Accounting Principles Quiz

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Questions and Answers

What is the primary distinction between prepayments and accruals in accounting?

Prepayments record expenses before cash payment, while accruals record revenues after cash receipt.

Prepayments defer expenses or revenues, while accruals recognize expenses or revenues before cash transactions. (correct)

Prepayments involve recording cash before expenses, while accruals require cash settlements after revenues.

Prepayments occur after revenue is earned, while accruals define expenses that are paid later.

Which of the following is NOT a category of adjusting entry?

Estimated liabilities (correct)

Prepaid expenses

Accrued expenses

Unearned revenues

What do accrued revenues represent?

Revenue received before it is earned.

Revenue earned after cash has been paid.

Revenue that has been earned but not yet received in cash. (correct)

Revenue that has not yet been recognized, regardless of cash receipt.

How do prepaid expenses generally affect financial reporting?

They postpone the recognition of an expense to future periods. Signup and view all the answers

Which category of adjusting entry involves the gradual reduction of asset value over time?

Depreciation of non-current assets Signup and view all the answers

What defines an unadjusted trial balance?

It omits various transactions. Signup and view all the answers

What is the primary reason for making adjusting entries?

To assign revenues and expenses to the correct period. Signup and view all the answers

Which asset account is specifically mentioned as needing adjustment due to usage?

Supplies Signup and view all the answers

Which of the following is NOT a characteristic of adjusting entries?

They must include cash transactions. Signup and view all the answers

Which type of balance measurement is impacted by making adjustments?

Profit or loss in the income statement. Signup and view all the answers

What action should be taken when an account has accrued or prepaid amounts?

Journalise the stated amount to the specific account. Signup and view all the answers

What does the end-of-period process of adjusting accounts ensure?

Financial statements reflect accurate asset and liability balances. Signup and view all the answers

What is likely true about the supplies account as discussed in the context?

A portion of the supplies must be accounted for as an expense. Signup and view all the answers

What is the total amount of assets listed in the unadjusted trial balance?

$79,000 Signup and view all the answers

Which type of account does 'Accounts payable' represent?

Liability Signup and view all the answers

How much is Sheena Bright's capital at the beginning?

$33,200 Signup and view all the answers

What is the balance for 'Service revenue' in the unadjusted trial balance?

$7,000 Signup and view all the answers

Which of the following represents a non-current asset?

Furniture Signup and view all the answers

What is the combined total of 'Salary expense' and 'Electricity and gas expense'?

$1,800 Signup and view all the answers

Which of the following accounts is not affected by the depreciation of assets?

Prepaid rent Signup and view all the answers

What is the amount of unearned service revenue in the unadjusted trial balance?

$600 Signup and view all the answers

What is the closing balance for accounts receivable?

2,600 Signup and view all the answers

What is the total amount for owners' equity as represented by Sheena Bright's capital and drawings?

34,200 Signup and view all the answers

How much was deducted from the supplies account due to an adjusted entry?

100 Signup and view all the answers

What is the closing balance for accumulated depreciation on the furniture?

300 Signup and view all the answers

What was the beginning balance for loans payable?

20,000 Signup and view all the answers

Which account had a closing balance of 400 after adjusting entries?

Unearned service revenue Signup and view all the answers

What is the opening balance for cash?

4,800 Signup and view all the answers

How much was added to accounts payable in the ledgers?

900 Signup and view all the answers

What is created when a business collects cash from customers in advance of performing work?

Unearned revenue Signup and view all the answers

What does unearned revenue represent for a business?

Cash paid but not yet earned Signup and view all the answers

Which entry is made when cash is collected for unearned revenue?

Cash (A+) increases and Unearned Service Revenue (L+) increases Signup and view all the answers

What does a business owe when it has unearned revenue?

Products or services to the customer Signup and view all the answers

What happens to unearned service revenue once the service is completed?

It is recognized as revenue Signup and view all the answers

Why are unearned revenues also referred to as deferred revenues?

They are delayed revenues until the service is provided Signup and view all the answers

What might be an indicator of unethical practices related to journal entries?

Inaccurate invoices and contracts Signup and view all the answers

When recording unearned revenue, what effect does the transaction have on the accounting equation?

Assets increase and liabilities increase Signup and view all the answers

What type of account is Accumulated depreciation—furniture?

Contra asset account Signup and view all the answers

How does Accumulated depreciation—furniture affect the balance sheet?

It is subtracted from the furniture account Signup and view all the answers

What does the net amount of furniture represent?

Total cost of furniture minus accumulated depreciation Signup and view all the answers

If the accumulated depreciation—furniture expense is $300, what would be the new balance in Accumulated depreciation—furniture?

$300 Signup and view all the answers

Which accounts appear on the balance sheet related to furniture?

Furniture and Accumulated depreciation—furniture Signup and view all the answers

If the original cost of the furniture was $18,000, what would be the carrying value after accounting for $300 in accumulated depreciation?

$17,700 Signup and view all the answers

What does the abbreviation 'Bal' stand for in the account balances?

Balance forward Signup and view all the answers

In what section of the balance sheet would accumulated depreciation—furniture be reported?

Non-current assets Signup and view all the answers

Study Notes

Accrual vs. Cash-basis Accounting

Accrual accounting records the impact of each transaction as it occurs.
Cash-basis accounting only records cash receipts and cash payments.
Most businesses use the accrual method.

Adjusting Entries

Adjusting entries are used to ensure financial statements accurately reflect the period's activities.
Adjusting entries never involve the Cash account.
Adjusting entries either increase revenue (credit) or increase expenses (debit).
Prepayments, or deferrals, involve cash payments or receipts before recognizing revenue or expense.
- Example: Prepaid rent
Accrued expenses occur when an expense is incurred before cash payment is made
- Example: Salaries
Accrued revenues occur when revenue is earned before cash is received
- Example: Performing services but not yet receiving payment
Unearned revenues reflect cash received before a service or product is delivered or earned.

Adjusting Entry Types

Prepaid expenses
Depreciation of Non-current Assets
Accrued Expenses
Accrued Revenues
Unearned Revenues

Depreciation

Depreciation is the allocation of the cost of a non-current asset over its useful life.
Accumulated depreciation is a contra-asset account (opposite balance to asset).
Depreciation expense increases the expense account and decreases accumulated depreciation

Trial Balance

A trial balance lists all accounts with their debit and credit balances to ensure debits and credits are equal.
An unadjusted trial balance is created before adjusting entries are performed.
An adjusted trial balance is created after adjusting entries are performed.

Financial Statements

Balance sheet
Income statement
Owners' equity statement

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Description

Test your knowledge on key accounting principles, including accrual vs. cash-basis accounting and the importance of adjusting entries. This quiz covers different types of adjusting entries and their impact on financial statements.