Accrual Basis of Accounting Quiz

What does the time period assumption state?

• Companies record information in the time period in which the events occur.

• The economic life of a business can be divided into artificial time periods.

• Companies use the fiscal year to report financial information.

• Companies must wait until the calendar year is completed to prepare financial statements.

What is the fiscal year?

• An accounting time period that is quarterly.

• An accounting time period that is one year in length.

• An accounting time period that is six months in length.

• An accounting time period that is one month in length.

What is the difference between accrual-basis accounting and cash-basis accounting?

• Accrual-basis recognizes revenues when cash is received.

• Accrual-basis recognizes expenses when cash is paid.

• Accrual-basis recognizes revenues when services are performed.

• Accrual-basis is not in accordance with GAAP.

When are revenues recognized under the revenue recognition principle?

• When cash is received.

• In the accounting period when the performance obligation is satisfied.

• At the end of the fiscal year.

• When expenses are incurred.

What does the expense recognition principle state?

• Expenses should be recognized when cash is paid.

• Expenses should be recognized in the period they are incurred.

• Expenses should be recognized at the end of the fiscal year.

• Expenses should be recognized when revenues are recognized.

What is the purpose of adjusting entries?

• To close the accounting period.

• To record cash transactions.

• To prepare the trial balance.

• To ensure that the revenue recognition and expense recognition principles are followed.

Which of the following is true about cash-basis accounting?

• It is the preferred method for large companies.

• Expenses are recognized when cash is paid.

• Revenues are recognized when services are performed.

• It is in accordance with GAAP.

What are interim periods?

• Only annual periods.

• Monthly and quarterly time periods.

• Periods longer than a year.

• Periods that do not require financial statements.

What is the five-step revenue recognition process used for?

• To prepare the trial balance.

• To calculate expenses.

• To recognize revenue when performance obligations are satisfied.

• To determine cash flow.

What is the primary reason for adjusting entries?

• To ensure the trial balance is balanced.

• To ensure accurate cash flow.

• To ensure financial statements are prepared accurately.

• To record all cash transactions.