Learning Objective 3-1
1) The revenue recognition principle requires that revenue be recognized in the accounting records ________.
A) when cash is received
B) when it is earned
C) at the end of the accounting period
D) in the period the income taxes are paid
2) The term
accounts receivable
is used to describe ________.
A) amounts owed to creditors
B) amounts due from customers as a result of credit sales
C) amounts that have already been collected from customers
D) amounts owed to suppliers
3) Details, Inc. paints a truck on May 31. The customer picks up the truck on June 6 and mails the payment to Details on August 5. Details receives the check in the mail on August 8. When should Details record that the revenue was earned?
A) May 31
B) June 6
C) August 5
D) August 8
4) Sales revenue is usually considered earned when ________.
A) cash is received from credit sales
B) the customer places an order for goods to be shipped
C) goods have been shipped from the seller to the buyer
D) the adjustments are made at the end of the accounting period
5) Net income means the same thing as net ________.
A) expenses
B) revenues
C) cash
D) profit
6) If a company’s expenses for the period are greater than its revenues, then the company will report ________.
A) net income
B) a decrease in cash
C) a net loss
D) both a decrease in cash and a net loss
7) Net income equals ________.
A) revenues minus liabilities
B) assets minus liabilities
C) the change in shareholders’ equity from the beginning of the year to the end of the year
D) revenues minus expenses
8) An accrual is ________.
A) a transaction in which the action comes before the exchange of cash
B) a transaction in which the exchange of dollars comes before the action takes place
C) another term for a deferral
D) recorded when cash is paid in advance of receiving the service
9) Which of the following is a TRUE statement about the matching principle?
A) The matching principle states that expenses should be recognized when cash is paid for an item.
B) The matching principle states that assets must match, or equal, liabilities plus shareholders’ equity.
C) The matching principle states that expenses incurred should be recognized in the same period as revenues earned.
D) The matching principle states that, after adjustments, expenses must equal revenues in each accounting period.
10) Revenue earned on the income statement will always equal Cash collected from customers on the statement of cash flows.