ACC/290T Summative Assessment: Completing the Accounting Cycle Test Questions and Correct Answers.

In which type of business would accrual-basis accounting result in the same income measure as cash-basis accounting? - Answer Small business in which all sales amounts are collected in cash at the time of the sale and all expenses are paid in cash immediately Generally accepted accounting principles (GAAP) require that the financial statements of all publicly traded companies be reported using accrual-basis accounting. What is a correct description of accrual accounting? - Answer Recording revenues and expenses when earned or incurred, not when cash is received or paid A fundamental principle in accounting is that expenses are recognized in the period in which those costs provide benefit to the business in the form of increased revenue. What name is given to this important principle? - Answer Matching principle On May 1, Clark Company paid cash for rent. This payment of the cash was recorded as an asset, Prepaid Rent. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on December 31 with respect to this prepaid rent? - Answer DEBIT to Rent Expense On October 1 of Year 1, Della Company made a cash loan to another company. The interest rate on the loan is 13%. No cash payments will be collected on the loan until September 30 of Year 2. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on Della's books (the LENDER) on December 31 of Year 1 with respect to this loan? - Answer CREDIT to Interest Revenue On September 1 of Year 1, Dee Company received cash for rent in advance. This rental receipt covers the period from September 1 of Year 1 to August 31 of Year 2. This receipt of cash was recorded as a liability, Unearned Rent. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on December 31 of Year 1 with respect to this rent received in advance - Answer CREDIT to Rent Revenue A debate is raging inside the top management team of Millcreek Company. The chief executive officer (CEO) is preparing to take the company's financial statements to a group of private investors in order to raise additional equity financing for the company. The CEO has prepared an income statement which the controller (the head accountant) says is wrong. The controller claims that the CEO has forgotten to report interest expense on a loan Millcreek got last year. The CEO claims that no interest expense should be reported because the interest won't be paid in cash until next year.