Accounting : The Adjusting Process

Study concepts, example questions & explanations for Accounting

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Example Questions

Example Question #1 : The Adjusting Process

Which of the following statements is correct regarding accrual accounting?

Possible Answers:

Expenses are reported when they are paid

It is the same as the cash basis of accounting

Revenue is reported when it is earned

Revenue is reported when payment is received

Correct answer:

Revenue is reported when it is earned

Explanation:

Under the accrual basis of accounting, revenue is recognized when it is earned, not when payment is received, and expenses are recognized when they are incurred, not when they are paid for. It is not the same as the cash basis, which recognizes revenue and expenses in the period that payments are made and received.

Example Question #2 : The Adjusting Process

Which of the following statements is correct regarding accrual accounting?

Possible Answers:

Revenue is reported when it is earned

Revenue is reported when payment is received

It is the same as the cash basis of accounting

Expenses are reported when they are paid

Correct answer:

Revenue is reported when it is earned

Explanation:

Under the accrual basis of accounting, revenue is recognized when it is earned, not when payment is received, and expenses are recognized when they are incurred, not when they are paid for. It is not the same as the cash basis, which recognizes revenue and expenses in the period that payments are made and received.

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