Activity 9 - Adjustment Entries

What are accrued expenses?

• Expenses that have been paid in advance

• Expenses that have been incurred but not yet paid

• Expenses that are never paid

• Expenses that are paid twice

Which of the following is an example of a prepaid expense?

• Rent paid for the next month

• Electricity bill from last month

• Salary for the current month

• Loan interest from last year

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

• To match expenses with revenues in the same period

• To match expenses with assets

• To match revenues with liabilities

• To match expenses with expenses

How are advance receipts treated in accounting?

• As an asset

• As a liability

• As revenue

• As an expense

What does the revenue recognition principle state?

• Revenue should be recognised when cash is received

• Revenue should be recognised when it is earned

• Revenue should be recognised when expenses are paid

• Revenue should be recognised at the end of the year

Which of the following is NOT an accrued expense?

• Unpaid wages

• Unpaid utility bills

• Prepaid insurance

• Unpaid interest

Why is it important to account for prepaid expenses?

• To overstate expenses

• To ensure expenses are recorded in the correct period

• To avoid paying taxes

• To increase liabilities

What is the effect of recognising revenue too early?

• It understates income

• It overstates income

• It has no effect on income

• It understates expenses

Which principle ensures that expenses are recorded in the same period as the revenues they help to generate?

• Revenue recognition principle

• Matching principle

• Cost principle

• Consistency principle

What happens to advance receipts when the service is provided?

• They remain as a liability

• They are converted to revenue

• They are converted to an asset

• They are written off