Chapter 3 - The Adjusting Process

If a company is using accrual basis accounting, when does it record revenue?

• When the service is performed (even if cash received later)

• When service is performed or cash is received, whichever comes first

• When cash is received (even if service performed later)

• When cash is received (30 days after completion of services)

A company receives payment on August 5 for services performed July 21. The journal entry on August 5:

• Debits Cash and credits Accounts Receivable

• Debits Salaries Expense and credits Cash

• Debits Cash and credits Service Revenue

• Debits Supplies and credits Cash

What accounting principle ensures all expenses are recorded during the period they are incurred and offsets expenses against the revenues of the period?

• Accrual

• Comparison

• Matching

• Revenue recognition

Which principle or concept says a business's activities can be divided into small segments and financial statements prepared for a year, quarter, month, etc.?

• Matching principle

• Time period concept

• Economic entity concept

• Adjusting entry concept

Revenue is earned when we:

• Enter into an agreement to deliver a good or service

• Deliver the good or service to the customer

• Prepare the journal entry to record revenue

• Receive cash from the customer before delivery

We perform services for a client in December. We mail the bill December 30 and get paid January 5. What account will appear on the December income statement related to this transaction?

• Accounts Payable

• Unearned Revenue

• Accounts Receivable

• Service Revenue

We perform services for a client in December. We mail the bill December 30 and get paid January 5. What account will appear on the December balance sheet related to this transaction?

• Accounts Payable

• Unearned Revenue

• Accounts Receivable

• Service Revenue

We take on a new client that we will do work for in January. We require them to pay us in advance; we receive a check December 30. Which of these accounts will appear on the balance sheet for this transaction?

• Accounts Payable

• Unearned Revenue

• Accounts Receivable

• Service Revenue

Unearned Revenue is what type of account?

• Asset

• Liability

• Equity

• Revenue

On January 1, we bought a new Alienware computer and used it in our computer animation business all year. We paid $9,000 for it, and we expect it to last 3 years. What will show up on the income statement for the year ended December 31 related to this computer?

• Computer Expense, $9,000

• Computer Expense, $3,000

• Depreciation Expense, $3,000

• Depreciation Expense, $250