MUHASEBE I - Deneme Sınavı - 7

Revenues earned by performing a service or delivering goods but not yet recorded at the end of the period are accrued revenues. According to the accrual basis accounting, earned revenues are recorded when they are earned. Any revenues earned but not recorded during an accounting period require an adjusting entry that debits an asset account and credits a revenue account. The correct answer is D.

Some types of services, such as insurance, are normally paid for before they are used. As you learned before, these prepayments are deferrals. Rent, interest, salaries, wages, utilities, etc. are the other examples of accrued expenses over time. Expenses incurred but not yet paid or recorded at the end of the accounting period are accrued expenses. Accrued expenses are the ones that are firstly incurred and not recorded as an expense until a future accounting period. Because of the unnecessity, such kinds of expenses are not required for daily recordings. For that reason, companies do not recognize them until the preparation of financial reports.

The amount of such an accrued but unpaid item at the end of the accounting period is both an expense and a liability. At each statement date, companies make the necessary adjustment entries related with accrued expenses. Before the adjustments, liabilities and expenses are understated. So in adjusting entry, expense account will be debited and a liability account will be credited.

The correct answer is A.

Book Value of an asset is the depreciable asset’s cost minus the asset’s accumulated depreciation.  The correct answer is A.

In accrual basis accounting, companies record revenues when they perform services (rather than when they receive cash) and record expenses when they are incurred (rather than when paid). The correct answer is D.

In cash basis accounting, companies record revenues when they receive the cash and they record expenses when the cash is paid.

In accrued revenue, revenue is recognized before the cash is received. The correct answer is E.

In accrued expense, expense is recognized before the cash is paid. The correct answer is E.

The two basic categories of adjustments can be divided into four different types as follows:

1. Deferred (Prepaid) Expenses

2. Deferred (Unearned) Revenues

3. Accrued Expenses

4. Accrued Revenues

The correct answer is C.

Value and usefulness of plant assets will decline when the business uses them in its operations. The decline in usefulness of a plant asset is an expense which is called as a depreciation expense. The correct answer is c.

Straight-line depreciation method allocates an equal amount of depreciation for each period. The correct answer is A.

Revenue is the gross increase in owner’s
equity from delivering goods or services to
customers and clients.

Expense is the cost of assets consumed or
services used during the revenue earning
process.

If cash is received in advance, a liability account will be used as a correspondence to cash account, a liability account called deferred revenue is used as a correspondence to cash account.

In accrued revenue, revenue is recognized
before the cash is received.

In deferred expense (prepaid expense),
expense is recognized after the cash is paid.

In accrued expense, expense is recognized
before the cash is paid.

Book Value of an asset is the depreciable
asset’s cost minus the asset’s accumulated
depreciation.

In cash basis accounting, companies record revenues when they receive the cash and they record expenses when the cash is paid. Cash basis accounting records only cash transactions—cash receipts and cash payments. Basically, it is a simple method. But it prevents businesses from being cautious. Companies adopting cash basis accounting focus only transactions involving cash. Those with no monetary input are not taken into consideration. It is possible to say that cash basis accounting is mostly used by small businesses.

The time-period concept (or alternatively periodicity concept) assumes that unlimited economic life of a company will be divided into artificial time periods and that financial statements can be prepared for specific periods such as a month, quarter, or year.