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Match the term and the definition.There are more definitions than terms. -Revenue Recognition Principle


A) To reduce the recorded value of an asset to better reflect its true market value.
B) Any outlay of money by a company for any purpose.
C) Total revenue minus total expenses.
D) The concept that revenue should be recorded when earned,not necessarily when payment is received.
E) The increase in value of financial assets held by a company.
F) The practice of dividing the life of the business into months and years.
G) The concept that a company should record revenue during the same period as expenses.
H) The concept that revenue and expenses should be recorded at the time received or paid.
I) Payments received for goods that have not yet been delivered or services that have not yet been performed.
J) Revenues should be recorded when they are earned and expenses when they are incurred.
K) Any use or sacrifice of a company's resources to generate revenue.

L) D) and E)
M) All of the above

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Match the term and the explanation.There are more definitions than terms. -Prepaid Expense


A) The concept that expenses should be reported at the same time as the related revenue.
B) Reported when a company sells goods or services in the ordinary course of business for more than it costs to produce.
C) A company's policy on when to report revenue in the financial statements.
D) A ratio that indicates the percent of each revenue dollar that is left over after covering costs and expenses.
E) Reporting expenses and revenue according to the time the underlying activities occur.
F) A liability account indicating customers have already paid for services not yet rendered.
G) The principle that changes in assets must be matched by changes in liabilities and equity.
H) An indication that a company has already paid a cost not yet incurred.
I) A list of account balances when the accounts do not yet include all revenues and expenses.
J) Also known as net assets,this is the value of assets minus liabilities.
K) Reporting expenses and revenues according to the time the money is paid or received.

L) A) and C)
M) B) and D)

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Which of the following is an expense of this period?


A) Costs of items used up this period but paid for next period
B) Costs of items paid for in this period but used up next period
C) Cost of land purchased and paid for this period
D) Repayment of debt from a loan in a prior period

E) A) and B)
F) B) and C)

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Expenses are the costs of operating a business that are paid for in the period covered by the income statement.

A) True
B) False

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During 2018,a company provided services for cash of $33,600 and services on credit of $24,000.The company collected accounts receivable of $12,800 and incurred operating expenses of $36,320,$22,400 of which were paid during the year.The amount of net income (loss) for the year is:


A) $21,280.
B) $2,720.
C) $36,320.
D) $10,080.

E) All of the above
F) A) and D)

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If an apartment leasing company receives the rent for January 2018 from a tenant in December 2017,this will be reported by the leasing company as:


A) revenue in 2017.
B) an expense in 2017.
C) a liability in 2017.
D) stockholders' equity in 2017.

E) All of the above
F) B) and C)

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In its first year of operations,Jetway Airlines incurred and paid Salaries Expense of $40 million.On December 31,it accrued an additional Salaries Expense of $2 million.What should Jetway report in the income statement and balance sheet for its first year ended December 31?


A) Income statement: Salaries and Wages Expense $42 million;Balance sheet: Salaries and Wages Payable $2 million
B) Income statement: Salaries and Wages Expense $40 million;Balance sheet: Salaries and Wages Payable $2 million
C) Income statement: Salaries and Wages Expense $40 million;Balance sheet: Salaries and Wages Payable $0
D) Income statement: Salaries and Wages Payable $2 million;Balance sheet: Salaries and Wages Expense $42 million

E) B) and C)
F) B) and D)

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Which of the following statements about cash basis accounting and accrual basis accounting is correct?


A) If payment is received at the same time a service is provided,it does not matter whether cash basis accounting or accrual basis accounting is used;both would record the transaction with the same journal entry.
B) The cash basis of accounting works best when a lengthy delay exists between the timing of cash flows and the underlying business activities to which they relate.
C) If a company receives a bill for rent for the period and decides to delay payment,the rent will not be recorded as an expense if accrual basis accounting is used.
D) If the cash basis of accounting is used,the Deferred Revenue account is increased when a company receives a deposit in advance of services to be performed by the company.

E) B) and D)
F) None of the above

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Blake,Inc.pays its employees once a month and records the expense at the time of payment.On September 30,Blake paid its employees $12,210 for work performed in September.The entry to record the payment includes a:


A) credit to Salaries and Wages Expense for $12,210.
B) credit to Cash for $12,210.
C) debit to Cash for $12,210.
D) credit to Salaries and Wages Payable for $12,210.

E) B) and C)
F) A) and B)

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Which of the following is an operating activity?


