Adjusting The Accounts Learning Objectives 3-1

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18 Questions

Which accounting principle states that efforts (expenses) should be matched with results (revenues)?

What does the time period assumption state in accounting?

What is the purpose of accrual-basis accounting?

What is the concept behind the expense recognition principle?

In accrual-basis accounting, when are expenses typically recognized?

What does the revenue recognition principle focus on?

What is the main purpose of the time period assumption in accounting?

In accrual-basis accounting, when are transactions recorded?

According to accrual-basis accounting, when should revenue be recognized?

What is the purpose of matching expenses with revenues in accounting?

Why do most large companies prepare both quarterly and annual financial statements?

What is the fiscal year in accounting?

Which of the following statements about the accrual basis of accounting is true?

Why are adjusting entries necessary in accounting?

What principle guides revenue recognition in accounting?

When should expenses be recognized according to accounting standards?

Which of the following is NOT consistent with generally accepted accounting principles (GAAP)?

What is the primary purpose of ensuring that balance sheet and income statement accounts have correct balances through adjusting entries?

Summary

  • Accountants use the accrual basis of accounting to record transactions when they occur, not necessarily when cash is exchanged.
  • Adjusting entries are necessary to ensure that revenue recognition and expense recognition principles are followed accurately.
  • The time period assumption divides the economic life of a business into artificial time periods like months, quarters, or years.
  • Adjusting entries can be categorized into deferrals (prepaid expenses, unearned revenues) and accruals (accrued revenues, accrued expenses).
  • Adjusting entries are essential to update the trial balance with accurate and complete data before preparing financial statements.

Description

Test your knowledge on the accrual basis of accounting, preparing adjusting entries for deferrals and accruals, and understanding the nature of an adjusted trial balance. Explore the reasons for adjusting entries and the Time Period Assumption in accounting.

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