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The accounting principle that requires revenue to be recorded when earned is the: a) Matching principle. b) Revenue recognition principle c) Time p...


The accounting principle that requires revenue to be recorded when earned is the:

a)      Matching principle.

b)      Revenue recognition principle

c)       Time period assumption

d)      Accrual reporting principle

e)      Going-concern assumption

2. Adjusting entries:

a)      Affect only income statement accounts

b)      Affect only balance sheet accounts

c)       Affect both income statement and balance sheet accounts

d)      Affect only cash flow statement accounts

e)      Affect only equity accounts

3. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

a)      Recognition principle

b)      Cost principle

c)       Cash basis of accounting

d)      Matching principle

e)      Time period principle

4. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

a)      Cash basis accounting

b)      The matching principle

c)       The time period assumption

d)      Accrual basis accounting

e)      Revenue basis accounting

5. Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:


a)      Items that require contra accounts

b)      Items that require adjusting entries

c)       Asset and equity

d)      Asset accounts

e)      Income statement accounts

6. The accrual basis of accounting:

a)      Is generally accepted for external reporting because it is more useful than cash basis for most business decisions

b)      Is flawed because it gives complete information about cash flows

c)       Recognizes revenues when received in cash

d)      Recognizes expenses when paid in cash

e)      Eliminates the need for adjusting entries at the end of each period


7. Which of the following statements is incorrect?

a)      Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities

b)      Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded

c)       Adjusting entries can be used to record both accrued expenses and accrued revenues

d)      Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time

e)      Adjusting entries affect the cash account

8. An adjusting entry could be made for each of the following except:

a)      Prepaid expenses

b)      Depreciation

c)       Owner withdrawals

d)      Unearned revenues

e)      Accrued revenues

9. A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

a)      Understate net income by $28,000

b)      Overstate net income by $28,000

c)       Have no effect on net income

d)      Overstate assets by $28,000

e)      Understate assets by $28,000


10. If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

a)      Assets overstated and equity understated

b)      Assets and equity both understated

c)       Assets overstated, net income understated, and equity overstated

d)      Assets, net income, and equity understated

e)      Assets, net income, and equity overstated