Question 1

Which of the following best describes the accrual accounting principle?

Accepted Answer

It records both cash and non-cash transactions, recognizing income and expenses when they are earned or incurred, not when cash is exchanged.

Question 2

According to IAS18, when should revenue from the sale of goods be recognized?

Accepted Answer

When the seller has transferred significant risks and rewards of ownership, has no continuing managerial involvement, and the revenue can be measured reliably.

Question 3

A company receives $1,200 cash for services to be performed over the next 6 months. How should this transaction be initially recorded?

Accepted Answer

Debit Cash $$1,200; Credit Unearned Revenue 1$$,200

Question 4

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

Accepted Answer

Salaries incurred but not yet paid at the end of the period

Question 5

A company purchased equipment for $$24,000. Monthly depreciation is 400. $$What is the book value of the equipment after one month?

Accepted Answer

$23,600

Question 6

Which journal entry correctly records the adjustment for supplies used if $$700 of supplies were purchased and 400 $$remain unused at month-end?

Accepted Answer

Debit Supplies Expense $$300; Credit Supplies 300$$

Question 7

Which of the following is NOT a category of adjusting entry?

Accepted Answer

Inventory valuation

Question 8

What is the main purpose of the matching principle in financial accounting?

Accepted Answer

To match expenses incurred with the revenues earned in the same period.

Question 9

If a company pays $3,000 for three months of rent in advance, what is the adjusting entry at the end of the first month?

Accepted Answer

Debit Rent Expense $$1,000; Credit Prepaid Rent 1$$,000

Question 10

Which of the following best describes a contra-asset account?

Accepted Answer

An account that offsets an asset account, such as accumulated depreciation

Question 11

A company earns $600 in service revenue in June but will not receive payment until July. What is the correct adjusting entry at June 30?

Accepted Answer

Debit Accounts Receivable $$600; Credit Service Revenue 600$$

Question 12

Which of the following is most susceptible to fraud in financial accounting?

Accepted Answer

Revenue recognition

Question 13

What is the correct formula for calculating the book value of a piece of equipment?

Accepted Answer

$$Book\ value = Cost\ of\ equipment - Accumulated\ depreciation$$

Question 14

Which of the following is an example of a deferral adjustment?

Accepted Answer

Recording prepaid insurance as an asset and expensing it as it is used

Question 15

Which adjusting entry is required when a company receives cash in advance for services to be performed in the future?

Accepted Answer

Debit Unearned Revenue; Credit Service Revenue

Question 16

What is the impact on the financial statements if adjusting entries are not made at the end of the period?

Accepted Answer

Both the balance sheet and income statement accounts may be misstated, leading to inaccurate financial statements.

Question 17

Which of the following is the correct sequence for closing the financial statements?

Accepted Answer

Prepare trial balance, enter adjustments, extend to financial statement columns

Question 18

If a company records fictitious revenue, which accounting principle is being violated?

Accepted Answer

Revenue recognition principle

Question 19

Which of the following is NOT a characteristic of fraud in financial accounting?

Accepted Answer

Always results from honest mistakes

Question 20

A company pays $$700 for supplies and at month-end, 400 $$remain unused. What is the value of supplies expense for the month?

Accepted Answer

$300

Accrual Accounting: Recognition, Adjusting Entries, and Financial Statement Closing

Study Guide - Practice Questions

Study Guide - Flashcards