ACG 2021 - Chapter 3 Test Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
Accrual Accounting Records the impact of a business transaction as it occurs. Transactions are recorded even if the business does not pay or receive cash.
Cash-basis Accounting Records only cash transactions (cash receipts and payments). Receipts are treated as revenues and payments as expenses.
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ACG 2021 - Chapter 3 Test Questions
and Correct Answers
Accrual Accounting ✅Records the impact of a business transaction as it occurs.
Transactions are recorded even if the business does not pay or receive cash.
Cash-basis Accounting ✅Records only cash transactions (cash receipts and
payments). Receipts are treated as revenues and payments as expenses.
Time-Period Concept ✅Businesses should prepare their financial statements over a
standard period of time.
Revenue Principle ✅Revenue should be recorded when earned.
Five Steps:
1. Identify contract.
2. Identify the separate performance obligations.
3. Identify the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when entity meets performance obligations.
Expense Recognition (Matching Principle) ✅Expenses should be recognized when
incurred and in the same accounting period as related revenues.
Deferral ✅An adjustment for the payment or receipt of cash in advance. Applies to
prepaid expenses and unearned revenues.
Depreciation ✅An adjustment that allocates the cost of a plant asset to expense over
the asset's useful life. The most common long-term deferral.
Plant Assets ✅Long-lived tangible assets, such as land, buildings, furniture,
equipment, etc., All, BUT land, decline in their usefulness over time.
Accrual ✅An adjustment for the earning or incurring of revenues or expenses before
cash has been exchanged.
Accrued Expense ✅A liability that arises from an expense that has been incurred but
not yet paid for.
Accrued Revenue ✅An asset that arises when revenue is earned but not yet collected.
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