ACCT 1080 Chapter 3 Tue/False accrual accounting, transactions are recorded only when cash is received or paid. In cash basis accounting, revenue is recognized when cash is received and expenses are recognized when they are paid. 3) The Generally Accepted Accounting Principles (GAAP) requires the use of accrual accounting 4) The revenue recognition principle is the basis for recording revenues-both when to record revenue 4) and the amount of revenue to record. 5) Accrued revenues are the income that has been received but not earned. 6) Prepaid rent is an expense account, and hence it appears on the 7) In the case of a prepaid expense, the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account. Assume the prepaid expense was initially recorded as an asset. in the case of unearned revenue, the cash is received first,and the revenue is earned later 9) In the case of unearned adj Service Revenue. Assume the unearned revenue is initially recorded as a liability. revenue, the adjusting entry at the end of the period includes a credit to 10) On January 1, Smith had $2,000 of supplies on hand. During lanuary, Smith purchased $4,000 worth of new supplies. At the end of the month, shelves. The adjustment entry needed will include a debit to Supplies Expense of $5,000. The su were initially recorded as an asset a count revealed $1,000 worth of supplies remaining on the 11) Smith owns manufacturing equipment that was bought for $12,600. It has an estimated useful life of 7 years. Simith should record depreciation expense of $100 per month. 12) Argyle Designs has entered into a contract to design 20 new dresses for a customer. It will total of $40,000 after the design services are complete. Argyle started design w 30, Argyle finished 4 of the 20 designs. Argyle will make an adjusting entry at the end of June to accrue $10,000 of service revenue collect ork on June 1. As of June a 12) 13) 13) An adjusted trial balance does not list the revenues and expenses of a business. 14) 14) If a company fails to make an adjusting entry for accrued revenues, the net income will be overstated. 15) 15) If a company fails to make an adjusting entry for prepaid expense, Assume the prepaid expense is initially recorded as an asset. the assets will be overstated