Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Financial Accounting, 5e (Spiceland)
Chapter 3 The Accounting Cycle: End of the Period
1) Accrual-basis accounting involves recording revenues when providing goods and services to
customers and recording expenses with their related revenues.
2) The revenue recognition principle states that we record revenue in the period in which we
collect cash.
3) According to the revenue recognition principle, if a company provides services to a customer
in the current year but does not collect cash until the following year, the company should report
the revenue in the current year.
4) Jones Corporation provides services to a customer on June 17, but the customer does not pay
for the services until August 12. According to the revenue recognition principle, Jones
Corporation should record the revenue on August 12.
5) For financial reporting purposes, we typically recognize expenses in the same period as the
revenues they help to generate.
6) According to the concept of expense recognition under accrual-basis accounting, if costs
associated with producing revenue in the current year are not paid in cash until the following
year, the costs should be expensed in the current year.
7) Under cash-basis accounting, we record revenues at the time we receive cash and expenses at
the time we pay cash.
8) Under cash-basis accounting, the timing of cash inflows and outflows exactly matches the
reporting of revenues and expenses in the income statement.
9) Under cash-basis accounting, if a company provides services to a customer in the current year
but does not collect cash until the following year, the company should report the revenue in the
current year.
10) Under cash-basis accounting, if costs associated with producing revenue in the current year
are not paid in cash until the following year, the costs should be expensed in the following year.
11) Because cash-basis accounting violates both the principles of revenue recognition and
expense recognition, it is generally not accepted in preparing financial statements.
12) Adjusting entries involve recording events that have occurred but have not yet been recorded
by the end of the period.
13) Adjusting entries should be prepared after financial statements are prepared.
14) Because adjusting entries update balances for the recognition of revenues and expenses, they
are a necessary part of cash-basis accounting.
15) Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of
an asset before the expense is incurred.
16) Deferred revenues occur when cash is received after the revenue is recognized.
17) Accrued expenses involve the payment of cash before recording an expense and a liability.
18) Accrued revenues involve the receipt of cash after the revenue has been recognized and an
asset has been recorded.
19) When a prepaid expense has been recorded during the period, the adjusting entry at the end
of the period includes recognizing an expense and adjusting the balance of a liability account.
20) The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing
net income.
21) The Supplies account is an example of an accrued expense.
22) Suppose Simeon Company begins the year with $1,000 in supplies, purchases an additional
$5,500 of supplies during the year, and ends the year with $700 in supplies. The year-end
adjusting entry includes Supplies Expense of $7,200.
23) When a deferred revenue has been recorded during the period, the adjusting entry at the end
of the period includes recognizing a revenue and adjusting the balance of an asset account.
24) The adjusting entry for a deferred revenue has the effects of reducing liabilities and
increasing net income.
25) On November 1, 2021, a company receives $1,800 for services to be provided evenly over
the next six months. The December 31, 2021, adjusting entry for the company would include a
credit to Deferred Revenue for $600.
26) The adjusting entry at the end of the period to recognize an accrued expense includes an
expense account and a liability account.
27) The adjusting entry for an accrued expense has the effects of decreasing net income and
decreasing liabilities.
28) On December 31, 2021, employees who earn $500 per day have worked eight days and will
be paid on January 6, 2022. The adjusting entry on December 31, 2021, includes a debit to
Salaries Expense for $4,000.
29) At December 31, 2021, a company has received, but not paid, its December utility bill for
$250. The amount of utility expense for December 2021 equals $250.
30) The adjusting entry at the end of the period to recognize an accrued revenue includes a
liability account and a revenue account.
31) The adjusting entry for an accrued revenue has the effects of increasing assets and increasing
net income.
32) Adjusting entries are unnecessary for transactions that do not involve revenue or expense
activities, such as selling common stock or paying dividends.
33) Adjusting entries are not necessary when cash is received at the same time revenues are
recognized.
34) Adjusting entries are not necessary when cash is paid at the same time expenses are incurred.
35) A post-closing trial balance is a list of all accounts and their balances after we have updated
account balances for adjusting entries.
36) An adjusted trial balance is a list of all accounts and their balances after we have updated
account balances for adjusting entries.
37) An adjusted trial balance is prepared before adjusting entries.
38) Once the adjusted trial balance is complete, the income statement can be prepared.
39) A classified balance sheet separates assets into current and long-term, and separates
liabilities into current and long-term.
40) Current assets are assets that provide a benefit to a company over more than one year.
41) Long-term assets are assets that provide a benefit to a company for more than one year.
42) Current liabilities are liabilities due within one year.
43) Long-term liabilities are liabilities due in more than one year.
