CBAD 201 FINAL - CHAPTER 3 (OBJ
1,2,3,5) EXAM QUESTIONS AND
ANSWERS GRADED A+ 2025/2026
What is accrual accounting? - ANS Accrual accounting records the impact of a business
transaction as it occurs, regardless of cash flow.
What does cash-basis accounting record? - ANS Cash-basis accounting records only cash
transactions—cash receipts and cash payments.
What principle do Generally Accepted Accounting Principles (GAAP) require? - ANS GAAP
requires accrual accounting.
When is revenue recorded in accrual accounting? - ANS Revenue is recorded when it is
earned, not necessarily when cash is received.
What is the impact of making a sale on account in accrual accounting? - ANS Making a sale
on account increases wealth by the difference between the sale price and the cost of inventory.
What happens when cash is collected later after a sale on account? - ANS Collecting cash
later merely swaps receivable for cash; it does not create wealth.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, What is a major issue with cash-basis accounting? - ANS It can lead to incomplete
information, affecting decision-making.
What is the consequence of not recording a sale on account in cash-basis accounting? -
ANS The balance sheet will understate assets because accounts receivable will not be
recorded.
How does cash-basis accounting affect the income statement? - ANS Ignoring sales on
account understates revenue and net income.
What is the time-period concept in accounting? - ANS The time-period concept ensures
accounting information is reported at regular intervals.
What is the basic accounting period for most businesses? - ANS The basic accounting period
is one year.
What fiscal year do most retailers use? - ANS Most retailers use a fiscal year that ends on or
near January 31.
What is the revenue principle? - ANS The revenue principle determines when to record
revenue and what amount to record.
When should revenue be recognized according to the revenue principle? - ANS Revenue
should be recognized after it has been earned.
What are some examples of cash transactions recorded in accrual accounting? -
ANS Collecting cash from customers, paying salaries, and borrowing money.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
1,2,3,5) EXAM QUESTIONS AND
ANSWERS GRADED A+ 2025/2026
What is accrual accounting? - ANS Accrual accounting records the impact of a business
transaction as it occurs, regardless of cash flow.
What does cash-basis accounting record? - ANS Cash-basis accounting records only cash
transactions—cash receipts and cash payments.
What principle do Generally Accepted Accounting Principles (GAAP) require? - ANS GAAP
requires accrual accounting.
When is revenue recorded in accrual accounting? - ANS Revenue is recorded when it is
earned, not necessarily when cash is received.
What is the impact of making a sale on account in accrual accounting? - ANS Making a sale
on account increases wealth by the difference between the sale price and the cost of inventory.
What happens when cash is collected later after a sale on account? - ANS Collecting cash
later merely swaps receivable for cash; it does not create wealth.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, What is a major issue with cash-basis accounting? - ANS It can lead to incomplete
information, affecting decision-making.
What is the consequence of not recording a sale on account in cash-basis accounting? -
ANS The balance sheet will understate assets because accounts receivable will not be
recorded.
How does cash-basis accounting affect the income statement? - ANS Ignoring sales on
account understates revenue and net income.
What is the time-period concept in accounting? - ANS The time-period concept ensures
accounting information is reported at regular intervals.
What is the basic accounting period for most businesses? - ANS The basic accounting period
is one year.
What fiscal year do most retailers use? - ANS Most retailers use a fiscal year that ends on or
near January 31.
What is the revenue principle? - ANS The revenue principle determines when to record
revenue and what amount to record.
When should revenue be recognized according to the revenue principle? - ANS Revenue
should be recognized after it has been earned.
What are some examples of cash transactions recorded in accrual accounting? -
ANS Collecting cash from customers, paying salaries, and borrowing money.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
