Question

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Indicate whether each of the following statements is true or false:

• a.

  Under the accrual basis of accounting, when cash is collected on accounts receivable, revenue is recorded.

• b.

  Cash receipts from customers are debited to Accounts Receivable.

• c.

  The cash basis of accounting recognizes expenses when they are incurred.

• d.

  Under the cash basis of accounting, there is no such thing as a Prepaid Expenses account.

• e.

  Asset accounts and expense accounts normally have debit balances.

• f.

  Credits increase asset accounts.

• g.

  Revenues are recorded with credit entries.

• h.

  Dividends are an expense of doing business and should appear on the statement of income.

Answer 1

1) Under the accrual basis of accounting, when cash is collected on accounts receivable, revenue is recorded

Solution: FALSE

Explanation: Under accrual-basis accounting, revenue is recorded when the services are performed, regardless of when the cash is received

2) Cash receipts from customers are debited to Accounts Receivable

Solution: FALSE

Explanation: Cash received from a customer in payment of its account is credited to the Accounts Receivable

3) The cash basis of accounting recognizes expenses when they are incurred.

Solution: FALSE

Explanation: Accrual-basis accounting recognizes expenses when they are incurred

4) Under the cash basis of accounting, there is no such thing as a Prepaid Expenses account.

Solution: TRUE

Explanation: Under the cash basis of accounting, no adjustments are made for accrued, prepaid and unearned items

5) Asset accounts and expense accounts normally have debit balances

Solution: TRUE

Explanation: Assets, losses, and expenses account will normally have debit balances

6) Credits increase asset accounts

Solution: FALSE

Explanation: A credit is an accounting entry that either decreases an asset or expense account, or increases equity or a liability account

As per norms can answer first four parts