Question

1) Deferred revenue occurs when cash is received from a customer before work or the sale is completed.
True
False

2) In accrual accounting, revenue may be earned prior to or after cash is received.
True
False

3)An expense incurred in 2016 is not paid until 2017. Using the accrual basis of accounting, the expense should appear on:

A.both the 2016 and 2017 income statements

B.the 2016 income statement

C.neither the 2016 nor 2017 income statement

D.the 2017 income statement

4) On December 1, 2017, Cream Ale Ltd. receives $1,800 in advance for an agreement to brew beer during the months of December, January, and February. As of December 31, 2017, Cream Ale Ltd:

A)would have recognized $600 cash under accrual accounting, and would have recognized 1,800 cash under cash −basis accounting

B.would have a $0 liability to its client under accrual accounting, and would have a $1,200 liability to its client under cash−basis accounting

C.would have recognized $600 revenue under accrual accounting, and would have recognized $1,800 revenue under cash−basis accounting

D. would have a $1,200 liability to its client under accrual accounting, and would have a $1,800 liability to its client under cash−basis accounting


5)A deferral refers to an​ event:

A.where the recognition of an expense or revenue is recorded after the cash is paid or received

B.where the recognition of an expense or revenue is recorded before the cash is paid or received

C.where the liability for an expense is recorded after the expense is actually incurred

D.where the liability for an expense is recorded before the expense is actually incurred


6) Retained earnings for the beginning of a period appears on the statement of retained earnings while the ending balance of retained earnings appears on the statement of retained earnings and the balance sheet.
True
False

Answer 1

Question 1

Answer ---True

Deferred revenue is also called Unearned revenue. Deferred revenue is amount of cash received from customers in advance. This amount can be recorded as revenue only when Supply for goods is done or service is rendered.

Question 2

Answer – True

In accrual accounting revenue is recorded as soon as it is earned. Receipt of cash does not matters. Take example of Interest accrued on an investment on 31^st December when interest will be received with investment after 1 year.

Question 3

Correct Answer--- (B) the 2016 income statement

As per Accrual accounting expenses are recognized in the year they are incurred. Expense of 2016 will be shown in 2016 income statement with a corresponding liability in 2016 balance sheet.

Question 4

Correct Answer --- C.would have recognized $600 revenue under accrual accounting, and would have recognized $1,800 revenue under cash−basis accounting

Under Cash basis of accounting revenue is recognized when cash is received do $1800 will be recorded as revenue in Cash accounting.

On the other hand in accrual accounting only $600 will be recognized as revenue as service on (1800/3x1) 600 is completed and $1200 will be shown as Unearned revenue.

Question 5

Correct Answer--- A. where the recognition of an expense or revenue is recorded after the cash is paid or received

Deferral means income received in advance and recorded in books when revenue is actually earned such as advance subscription fee. Similarly deferral of expense means paying an expense in advance and charging it to income statement when expense is actually incurred such as prepaid insurance.

Question 6

Answer---True

Balance sheet shows ending balances of accounts . Ending balance of Retained earnings as taken from Retained earnings statement is shown in Shareholder’s equity part of balance sheet.