MUHASEBE I

Matching Principle (Expense recognition principle) means that you will record the expenses at the same time with the revenues related with these expenses are recorded. The correct answer is B.

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

In deferred revenue, revenue is recognized after the cash is received. The correct answer is C.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less than its residual value. The correct answer is E.

Deferred expenses (prepaid expenses) are advance payments of future expenses. The correct answer is E.

Residual value is the expected value of the plant asset at the end of its useful life. The correct answer is D.

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.

Residual value is the expected value of the plant asset at the end of its useful life. The correct answer is B.

The company has journalized and posted all adjusting entries. Next, it prepares another trial balance from the ledger accounts. This is called an adjusted trial balance. An adjusted trial balance is a list of all the accounts with their adjusted balances. The purpose is to ensure that total debit balances are equal to total credit balances in the ledger after all adjustments. Adjusted trial balance is the last step to prepare financial statements. So, we can say that adjusted trial balance is the basis for the preparation of financial statements. Financial statements are prepared from the adjusted trial balance. The correct answer is B.

The book value represents the cost invested in the asset that the business has not yet expensed or unexpired, in other words, reminder usefulness of plant asset. The correct answer is A.

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

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.