10) Which of the following accounting terms assumes that a business’s activities can be divided into small
segments and that financial statements can be prepared for specific periods, such as a month, quarter, or
year?
A) adjusting entry concept
B) economic entity concept
C) matching principle
D) time period concept
11) Which of the following assumes that the financial statements of a business can be prepared for specific
periods?
A) matching principle
B) revenue recognition principle
C) time period concept
D) adjusting entry principle
12) The time period concept states that ________.
A) financial statements can be prepared for specific periods
B) all expenses should be recorded when they are incurred during the period
C) companies should record revenue when it has been earned
D) expenses incurred during a period should be matched against the revenues of the period
13) The revenue recognition principle requires companies to record revenue when (or as) the entity
satisfies each performance obligation.
14) The revenue recognition principle tells accountants when to record revenue and requires companies
to follow a three step process.
15) A good or service is considered transferred when the customer places an order or requests a service.
16) A performance obligation is a contractual promise with a customer to transfer a distinct good or
service.
17) A contract can only have one performance obligation.
18) Revenue is earned when ________.
A) there is a binding agreement to provide goods or services
B) the journal entry to record revenue has been prepared
C) the business has received cash from the customer
D) (or as) the business satisfies each performance obligation
19) Under the revenue recognition principle, a good or service is considered transferred when ________.
A) all performance obligations have been satisfied
B) the customer obtains control of the good or service
C) the business has received cash from the customer
D) the transaction price has been determined
20) The revenue recognition principle guides accountants in ________.
A) ensuring only revenues received in cash are recorded
B) determining when to record expenses
C) determining when to record revenues
D) ensuring expenses are deducted from revenues
21) In applying the revenue recognition principle, which of the following statements regarding multiple
performance obligations is incorrect?
A) If the transaction has multiple performance obligations, the transaction price is allocated among the
different performance obligations.
B) The business can recognize revenue when (or as) it satisfies each performance obligation by
transferring a good or service to a customer.
C) A contract might have multiple performance obligations.
D) Revenue is recognized after all performance obligations are satisfied.
22) The revenue recognition principle requires companies to follow a five-step process. List these five
steps.
23) The matching principle ensures all expenses are recorded when they are incurred during the period
and are matched to the cash payments for expenses.
24) There is a natural link between some expenses and revenues.
25) To match expenses against revenues means to add expenses paid in cash during one month to
revenues earned during that same month.
26) The goal of matching is to compute an accurate net income or net loss for the time period.
27) The matching principle is also called the ________.
A) adjusting entry concept
B) revenue recognition principle
C) expense recognition principle
D) time period concept
28) Which of the following accounting elements does the matching principle help to match?
A) revenues and liabilities
B) expenses and assets
C) expenses and revenues
D) expenses and liabilities
29) To match expenses against revenues means to ________.
A) add expenses incurred during one period to revenues earned during that same period
B) subtract expenses incurred during one period from revenues earned during the previous period
C) add expenses incurred during one period to revenues earned during the previous period
D) subtract expenses incurred during one period from revenues earned during that same period
30) The matching principle states that ________.
A) financial statements can be prepared for specific periods
B) a business’s activities can be sliced into small time segments
C) all expenses should be recorded when they are incurred during the period
D) companies should record revenue when it has been earned
31) The accounting principle that ensures all expenses are recorded during the period when they are
incurred and offsets those expenses against the revenues of the period is called the ________ principle.
A) comparison
B) accrual
C) matching
D) revenue recognition
32) The matching principle ________.
A) guides accounting for revenues and expenses
B) results in the matching of expenses incurred during the period to the cash paid for expenses
C) ensures that all expenses are recorded when they are incurred during the period
D) results from a natural link between all expenses and revenues
33) Which of the following entries would be made because of the matching principle?
A)
Salaries Expense
1,000
Service Revenue
1,000
B)
Cash
1,000
Salaries Expense
1,000
C)
Salaries Expense
1,000
Salaries Payable
1,000
D)
Cash
1,000
Unearned Revenue
1,000
34) Which of the following entries would be made because of the matching principle?
A)
Rent Expense
2,500
Rent Revenue
2,500
B)
Unearned Revenue
2,500
Cash
2,500
C)
Rent Expense
2,500
Unearned Rent
2,500
D)
Rent Expense
2,500
Prepaid Rent
2,500
35) List and briefly discuss three accounting concepts and principles that apply to accrual basis
accounting.
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3.3 Learning Objective 3-3
1) Accrual basis accounting requires the business to review the unadjusted trial balance and determine
whether any additional revenues and expenses need to be recorded.
2) Financial statements can be prepared from the unadjusted trial balance.
3) Adjusting entries record revenues in the period in which cash is received and expenses in the period
when cash is paid.
4) An accrual adjusting entry records an expense after the cash is paid, or it records revenue before the
cash is received.
5) An adjusting entry is completed ________.
A) at the beginning of the accounting period
B) at the end of the accounting period
C) after all performance obligations are satisfied
D) when accounts need to be balanced in the ledger
6) Which of the following is NOT a type of adjusting entry?
A) deferred expenses
B) accrued revenues
C) unearned expenses
D) deferred revenues
7) Adjusting entries are needed to correctly measure the ________.
A) ending balance in the Cash account
B) net income (loss) on the balance sheet
C) net income (loss) on the income statement
D) beginning balance in the Cash account
8) Prepaid Insurance is an asset account that appears on the balance sheet.