Essay Questions
86. Kelly Company uses accrual accounting. Indicate whether each of the following statements regarding Kelly's accounting system is true or false.
_____ a) The recognition of accounting events and the realization of cash consequences may occur in different accounting periods.
_____ b) The cash consequence of a transaction always precedes its accounting recognition.
_____ c) Recognition is an act of recording an event in the financial statements.
_____ d) The term accrual applies to events that are recognized after the associated cash is paid or collected.
_____ e) Kelly is not permitted to make cash sales.
87. Whitmore Co. performed services for a customer on account. Indicate whether each of the following statements about this transaction is true or false.
_____ a) Assets and equity both increase when the revenue is recognized.
_____ b) This transaction did not affect cash flows.
_____ c) The company recorded an increase in revenue and a decrease in accounts receivable.
_____ d) Recognition of revenue would be delayed until cash was received.
_____ e) This transaction is an example of an asset source transaction.