Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

Which of the following best describes an activity-based approach to designing a costing system?

Assigning all overhead costs equally to all products regardless of usage.

Recording expenses only when cash is paid.

Allocating costs to products based on the activities required to produce them.

Recognizing revenue when goods are shipped to customers.

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Verified step by step guidance

Understand the concept of an activity-based costing (ABC) system: This approach allocates overhead costs to products or services based on the specific activities required to produce them. It focuses on identifying cost drivers (e.g., machine hours, labor hours, or number of setups) that directly relate to the production process.

Analyze the options provided in the question: Each option describes a different approach to costing or accounting. Compare these options to the definition of activity-based costing.

Option 1: 'Assigning all overhead costs equally to all products regardless of usage' describes a traditional costing system, not an activity-based approach. Traditional systems often allocate costs using a single cost driver, such as direct labor hours, without considering the actual activities involved.

Option 2: 'Recording expenses only when cash is paid' refers to cash-basis accounting, which is unrelated to activity-based costing. This option does not align with the principles of ABC.

Option 4: 'Recognizing revenue when goods are shipped to customers' refers to revenue recognition principles, not costing systems. This is unrelated to the activity-based approach. Therefore, the correct answer is Option 3: 'Allocating costs to products based on the activities required to produce them,' as it aligns with the definition of activity-based costing.