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Questions and Answers
Which of the following events would be recorded under the accrual basis of accounting?
Which of the following events would be recorded under the accrual basis of accounting?
- Cash sale of merchandise
- Recognition of interest revenue earned but not yet received (correct)
- Purchase of office supplies on credit
- Payment of salaries for the current month
In financial accounting, which of the following best describes the term 'amortization'?
In financial accounting, which of the following best describes the term 'amortization'?
- Increasing the value of an asset over time
- Spreading the cost of an intangible asset over its useful life (correct)
- Allocating the cost of a natural resource over its estimated useful life
- Recording the reduction in value of a liability over time
Which of the following is an essential financial statement used to assess the financial position of a company?
Which of the following is an essential financial statement used to assess the financial position of a company?
- Statement of changes in equity
- Statement of cash flows
- Income statement (correct)
- Notes to the financial statements
What is the effect of recording an expense on the accounting equation?
What is the effect of recording an expense on the accounting equation?
Which financial statement reports the financial performance of a company over a specific period of time?
Which financial statement reports the financial performance of a company over a specific period of time?
Which of the following is a characteristic of an intangible asset?
Which of the following is a characteristic of an intangible asset?
When preparing financial statements, which of the following inventory valuation methods assumes that the cost of the latest items purchased is the cost of goods sold?
When preparing financial statements, which of the following inventory valuation methods assumes that the cost of the latest items purchased is the cost of goods sold?
What is the impact on the financial statements when a company capitalizes an expenditure as an asset instead of expensing it immediately?
What is the impact on the financial statements when a company capitalizes an expenditure as an asset instead of expensing it immediately?
Which of the following is a characteristic of a contingent liability?
Which of the following is a characteristic of a contingent liability?
Study Notes
Accrual Basis of Accounting
- Events that would be recorded under the accrual basis of accounting include revenues and expenses that have been earned or incurred, but not yet received or paid.
Amortization
- Amortization is the process of allocating the cost of an intangible asset over its useful life.
Financial Statements
- The balance sheet is an essential financial statement used to assess the financial position of a company.
Accounting Equation
- Recording an expense decreases assets or increases liabilities, which in turn decreases equity.
Financial Performance
- The income statement reports the financial performance of a company over a specific period of time.
Intangible Assets
- A characteristic of an intangible asset is that it lacks physical existence.
Inventory Valuation
- The Last-In, First-Out (LIFO) method assumes that the cost of the latest items purchased is the cost of goods sold.
Capitalizing Expenditure
- Capitalizing an expenditure as an asset instead of expensing it immediately increases assets and equity, and does not affect net income in the current period.
Contingent Liability
- A characteristic of a contingent liability is that it is a potential liability that may arise depending on the outcome of a future event.
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Description
Prepare for your diagnostic exam with this multiple-choice reviewer in Financial Accounting and Reporting. Each question comes with a solution and answer to help you test and strengthen your knowledge.
