Multiple Choice
1. The revenue recognition principle state that:
a. Expenses should be matched with revenues
b. Revenue should be recognized in the accounting period in which a performance
obligation is satisfied
c. The fiscal year should correspond with the calendar year
d. The economic life of a business can be divided into artificial time periods.
2. Accumulated Depreciation is a(n):
a. Expense account.
b. Stockholders’ equity account.
c. Liability account.
d. Contra asset account.
3. If a business has received cash in advance of services performed and credits a liability
account, the adjusting entry needed after the services are performed will be:
a. Debit Unearned Service Revenue and credit Cash.
b. Debit Unearned Service Revenue and credit Service Revenue.
c. Debit Unearned Service Revenue and credit Prepaid Expense.
d. Debit Unearned Service Revenue and credit Accounts Receivable.
4. A law firm has billed their clients for services performed. They subsequently received
payments from their clients. What entry will the law firm make upon receipt of the
payments?
a. Debit Unearned Service Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue
5. The expense recognition principle matches:
a. Customers with businesses.
b. Expenses with revenues.
c. Assets with liabilities.
d. Creditors with businesses.
6. Which of the following is not one of the three forms of business organization?
a. Corporations
b. Partnerships
c. Proprietorships
d. Investors
7. The liability created by a business when it purchases coffee beans and coffee cups on
credit from suppliers is termed a(n)
a. Account payable.
b. Account receivable.
c. Revenue.
d. Expense.
8. The right to receive money in the future is called a(n)
a. Account payable.
b. Account receivable.
c. Liability.
d. Revenue.
9. The best definition of assets is the
a. Cash owned by the company.
b. Collections of resources belonging to the company and the claims on these resources.
c. Owners’ investment in the business.
d. Resources belonging to a company that have future benefit to the company.
10. To show how successfully your business performed during a period of time, you would
report its revenues and expenses in the
a. Balance sheet.
b. Income statement.
c. Statement of cash flows.
d. Retained earnings statement.
11. In order for investors and creditors to decide whether to invest in a company or loan a
company funds they may
a. Analyze financial statements
b. Focus on corporate governance
c. Both A and B
d. Neither A and B
12. A comparative financial statement
a. Places the balance sheet, the income statement and the statement of cash flows side by
side inorder to compare the results.
b. Places two or more years of a financial statement side by side in order to compare
results
c. Places the financial statements of two or more company side by side in order to
compare results.
d. Places the dollar amounts next to the percentage amounts of a given year for the
income statement.