44) Long-term asset categories include investments; property, plant, and equipment; and
intangible assets.
45) The components of retained earnings include assets, expenses, and dividends.
46) Closing entries transfer the balances of all temporary accounts (revenues, expenses, and
dividends) to the Common Stock account.
47) The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to
all revenue accounts.
48) The closing entry for expense accounts includes a debit to Retained Earnings and a credit to
all expense accounts.
49) The closing entry for dividends includes a debit to the Dividends account and a credit to
Retained Earnings.
50) If the beginning balance of Retained Earnings equals $10,000, net income for the year equals
$6,000, and dividends for the year equal $2,000, then the ending balance of Retained Earnings
equals $18,000.
51) If the beginning balance of Retained Earnings equals $12,000, the ending balance of
Retained Earnings equals $15,000, and dividends for the year equal $1,000, then net income for
the year equals $4,000.
52) After closing entries are posted to the accounts in the general ledger, all asset and liability
accounts have a balance of zero.
53) After closing entries are prepared, the balance of Retained Earnings is updated to reflect the
activity in the revenue, expense, and dividend accounts for the period.
54) The post-closing trial balance is a list of accounts and their balances at a particular date after
the account balances have been updated for closing entries.
55) The post-closing trial balance does not include any assets or liabilities, because these
accounts all have zero balances after closing entries.
56) The accounting basis that helps to measure and report revenues and expenses in a way that
clearly reflects the ability of a company to generate value for its owners is referred to as:
A) Cash-basis.
B) Accrual-basis.
C) Profit-basis.
D) Reporting-basis.
57) The accounting basis that records revenues when goods or services are provided to customers
and expenses with related revenues is referred to as:
A) Cash-basis.
B) Profit-basis.
C) Accrual-basis.
D) Reporting-basis.
58) The revenue recognition principle states that:
A) Revenue should be recognized in the period the cash is received.
B) Revenue should be recognized in the period goods and services are provided.
C) Revenue should be recognized in the balance sheet.
D) Revenue is a component of common stock.
59) Which accounting principle states that a company should "record revenues when they
provide goods and services to customers?"
A) Valuation.
B) Revenue recognition.
C) Conservatism.
D) Materiality.
60) A company recognizes revenue in the period in which it records an asset for the related
account receivable, rather than in the period in which the account receivable is collected in cash.
This company is using:
A) Cash-basis accounting.
B) Accrual-basis accounting.
C) The recording principle.
D) The entity assumption.
61) The basic principle involved with expense recognition is:
A) All costs that are used to generate revenue are recorded in the period the revenue is
recognized.
B) All transactions are recorded at the exchange price.
C) The business is separate from its owners.
D) The business will continue to operate indefinitely unless there is evidence to the contrary.
62) Which of the following provides a description of the relation between revenues and expenses
for financial reporting purposes?
A) Valuation consequences.
B) Equal dollar amounts.
C) Cause-and-effect.
D) Comparability of transactions.
63) Air France collected cash on February 4 from the sale of a ticket to a customer on January
26. The flight took place on April 5. According to the revenue recognition principle, in which
month should Air France have recognized this revenue?
A) January.
B) February.
C) April.
D) Evenly in each of the three months.
64) A customer purchased a drill press on November 14 on account from Sears. The drill press
was delivered two weeks later. The customer paid for the drill press on December 5. When
should Sears record the revenue for this transaction according to the revenue recognition
principle?
A) November.
B) December.
C) Evenly in each of the two months.
D) One-third in November and two-thirds in December.
65) A company received an order from a customer in June for services to be provided. Those
services were provided in July, and the customer paid the full amount in August. According to
the revenue recognition principle, in which month should the company record revenue?
A) June.
B) July.
C) August.
D) Evenly over the three months.
66) A company orders office supplies in June. Those supplies are received and paid for in July.
The supplies are used in August. In which month should the company record supplies expense?
A) June.
B) July.
C) August.
D) Evenly over the three months.
67) A company orders office supplies in June. Those supplies are received and used in July. The
supplies are paid for in August. In which month should the company record supplies expense?
A) June.
B) July.
C) August.
D) Evenly over the three months.
20
68) In November, a company hires three temporary employees that are scheduled to work only
the month of December. Those employees work during December, and they are then paid their
full salaries in January. In which month should the company record salaries expense?
A) November.
B) December.
C) January.
D) Evenly over the three months.
69) The accounting basis that records revenues when cash is received and expenses when cash is
paid is referred to as:
A) Cash-basis.
B) Accrual-basis.
C) Realization-basis.
D) Reporting-basis.
