Multiple Choice
1) On December 15 of the current year, Conrad Accounting
Services signed a $40,000 contract with a
client to provide bookkeeping services to the client in the
following year. Which accounting principle
would require Conrad Accounting Services to record the
bookkeeping revenue in the following year and
not the year the cash was received?
• Going-concern assumption.
• Monetary unit assumption.
• Revenue recognition principle.
• Business entity assumption.
• Cost principle.
2) On January 1, a company purchased a five-year insurance
policy for $1,800 with coverage starting
immediately. If the purchase was recorded in the Prepaid
Insurance account, and the company
records adjustments only at year-end, the adjusting entry at
the end of the first year is
• Debit Insurance Expense, $360; credit Prepaid Insurance,
$360.
• Debit Prepaid Insurance, $1,440; credit Insurance Expense,
$1,440.
• Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
• Debit Prepaid Insurance, $360; credit Insurance Expense,
$360.
• Debit Insurance Expense, $360; credit Prepaid lnsurance,
$1,440.
3) Prior to recording adjusting entries, the Office Supplies
account had a $359 debit balance. A physical
count of the supplies showed $105 of unused supplies
available. The required adjusting entry is:
• Debit Office Supplies $254 and credit Office Supplies
Expense $254.
• Debit Office Supplies $105 and credit Offhce Supplies
Expense $105.
• Debit Office Supplies Expense $105 and credit Office
Supplies $105.
• Debit Ofhce Supplies $105 and credit Supplies Expense
$254.
• Debit Office Supplies Expense $254 and credit Office
Supplies $254.
4) The approach to preparing financial statements based on
recognizing revenues when they are earned
and matching expenses to those revenues is:
• Cash basis accounting
• Accrual basis accounting
• Revenue basis accounting
• The time period assumption
• The matching principle
5) Revenue is properly recognized:
• When the customer makes an order.
• Only if the transaction creates an account receivable.
• When cash from a sale is received.
• Upon completion of the sale or when services have been
performed and the business obtains the right to collect the sales
price.
• At the end of the accounting period.
6) The Superior Company acquired a building for $500,000. The
building was appraised at a value of
$575,000.The seller had paid $300,000 for the building 6 years
ago. Which accounting principle would require Superior to record
the building on its records at $500,000?
• Business entity assumption.
• Cost principle.
• Monetary unit assumption.
• Revenue recognition principle.
• Going-concern assumption.
7) The accounting concept that requires every business to be
accounted for separately from other business
entities, including its owner or owners is known as the:
• Time-period assumption.
• Revenue recognition principle.
• Business entity assumption.
• Going-concern assumption.
• Cost principle.
8) The accounting process begins with:
• Analysis of business transactions and source
documents.
• Preparation of the trial balance.
• Presentation of financial information to
decision-makers.
• Summarizing the recorded effect of business
transactions.
• Preparing financial statements and other reports.
9) The record of all accounts and their balances used by a
business is called a:
• Book of original entry
• Ledger
• Journal
• General Journal
• Balance column journal
10) The rule that requires financial statements to reflect the
assumption that the business will continue
operating instead of being closed or sold, unless evidence
shows that it will not continue, is the:
• Business entity assumption
• Objectivity principle
•Monetary unit assumption
• Going-concern assumption
• Cost Principle
11) Which of the following accounting principles prescribes
that a company record its expenses incurred to generate the revenue
reported?
• Going-concern assumption
• Consideration assumption
• Matching principle
• Business entity assumption
• Cost principle