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| 1 | |
Businesses are required by law to have a fiscal year that ends on December 31. |
| | A) | True |
| | B) | False |
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| 2 | |
The natural business year always ends on June 30. |
| | A) | True |
| | B) | False |
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| 3 | |
The 12 consecutive month period (or 52 weeks) selected as an organization's annual accounting period is the organization's fiscal year. |
| | A) | True |
| | B) | False |
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| 4 | |
The matching principle is a broad principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years. |
| | A) | True |
| | B) | False |
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| 5 | |
An accounting period refers to one and only one length of time. |
| | A) | True |
| | B) | False |
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| 6 | |
When a company with a fiscal year that ends on December 31 prepares financial reports for the six months ended June 30, the reports are called half-year financial reports or statements. |
| | A) | True |
| | B) | False |
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| 7 | |
The time-period principle is a broad principle that requires expenses be reported in the same period as the revenues that were earned as a result of the expenses. |
| | A) | True |
| | B) | False |
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| 8 | |
Recognizing revenue when cash is received and recognizing expenses when they are paid in cash is adherence to the cash basis of accounting. |
| | A) | True |
| | B) | False |
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| 9 | |
Revenue recognition and matching are two of the main features of accrual basis accounting. |
| | A) | True |
| | B) | False |
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| 10 | |
The approach to preparing financial statements that uses the adjusting process to recognize revenues when earned and expenses when incurred, rather than when cash is paid or received, is called accrual basis accounting. |
| | A) | True |
| | B) | False |
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| 11 | |
Cash basis accounting does not attempt to match revenues and expenses and therefore is not consistent with accepted accounting principles. |
| | A) | True |
| | B) | False |
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| 12 | |
Most businesses keep their accounting records on the cash basis of accounting because they do not have the trained personnel to apply accrual basis accounting concepts. |
| | A) | True |
| | B) | False |
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| 13 | |
The purpose of an adjusting entry in which insurance expense is debited and prepaid insurance is credited, is to follow the cash basis of accounting. |
| | A) | True |
| | B) | False |
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| 14 | |
A journal entry at the end of an accounting period to bring asset and liability account balances to their proper amount, while also updating the related expense or revenue account is called an adjusting entry. |
| | A) | True |
| | B) | False |
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| 15 | |
The adjusting entry for depreciation expense sets aside cash to replace the asset when it wears out. |
| | A) | True |
| | B) | False |
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| 16 | |
When adjustments are made for prepaid items, assets will be affected in the Balance Sheet and expenses will be affected in the Income Statement. |
| | A) | True |
| | B) | False |
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| 17 | |
The process of allocating the cost of long-term assets to different periods is called depreciation. |
| | A) | True |
| | B) | False |
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| 18 | |
Accumulated depreciation is an example of a contra account. |
| | A) | True |
| | B) | False |
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| 19 | |
The Accumulated Depreciation, Equipment account is reported on the Income Statement. |
| | A) | True |
| | B) | False |
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| 20 | |
A company that is depreciating an asset at $3,000 per year for five years is using a depreciation method other than the straight-line depreciation method. |
| | A) | True |
| | B) | False |
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| 21 | |
Unearned revenues are also called deferred expenses. |
| | A) | True |
| | B) | False |
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| 22 | |
For every existing accrued expense there is an offsetting and equal amount of liability. |
| | A) | True |
| | B) | False |
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| 23 | |
Taxes Payable represent accrued expenses. |
| | A) | True |
| | B) | False |
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| 24 | |
Before the adjusting entries are recorded, prepaid expense accounts are understated and expense accounts are overstated. |
| | A) | True |
| | B) | False |
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| 25 | |
Before the adjusting entries for accrued revenues are recorded, assets are understated and revenues are understated. |
| | A) | True |
| | B) | False |
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| 26 | |
Accrued revenues are one type of adjusting entry |
| | A) | True |
| | B) | False |
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| 27 | |
If a firm uses the accrual basis of accounting and chooses not to make adjusting journal entries, they will still be following the matching principle. |
| | A) | True |
| | B) | False |
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| 28 | |
An adjusted trial balance is prepared before adjustments are recorded and posted to the ledger. |
| | A) | True |
| | B) | False |
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| 29 | |
The profit margin is calculated by dividing the net income of the business by the total revenues for the period. |
| | A) | True |
| | B) | False |
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