Question

1) Under accrual basis accounting, we record revenue when ________.

A) cash is received from customers

B) cash is received for any reason

C) it meets the criteria for revenue recognition

D) a company receives cash from a customer on account

2) Under accrual basis accounting, we record expenses when ________.

A) a company pays cash to a supplier

B) a company incurs a liability

C) a company uses resources

D) a company pays cash to anyone

3) Which of the following is(are) a deficiency(deficiencies) of cash-basis accounting?

A) it omits key revenues and expenses from the balance sheet

B) it fails to match revenues and expenses to measure economic performance

C) it omits key assets and key liabilities from the balance sheet

D) B and C

4) In the United States, Generally Accepted Accounting Principles are developed primarily by ________.

A) International Accounting Standards Board

B) Financial Accounting Standards Board

C) Securities and Exchange Commission

D) International Accounting Federation

5) An audit guarantees that there are absolutely no mistakes in the financial statements. (T / F)

6) Generally Accepted Accounting Principles in the United States are developed by the International Accounting Standards Committee. (T / F)

Answer 1

1)

    c) it meets the criteria for revenue recognition.

The revenue recognition principle using accrual accounting requires that revenues are recognized when realized and earned–not when cash is received. The revenue recognition standard, ASC 606, provides a uniform framework for recognizing revenue from contracts with customers.

2)

b) a company incurs a liability.

The accrual method of accounting is the theory of recording revenues when received and expenses as gained. Accrual method of accounting is the normal approach to recording and maintaining transactions for businesses. This method logs revenues on the income statement when they are received even if the client will pay after period of 30 days.

3)

a) it omits key revenues and expenses from the balance sheet.

Cash basis refers to a major accounting method that recognizes revenues and expenses at the time cash is received or paid out. This contrasts accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when cash is received or paid.

4)

c) Securities and Exchange Commission.

Generally Accepted Accounting Principles (GAAP or U.S. GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC).