A)Is generally accepted for external reporting since it is more useful for most business decisions
B)Is flawed because it gives complete information about cash flows
C)Recognizes revenues when received in cash
D)Recognizes expenses when paid in cash
E)Eliminates the need for adjusting entries at the end of each period

Accepted Answer

The accrual basis of accounting is generally accepted for external reporting because it provides more useful information for most business decisions. It recognizes revenues when earned, regardless of when payment is received, and recognizes expenses when incurred, regardless of when payment is made. This provides a more accurate picture of a company's financial position and performance. The accrual basis of accounting requires adjusting entries to be made at the end of each period to ensure that all revenues and expenses are recognized in the correct period.

Question 19

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

Accepted Answer

The matching principle requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses. This principle helps ensure that financial statements accurately represent the financial performance of a business over a given period of time.

Question 20

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:
A)Accrual basis accounting
B)Operating cycle accounting
C)Cash basis accounting
D)Revenue recognition accounting
E)Current basis accounting

Accepted Answer

The system described is known as cash basis accounting, which recognizes revenues and expenses only when cash is exchanged. This is in contrast to accrual basis accounting, which recognizes revenues and expenses when they are earned or incurred, regardless of when the cash is received or paid. Operating cycle accounting, revenue recognition accounting, and current basis accounting are not valid terms for this system.

Quiz 3: Adjusting Accounts and Preparing Financial Statements

Which of the following is the usual final step in the accounting cycle?

Each letter below contains three of the steps found in the accounting cycle.Which presents the given steps in the proper sequence,first to last?

The recurring steps performed each accounting period,starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance,are referred to as the:

Adjusting entries:

Which of the following accounts would not be impacted by adjusting journal entries?

Interim financial statements refer to financial reports:

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

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

A classified balance sheet:

Western Company has an annual reporting period that runs from July 1st through June 30th.Based on this information which of the following is a true statement?

The main purpose of adjusting entries is to:

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

The length of time covered by a set of periodic financial statements is referred to as the:

Which of the following statements is incorrect?

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

The asset section of a classified balance sheet usually includes:

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

The accrual basis of accounting:

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

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

Western Company has an annual reporting period that runs from July 1^st through June 30^th.Based on this information which of the following is a true statement?