Accrual Accounting: Principles and Applications
Posted on May 21, 2024 in Mathematics
Which of the following statements about the accrual-basis of accounting is false?
| Events that change a company’s financial statements are recorded in the periods in which the events occur.
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| Revenue is recognized in the period in which services are performed.
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| Accrual-basis is in accordance with generally accepted accounting principles.
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| Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.
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Susan Zupan, a lawyer, accepts a legal engagement in March, performs the
work in April, and is paid in May. If Zupan’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement?
The law firm should recognize the revenue in MarchAprilMay |
Susan Zupan, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. In completing the engagement, Susan Zupan pays no costs in March, $2,000 in April, and $2,500 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue?
| Expenses deducted | | $ |
On June 30, a printing shop provides $1,000 of services to a customer to custom print restaurant menus. The customer is sent a bill on July 5 for the amount due. A check in the amount of $1,000 is received from the customer on July 25. The printing shop follows GAAP and applies the revenue recognition principle. When is the $1,000 sale recognized?
Prepaid expenses are
| shown on the balance sheet as liabilities.
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| shown on the income statement as revenue.
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| not shown on a financial statement.
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| shown on the balance sheet as assets.
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The Accumulated Depreciation account
| is a contra revenue account with a debit balance.
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| is shown on the balance sheet as a liability.
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| is a contra asset account with a credit balance.
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| is shown as an expense on the income statement.
| Correct! $3,500 ($6,500-$3,000) of supplies was used during the current period; therefore the adjusting entry is to debit Supplies Expense and credit Supplies for $3,500. | | | |
White Laundry Company purchased $6,500 of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $3,000 on hand. It is the company’s first period of operations. The adjusting entry that should be made by the company on June 30 is | debit supplies, $3,500; credit supplies expense, $3,500.
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| debit supplies expense, $3,500; credit supplies, $3,500.
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| debit supplies expense, $3,000; credit supplies, $3,000.
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| debit supplies, $3,000; credit supplies expense, $3,000.
| Adjustments for unearned revenues will consist of a debit (decrease) to unearned revenues (a liability) and a credit (increase) to a revenue account. | | | |
Adjustments for unearned revenues | have an assets and revenues account relationship.
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| increase assets and increase revenues.
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| decrease revenues and decrease assets.
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| decrease liabilities and increase revenues.
Accrued revenues are revenues for which services are performed but not yet received in cash or recorded.
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Revenues for which services are performed but not yet received in cash or recorded are called | interim revenues.
| The accrued interest for one month is $8,000 X .12 X 1/12 = $80. | | | |
Clark Real Estate signed a four-month note payable in the amount of $8,000 on September 1. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is | $320.
Crue Company had the following transactions during 2018:
- Sales of $4800 on account
- Collected $2000 for services to be performed in 2019
- Paid $1625 cash in salaries
- Purchased airline tickets for $250 in December for a trip to take place in 2019
What is Crue’s 2018 net income using accrual accounting-basis after accrual?
| $4925.
Lake of Fire Company purchased supplies costing $7000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be | Debit Supplies, $5100; Credit Supplies Expense, $5100.
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| Debit Supplies Expense, $5100; Credit Supplies, $5100.
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| Debit Supplies, $1900; Credit Supplies Expense, $1900.
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| Debit Supplies Expense, $1900; Credit Supplies, $1900.
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At December 31, 2018, before any year-end adjustments, Murmur Company’s Insurance Expense account had a balance of $2450 and its Prepaid Insurance account had a balance of $3800. It was determined that $2800 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be Fugazi City College sold season tickets for the 2018 football season for $240000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Ticket Revenue at October 31 is
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