Accrual Accounting Concepts Assessment

The video tutorial explains accrual accounting, focusing on matching revenues and expenses to the period when services are performed. It contrasts this with cash accounting, which records transactions when cash changes hands. The tutorial uses a catering business example to illustrate how accrual accounting works over four months, detailing how revenues, expenses, accounts receivable, and deferred revenue are recorded. The video highlights how accrual accounting provides a more accurate reflection of business activity and profit over time.

What is the main goal of accrual accounting?

• To avoid recording liabilities

• To simplify financial statements

• To match revenues and expenses to the time services are performed

• To record transactions only when cash is exchanged

In month one, what is the profit under both cash and accrual accounting?

• $200

• $150

• $100

• $50

In month two, what is the term used for money owed by customers?

• Deferred revenue

• Accounts payable

• Accounts receivable

• Prepaid expenses

How does accrual accounting treat the $400 owed by the customer in month two?

• As accounts receivable

• As cash revenue

• As deferred revenue

• As accounts payable

In month three, what happens to the $400 received from the previous month's customer?

• It is recorded as new revenue

• It is added to accounts payable

• It is transferred from accounts receivable to cash

• It is recorded as an expense

What is the term for cash received in advance for services to be performed in the future?

• Accrued revenue

• Deferred revenue

• Prepaid expenses

• Unearned income

In month three, what is the cash balance after accounting for the $400 and $200 transactions?

• $100

• $300

• $400

• $500

In month four, how is the $200 advance from month three treated?

• As a liability

• As revenue

• As an expense

• As an asset

What is the profit in month four after recognizing the deferred revenue?

• $50

• $100

• $150

• $200

What remains the same in both cash and accrual accounting by the end of month four?

• Cash balance

• Liabilities

• Expenses

• Revenue