ACC 501 Exam Practice Questions with Complete
Solutions
What are accrued expenses?
Accrued expenses are current liabilities that record expenses incurred before cash is paid, often
without an invoice.
How are accrued expenses recorded?
Accrued expenses are recorded by an adjusting entry at the end of the period.
In the Accrued Expenses Example #1, what was the amount of employee salaries accrued at
the end of Year 1?
$1,900.
What is the difference between deferrals and accruals?
Deferrals recognize revenue or expense after cash is exchanged, while accruals recognize
expenses before cash is paid.
What is a prepaid expense?
A prepaid expense is a current asset account that recognizes costs paid in advance for goods or
services to be used in the future.
What adjusting entry is needed for prepaid expenses at the end of the year?
An adjusting entry is needed to recognize the expense incurred in that year.
What is unearned revenue?
, Unearned revenue is a current liability account that records cash received for goods or services to
be provided in the future.
What entry is recorded when cash is received for unearned revenue?
The cash receipt is recorded as a liability when received.
In the Unearned Revenue Example #1, what is the balance of deferred revenue at the end
of Year 1?
$6,000.
How much revenue is recognized in Year 1 for unearned revenue in Example #2?
$6,000.
What is the formula for calculating supplies expense?
Beginning Supplies + Supplies Purchased - Supplies Used = Ending Supplies.
In Supplies Example #1, what would be the supplies expense for Year 1?
$3,200.
What is the balance of prepaid insurance at the end of Year 1 in Prepaid Expense Example
#1?
$1,386.
What is the net operating cash flow for Year 2 in Prepaid Expense Example #1?
$1,656.
What is the balance of prepaid rent at the end of Year 1 in Prepaid Expense Example #2?
Solutions
What are accrued expenses?
Accrued expenses are current liabilities that record expenses incurred before cash is paid, often
without an invoice.
How are accrued expenses recorded?
Accrued expenses are recorded by an adjusting entry at the end of the period.
In the Accrued Expenses Example #1, what was the amount of employee salaries accrued at
the end of Year 1?
$1,900.
What is the difference between deferrals and accruals?
Deferrals recognize revenue or expense after cash is exchanged, while accruals recognize
expenses before cash is paid.
What is a prepaid expense?
A prepaid expense is a current asset account that recognizes costs paid in advance for goods or
services to be used in the future.
What adjusting entry is needed for prepaid expenses at the end of the year?
An adjusting entry is needed to recognize the expense incurred in that year.
What is unearned revenue?
, Unearned revenue is a current liability account that records cash received for goods or services to
be provided in the future.
What entry is recorded when cash is received for unearned revenue?
The cash receipt is recorded as a liability when received.
In the Unearned Revenue Example #1, what is the balance of deferred revenue at the end
of Year 1?
$6,000.
How much revenue is recognized in Year 1 for unearned revenue in Example #2?
$6,000.
What is the formula for calculating supplies expense?
Beginning Supplies + Supplies Purchased - Supplies Used = Ending Supplies.
In Supplies Example #1, what would be the supplies expense for Year 1?
$3,200.
What is the balance of prepaid insurance at the end of Year 1 in Prepaid Expense Example
#1?
$1,386.
What is the net operating cash flow for Year 2 in Prepaid Expense Example #1?
$1,656.
What is the balance of prepaid rent at the end of Year 1 in Prepaid Expense Example #2?
