Adjusting the Accounts MCQ Flashcards
Review 3
Multiple Choice
The revenue recognition principle states that:
a. revenue should be recognized in the accounting period in
which a performance obligation is satisfied.
b. expenses should be matched with revenues.
c. the economic life of a business can be divided into artificial time periods.
d. the fiscal year should correspond with the calendar year.
Adjusting the Accounts
a. Revenue should be recognized in the accounting period in which a performance obligation is satisfied.
The other choices are incorrect because
(b) defines the expense recognition principle,
(c) describes the time period assumption, and
(d) a company’s fiscal year does not need to correspond with the calendar year.
Adjusting the Accounts
Multiple Choice
The time period assumption states that:
a. companies must wait until the calendar year is completed to prepare financial statements.
b. companies use the fiscal year to report financial information.
c. the economic life of a business can be divided into artificial
time periods.
d. companies record information in the time period in which the events occur.
Adjusting the Accounts
c. The economic life of a business can be divided into artificial time periods.
The other choices are incorrect because
(a) companies report their activities on a more frequent basis and not necessarily based on a calendar year;
(b) companies report financial information more frequently than annually, such as monthly or quarterly, in order to evaluate results of operations; and
(d) this statement describes accrual basis accounting.
Adjusting the Accounts
Which statement about accrual basis accounting is false?
a. Events that change a company’s financial statements are recorded in the periods in which the events occur.
b. Revenue is recognized in the period in which services are performed.
c. This basis is in accordance with generally accepted account ing principles.
d. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.
Adjusting the Accounts
d. Under the accrual basis of accounting, revenue is recognized when the performance obligation is satisfied, not when cash is received; expense is recognized when incurred, not when cash is paid.
Adjusting the Accounts
Multiple Choice
The principle or assumption dictating that efforts (expenses) should be recognized in the period in which a company consumes assets or incurs liabilities to generate revenue is the:
a. expense recognition principle.
b. cost assumption.
c. time period assumption.
d. revenue recognition principle.
Adjusting the Accounts
a. The expense recognition principle dictates that companies recognize expenses in the period in which they make efforts to generate revenue.
Adjusting the Accounts
Multiple Choice
Adjusting entries are made to ensure that:
a. expenses are recognized in the period in which they are
incurred.
b. revenues are recorded in the period in which services are performed.
c. balance sheet and income statement accounts have correct balances at the end of an accounting period.
d. All the answer choices are correct.
Adjusting the Accounts
d. Adjusting entries are made for all the reasons noted in choices (a), (b), and (c).
These choices are all true statements, therefore (d) is the best answer.
Adjusting the Accounts
Multiple Choice
Each of the following is a major type (or category) of
adjusting entries except:
a. prepaid expenses
b. accrued revenues
c. accrued expenses
d. recognized revenues
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d. Unearned revenues, not recognized revenues, is one of the major categories of adjusting entries.
The other choices all list one of the major categories of adjusting entries.
Adjusting the Accounts
Multiple Choice
The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:
c. Debiting Supplies Expense for $750 and crediting Supplies for $750 ($1,350 − $600) will decrease Supplies and increase Supplies Expense.
Multiple Choice
Adjustments for prepaid expenses:
a. decrease assets and increase revenues.
b. decrease expenses and increase assets.
c. decrease assets and increase expenses.
d. decrease revenues and increase assets.
Adjusting the Accounts
c. Adjustments for prepaid expenses decrease assets and increase expenses.
The other choices are incorrect because an adjusting entry for prepaid expenses
(a) increases expenses, not revenues;
(b) increases, not decreases, expenses and decreases, not increases, assets; and
(d) increases expenses, not decreases revenues, and decreases, not increases, assets.
Adjusting the Accounts
Multiple Choice
Accumulated Depreciation is:
a. a contra asset account.
b. an expense account.
c. an owner’s equity account.
d. a liability account.
Adjusting the Accounts
a. Accumulated Depreciation is a contra asset account; it is offset against an asset account on the balance sheet.
The other choices are incorrect because Accumulated Depreciation is not
(b) an expense account or reported on the income statement,
(c) an owner’s equity account, or
(d) a liability account.
Adjusting the Accounts
Multiple Choice
Adjustments for unearned revenues:
a. decrease liabilities and increase revenues.
b. have an assets and revenues account relationship.
c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
Adjusting the Accounts
a. Adjustments for unearned revenues will consist of a debit (decrease) to unearned revenues (a liability) and a credit (increase) to a revenue account.
Choices (b), (c), and (d) are incorrect because adjustments for unearned revenues will increase revenues but will have no effect on assets.
Adjusting the Accounts
Multiple Choice
Adjustments for accrued revenues:
a. have a liabilities-and-revenues-account relationship.
b. have an assets-and-revenues-account relationship.
c. decrease assets and revenues.
d. decrease liabilities and increase revenues.
Adjusting the Accounts
b. Adjustments for accrued revenues will have an assets and revenues account relationship.
Choices (a) and (d) are incorrect because adjustments for accrued revenues have no effect on liabilities.
Choice (c) is incorrect because these adjustments will increase, not decrease, both assets and revenues.
Adjusting the Accounts
Multiple Choice
Anika Wilson earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Anika’s employer at September 30 is:
Adjusting the Accounts
b. The adjusting entry should be to debit Salaries and Wages Expense for $400 and credit Salaries and Wages Payable for $400.
Adjusting the Accounts
Multiple Choice
a. debit Supplies $800 and credit Supplies Expense $800.
b. debit Supplies Expense $800 and credit Supplies $800.
c. debit Supplies $700 and credit Supplies Expense $700.
d. debit Supplies Expense $700 and credit Supplies $700.
Adjusting the Accounts
a. This adjusting entry correctly states the Supplies account at $800 ($0 + $800) and the Supplies Expense account at $700 ($1,500 − $800).
Adjusting the Accounts
Multiple Choice
Which of the following statements is incorrect concerning the adjusted trial balance?
a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
b. The adjusted trial balance provides the primary basis for the preparation of financial statements.
c. The adjusted trial balance lists the account balances segregated by assets and liabilities.
d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.
Adjusting the Accounts
c. The accounts on the trial balance can be segregated by the balance in the account—either debit or credit—not whether they are assets or liabilities. All accounts in the ledger are included in the adjusted trial balance, not just assets and liabilities.
The other choices are true statements.
Adjusting the Accounts
