Test Bank for Accounting, 27th Edition, Carl S. Warren, James M. Reeve Jonathan Duchac
Chapter 3 – The Adjusting Process
| True / False |
| 1. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 2. Generally accepted accounting principles require the accrual basis of accounting. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 3. The revenue recognition principle states that revenue should be recorded in the same period as the cash is received. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 4. The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual |
| 5. The matching principle requires expenses be recorded in the same period that the related revenue is recorded. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 6. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 – Financial Statements |
| 7. An example of deferred revenue is Unearned Rent. a. True b. False ANSWER: True DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual |
| 8. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual |
9. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Understanding
LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
| 10. The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 11. Revenues and expenses should be recorded in the same period to which they relate. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 12. The matching principle supports matching expenses with the related revenues. a. True b. False ANSWER: True DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP |
| 13. The updating of accounts when financial statements are prepared is called the adjusting process. a. True b. False ANSWER: True DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions |
| 14. Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries |
| 15. Adjusting entries affect only expense and asset accounts. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries |
| 16. An adjusting entry would adjust revenue so it is reported when earned and not when cash is received. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries |
17. An adjusting entry would adjust an expense account so the expense is reported when incurred.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
| 18. An adjusting entry to accrue an incurred expense will affect total liabilities. a. True b. False ANSWER: True DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 – Adjusting Entries |
| 19. The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded. a. True b. False ANSWER: False DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual |
| 20. Deferrals are recorded transactions that delay the recognition of an expense or revenue. a. True b. False ANSWER: True DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual |
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