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Interactive Quiz B
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1
The accrual basis of accounting uses a different standard for both revenue recognition and the recognition of expenses than does the cash basis.
A)True
B)False
2
When a company uses the accrual method of accounting and fails to record an expense that should be accrued, the effect on net income for that period is to understate net income.
A)True
B)False
3
The cash basis of accounting is not consistent with generally accepted accounting principles because it violates the matching principle.
A)True
B)False
4
A company uses a calendar year accounting period and the accrual basis of accounting. On February 1 of the current year, the company pays $3,600 to rent a warehouse for a three-year time period. The correct balance in the rent account at December 31 of the same year would be zero.
A)True
B)False
5
The publisher of a popular sports magazine offers three year subscriptions to its subscribers. In order to induce customers to purchase longer subscriptions, the company charges $36 for a three-year when the normal price would be $45. The price breakdown of the 3-year subscription is: $15 for the first twelve issues, $12 for the second twelve issues, and $9.00 for the final twelve issues. A subscriber purchases and pays for a 3-year subscription on September 1st of the current year. If the company uses the accrual basis of accounting, the amount of revenue the company will recognize in the current year is $12.
A)True
B)False
6
Under the accrual basis of accounting, if a transaction originates in one accounting period but the effects of the transaction spread over one or more future accounting periods, adjusting entries will be necessary.
A)True
B)False
7
A company uses the cash basis of accounting and a calendar year accounting period. On February 1st of the current year, the company pays cash for $1,200 of office supplies. At the end of the year, $500 of the supplies is still on hand. The income statement will show $700 of office supplies expense.
A)True
B)False
8
The purpose of making an adjusting entry to record depreciation expense is to measure the actual wear and tear of the asset being depreciated.
A)True
B)False
9
A company uses the calendar year accounting period and the accrual basis of accounting. On November 1st of the current year, it accepted a 1-year, 12%, $1,000 note receivable from one of its customers. If interest is calculated using whole months, the company will accrue $40 of interest revenue for the current year.
A)True
B)False
10
After all of the adjusting entries have been recorded for the current accounting period and the adjusted trial balance has been prepared, there is still one account on the adjusted trial balance whose balance does not represent the correct end-of-the-period balance.
A)True
B)False
11
A natural business year ends when the revenues of the business are at their low point for the year.
A)True
B)False
12
The revenue recognition principle assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.
A)True
B)False
13
An accounting period may refer to any length of time but the most common time periods covered include one-month, three-month, six-month, and twelve-month periods.
A)True
B)False
14
When a company with a fiscal year that ends on January 31 prepares financial reports for the six months ended July 31, the reports are called half-year financial reports or statements.
A)True
B)False
15
Recognizing revenue when cash is received and recognizing expenses when they are paid in cash is adherence to the accrual basis of accounting.
A)True
B)False
16
The matching principle requires that expenses be recorded in the same time period as when the expense actually makes its contribution to revenue. In other words, expense recognition is tied to revenue recognition.
A)True
B)False
17
The revenue recognition principle and the monetary unit principle are two of the main features of accrual basis accounting.
A)True
B)False
18
Most businesses maintain their accounting records using the accrual basis of accounting because it provides a better measure of net income than does the cash basis.
A)True
B)False
19
Accumulated Depreciation is an example of a contra-liability account.
A)True
B)False
20
Unearned revenues are also called deferred revenues.
A)True
B)False
21
Cash basis accounting does not attempt to match revenues and expenses and therefore is not consistent with accepted accounting principles.
A)True
B)False
22
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
23
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
24
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
25
The Accumulated Depreciation, Equipment account is reported on the Income Statement.
A)True
B)False
26
For every existing accrued expense there is an offsetting and equal amount of liability.
A)True
B)False
27
Taxes Payable represent accrued expenses.
A)True
B)False
28
Before the adjusting entries are recorded, prepaid expense accounts are understated and expense accounts are overstated.
A)True
B)False
29
Before the adjusting entries for accrued revenues are recorded, assets are understated and revenues are understated.
A)True
B)False
30
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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