1Expense recognition principle
business expenses should be recognized in the same period as the revenues associated with those expenses
2Your company receives advance payment in October for services that are provided during
November. Which of the following statements is correct?
A) A liability is recorded in October and revenue will be recorded in November.
B) Revenue is recorded in October and an expense will be recorded in November.
C) An expense is recorded in October and revenue will be recorded in November.
D) Revenue and expenses are recorded in October.
A
322. Which of the following would eventually cause Retained Earnings to increase?
A) Receiving cash for services provided in a prior month
B) Incurring utilities that will be paid for next month
C) Receiving cash for services to be provided next month
D) Performing services for which cash will be received next month
D
4investing activities vs financing activities
Investing activities refer to earnings or expenditures on long-term assets, such as equipment and facilities, while financing activities are the cash flows between a company and its owners and creditors from activities such as issuing bonds, retiring bonds, selling stock or buying back stock.
528. Investing activities on the statement of cash flows arise from transactions:
a. with lenders, borrowing and repaying cash.
b. with stockholders, selling company stock and paying dividends.
c. directly related to running the business to earn profits.
d. related to buying or selling productive resources with long lives.
D
615. What does the current ratio measure?
A) The relative proportion of current versus noncurrent assets
B) Whether current assets are sufficient to pay current liabilities
C) The speed which current assets can be converted to cash
D) Whether cash is sufficient to pay current liabilities
B
76. Which of the following is an operating activity?
A) Billing customers for services rendered but not yet paid for
B) Paying off a loan to the bank
C) Purchasing equipment for cash
D) Receiving cash investments from owners
A
84. Which of the following are the three basic elements of the balance sheet?
A) Assets, liabilities, and retained earnings.
B) Assets, liabilities, and common stock.
C) Assets, liabilities, and revenues.
D) Assets, liabilities, and stockholders' equity.
D