CH 3 Quiz The Adjusting Process

Accrual accounting records revenue only when it is earned (not when the cash is received)

• True

• False

Only the accrual method of accounting is allowed by Generally Accepted Accounting Principles (GAAP).

• False

• True

Small businesses can use the cash basis of accounting (recognizing expenses when they pay them and revenue when the cash is received).

• True

• False

Deferred expenses (also called prepaid expenses) are advance payments of future expenses.

• True

• False

The revenue recognition principle requires

• time to be divided into annual periods to measure revenue properly.

• revenue to be recorded only after the business has satisfied its performance obligation.

• expenses to be matched with revenue of the period.

• revenue to be recorded only after the cash is received.

The adjusted trial balance shows

• amounts that may be out of balance.

• account balances after adjustments.

• assets and liabilities only.

• revenue and expenses only.

Adjusting the accounts is the process of

• subtracting expenses from revenues to measure net income.

• recording transactions as they occur during the period.

• updating the accounts at the end of the period.

• zeroing out account balances to prepare for the next period.

Accounts Receivable is an ________ account.

• Liability

• Revenue

• Expense

• Asset

Accounts Payable is a ________ account.

• Liability

• Revenue

• Expense

• Asset

Utilities Expense is an _________ account.

• Liability

• Revenue

• Expense

• Asset