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