Accrual Accounting Concepts Quiz

What does the term "recognize" mean in accounting?

• To approve a transaction

• To record in financial records

• To identify an expense

• To disclose in footnotes

According to the revenue recognition principle, when should a company recognize revenue?

• When cash is received

• When a performance obligation is satisfied

• When an invoice is sent

• When a contract is signed

What is a performance obligation in accounting?

• A legal requirement to record expenses

• A promise to provide goods or services to a customer

• An agreement to pay expenses

• A company’s revenue target

Which of the following is NOT one of the five steps in the revenue recognition process?

• Identify the contract with the customer

• Determine the transaction price

• Receive cash before performing the service

• Allocate the transaction price to performance obligations

The expense recognition principle requires expenses to be recorded when:

• Cash is paid

• Cash is received

• The related revenue is recognized

• At the end of the accounting period

Under the cash basis of accounting, revenue is recognized when:

• The performance obligation is completed

• A contract is signed

• Cash is received

• Expenses are paid

Which accounting method is recognized under U.S. GAAP?

• Accrual basis

• Cash basis

• Both accrual and cash basis

• Neither accrual nor cash basis

The purpose of adjusting journal entries (AJEs) is to:

• Recognize cash transactions

• Ensure cash payments are accurate

• Close temporary accounts

• Ensure revenues and expenses are recorded in the proper period

Adjusting journal entries must include:

• At least two Income Statement accounts

• At least one Balance Sheet account and one Income Statement account

• A debit to Cash

• A credit to Dividends

Which of the following is true about adjusting journal entries?

• They always include Cash

• They only include Income Statement accounts

• They should never include Cash

• They are prepared after closing entries