Chapter 3—The Adjusting Process

TRUE/FALSE

1. The system of accounting where revenues are recorded when they are earned and expenses are recorded
when they are incurred is called the cash basis of accounting.

ANS: F PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-04-Cash vs. Accrual

2. Generally accepted accounting principles require accrual-basis accounting.

ANS: T PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP

3. The revenue recognition concept states that revenue should be recorded in the same period as the cash is
received.

ANS: F PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP

4. The matching concept requires expenses be recorded in the same period that the related revenue is
recorded.

ANS: T PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP

5. The financial statements measure precisely the financial condition and results of operations of a business.

ANS: F PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-09-Financial Statements

6. An example of deferred revenue is Unearned Rent.

ANS: T PTS: 1 DIF: Easy OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-04-Cash vs. Accrual

7. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been
earned.

ANS: T PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-04-Cash vs. Accrual

8. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability
account.

ANS: F PTS: 1 DIF: Moderate OBJ: 03-01

NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-07-Adjusting Entries

9. Proper reporting of revenues and expenses in a period is due to the accounting period concept.
ANS: T PTS: 1 DIF: Moderate OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP