Chapter 3—The Adjusting Process

MULTIPLE CHOICE

16.Generally accepted accounting principles requires that companies use the ____ of accounting.
a cash basis
.
b deferral basis
.
c accrual basis
.
d account basis
.
ANS: C PTS: 1 DIF: Easy OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP

17. The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual
basis of accounting
a records revenues when they are earned and expenses when they are paid
.
b records revenues and expenses when they are incurred.
.
c records revenues when cash is received and expenses when they are incurred.
.
d records revenues and expenses when the company needs to apply for a loan.
.
ANS: B PTS: 1 DIF: Moderate OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-04-Cash vs. Accrual

18. By matching revenues and expenses in the same period in which they incur
a net income or loss will always be underestimated.
.
b net income or loss will always be overestimated.
.
c net income or loss will be properly reported on the income statement
.
d net income or loss will not be determined.
.
ANS: C PTS: 1 DIF: Easy OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-04-Cash vs. Accrual

19. Adjusting entries always include

a only income statement accounts.
.
b only balance sheet accounts.
.
c the cash account.
 .
d at least one income statement account and one balance sheet account.
.
ANS: D PTS: 1 DIF: Moderate OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-07-Adjusting Entries

20. Prepaid expenses are eventually expected to

a become expenses when their future economic value expires.
.
b become revenues when services are performed.
.
c become expenses in the period when they are paid.
.
d become revenues when the liability is no longer owed.
.
ANS: A PTS: 1 DIF: Moderate OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-07-Adjusting Entries