A) Billing customers for services rendered but not yet paid for
B) Paying off a loan to the bank
C) Purchasing equipment for cash
D) Receiving cash investments from owners

E) B) and C)
F) B) and D)

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The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting.  Advertising Revenue 46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Deferred Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326\begin{array}{lr}\text { Advertising Revenue } & 46,482 \\\text { Cash } & 41,516 \\\text { Accounts Receivable } & 7,296 \\\text { Interest Expense } & 2,299 \\\text { Accounts Payable } & 5,000 \\\text { Operating Expenses } & 37,460 \\\text { Deferred Revenue } & 1,178 \\\text { Equipment } & 18,048 \\\text { Income Tax Expense } & 2,326\end{array} The following activities occurred in 2019: 1.Performed advertising services on account,$55,000. 2.Received cash payments on account,$10,400. 3.Received deposits from customers for advertising services to be performed in 2020,$2,500. 4.Made payments to suppliers on account,$5,000. 5.Incurred $45,000 of operating expenses;$39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. What is the balance in the Cash account at December 31,2019?


A) $46,116.
B) $41,516.
C) $10,416.
D) $46,916.

E) B) and D)
F) B) and C)

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A company does not need to record the receipt of a bill for utilities used during this year if the company will not pay the bill until next year.

A) True
B) False

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Supplies are expensed when:


A) purchased.
B) paid for.
C) used.
D) purchased on account.

E) None of the above
F) All of the above

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Which of the following statements about revenue and expense accounts is correct?


A) Revenue accounts are a subset of assets,and expense accounts are subcategories of liabilities.
B) Both revenue accounts and expense accounts are subcategories of assets.
C) Both revenue accounts and expense accounts are subcategories of Retained Earnings.
D) Revenue accounts are a subcategory of Cash and expense accounts are a subcategory of Accounts Payable.

E) B) and D)
F) B) and C)

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A service company receives a check from a customer as partial payment of his account balance.This transaction does not involve the sale of additional services.How should the entry be recorded?


A) Debit Cash and credit Accounts Receivable.
B) Debit Cash and credit Sales Revenue.
C) Debit Accounts Receivable and credit Cash.
D) Debit Cash and credit Deferred Revenue.

E) C) and D)
F) All of the above

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This month,a company performed $517,000 of services and incurred total expenses of $438,000.The company was paid in cash for all its services and paid cash for all its expenses.These transactions would cause:


A) revenues to increase by $517,000,expenses to increase by $438,000,and Retained Earnings to decrease by $79,000.
B) Cash to increase by $517,000,expenses to increase by $438,000,and Common Stock to increase by $79,000.
C) revenues to increase by $517,000,expenses to increase by $438,000,and Cash to increase by $79,000.
D) revenues to increase by $79,000,expenses to increase by $438,000,and Cash to increase by $517,000.

E) B) and C)
F) All of the above

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A dance studio accepts $1,500 to provide a series of dance lessons to a youth group during the month of July.The studio decides to record the revenue in July.The studio incurs rent,utilities,and salaries expenses in July.The studio decides to record those expenses in August,when it pays for them.One or both of these decisions:


A) violate the expense recognition principle.
B) are an example of accrual accounting.
C) violate the revenue recognition principle.
D) violate both the expense recognition and revenue recognition principles.

E) A) and D)
F) A) and B)

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A company has total revenue of $759,000 and total expenses of $445,500.If the company understates sales by $13,500,what is the effect on the company's net profit margin?


A) Net profit margin would be understated.
B) Net profit margin would be overstated.
C) Net profit margin would be unaffected.
D) Net profit margin cannot be computed because overstating sales is unethical.

E) B) and D)
F) B) and C)

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Match the term and the explanation.There are more definitions than terms. -Revenue Recognition Principle


A) The concept that expenses should be reported at the same time as the related revenue.
B) Reported when a company sells goods or services in the ordinary course of business for more than it costs to produce.
C) A company's policy on when to report revenue in the financial statements.
D) A ratio that indicates the percent of each revenue dollar that is left over after covering costs and expenses.
E) Reporting expenses and revenue according to the time the underlying activities occur.
F) A liability account indicating customers have already paid for services not yet rendered.
G) The principle that changes in assets must be matched by changes in liabilities and equity.
H) An indication that a company has already paid a cost not yet incurred.
I) A list of account balances when the accounts do not yet include all revenues and expenses.
J) Also known as net assets,this is the value of assets minus liabilities.
K) Reporting expenses and revenues according to the time the money is paid or received.

L) E) and I)
M) A) and E)

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Match the term and the definition.There are more definitions than terms. -Accrual Basis


A) To reduce the recorded value of an asset to better reflect its true market value.
B) Any outlay of money by a company for any purpose.
C) Total revenue minus total expenses.
D) The concept that revenue should be recorded when earned,not necessarily when payment is received.
E) The increase in value of financial assets held by a company.
F) The practice of dividing the life of the business into months and years.
G) The concept that a company should record revenue during the same period as expenses.
H) The concept that revenue and expenses should be recorded at the time received or paid.
I) Payments received for goods that have not yet been delivered or services that have not yet been performed.
J) Revenues should be recorded when they are earned and expenses when they are incurred.
K) Any use or sacrifice of a company's resources to generate revenue.

L) I) and K)
M) D) and G)

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