Q: A company pays $3,000 for three months’ rent in advance on June 1. What is the adjusting entry on June 30?

$$\text{Rent Expense} \quad 1,000$$ $$\text{Prepaid Rent} \quad 1,000$$

Q: Which of the following is the correct formula for calculating the current ratio?

$$\text{Total current assets} \div \text{Total current liabilities}$$

Q: A company accrued $900 in salary expense at the end of June, to be paid on July 1. What is the adjusting entry on June 30?

$$\text{Salary Expense} \quad 900$$ $$\text{Salary Payable} \quad 900$$

Q: A company receives $400 cash in advance for services to be performed in the future. What is the correct journal entry?

$$\text{Cash} \quad 400$$ $$\text{Unearned Service Revenue} \quad 400$$

Question 1

Which of the following best describes the main difference between accrual accounting and cash-basis accounting?

Accepted Answer

Accrual accounting records the impact of transactions when they occur, regardless of cash flow.

Question 2

According to the revenue recognition principle, when should revenue be recognized?

Accepted Answer

When goods are delivered or services are performed and collection is reasonably assured.

Question 3

A company pays $3,000 for three months’ rent in advance on June 1. What is the adjusting entry on June 30?

Accepted Answer

$$	ext{Rent Expense} \quad 1,000$$  
$$	ext{Prepaid Rent} \quad 1,000$$

Question 4

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Recording depreciation expense at the end of the period.

Question 5

A company purchased equipment for $24,000 with a useful life of 5 years. What is the monthly depreciation expense using the straight-line method?

Accepted Answer

$$\400$

Question 6

Which account is a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 7

If a company fails to record the adjusting entry for expired prepaid rent, what is the effect on the financial statements?

Accepted Answer

Assets are overstated and expenses are understated.

Question 8

Which of the following is the correct formula for calculating the current ratio?

Accepted Answer

$$	ext{Total current assets} \div 	ext{Total current liabilities}$$

Question 9

A company accrued $900 in salary expense at the end of June, to be paid on July 1. What is the adjusting entry on June 30?

Accepted Answer

$$	ext{Salary Expense} \quad 900$$  
$$	ext{Salary Payable} \quad 900$$

Question 10

Which of the following transactions would NOT affect the current ratio?

Accepted Answer

Collecting an account receivable in cash.

Question 11

What is the effect on the debt ratio if a company issues stock and receives cash?

Accepted Answer

The debt ratio decreases.

Question 12

Which of the following is a temporary account that must be closed at the end of the period?

Accepted Answer

Dividends

Question 13

A company receives $400 cash in advance for services to be performed in the future. What is the correct journal entry?

Accepted Answer

$$	ext{Cash} \quad 400$$  
$$	ext{Unearned Service Revenue} \quad 400$$

Question 14

Which of the following best describes the purpose of closing entries?

Accepted Answer

To update the balance of retained earnings and prepare temporary accounts for the next period.

Question 15

If a company records depreciation expense of $80 million, what is the effect on the current ratio?

Accepted Answer

The current ratio is unaffected.

Question 16

Which of the following is the correct formula for the debt ratio?

Accepted Answer

$$	ext{Total liabilities} \div 	ext{Total assets}$$

Question 17

Which of the following is NOT a characteristic of a contra asset account?

Accepted Answer

It has a normal debit balance.

Question 18

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recognized in the same period as the related revenues.

Question 19

Which of the following is an example of an accrued revenue?

Accepted Answer

A company performs services in June but does not receive payment until July.

Question 20

Which of the following best describes a line chart in data visualization?

Accepted Answer

It is used to visualize data over time.

Accrual Accounting and Income: Chapter 3 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards