CHAPTER 3: THE ADJUSTING PROCESS
1. The system of accounting where revenues are recorded when they are earned and expenses are recorded when
they are incurred is called the cash basis of accounting.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. Generally accepted accounting principles require accrual-basis accounting.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
3. The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 3: The Adjusting Process
4. The matching concept requires expenses be recorded in the same period that the related revenue is recorded.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
5. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
6. An example of deferred revenue is Unearned Rent.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
7. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 3: The Adjusting Process
8. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.07 - Adjusting Entries
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. Proper reporting of revenues and expenses in a period is due to the accounting period concept.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
10. The revenue recognition concept requires that the reporting of revenue be included in the period when cash for
the service is received.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 3: The Adjusting Process
11. Revenues and expenses should be recorded in the same period to which they relate.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
12. The matching concept supports matching expenses with the related revenues.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
13. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis
of accounting.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.3-01 - 3-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1. The system of accounting where revenues are recorded when they are earned and expenses are recorded when
they are incurred is called the cash basis of accounting.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. Generally accepted accounting principles require accrual-basis accounting.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
3. The revenue recognition concept states that revenue should be recorded in the same period as the cash is received.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 3: The Adjusting Process
4. The matching concept requires expenses be recorded in the same period that the related revenue is recorded.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
5. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
6. An example of deferred revenue is Unearned Rent.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
7. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 3: The Adjusting Process
8. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.07 - Adjusting Entries
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. Proper reporting of revenues and expenses in a period is due to the accounting period concept.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
10. The revenue recognition concept requires that the reporting of revenue be included in the period when cash for
the service is received.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 3: The Adjusting Process
11. Revenues and expenses should be recorded in the same period to which they relate.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
12. The matching concept supports matching expenses with the related revenues.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.03-01 - 03-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
13. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis
of accounting.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: ACCT.WARD.16.3-01 - 3-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
