True or False?
1. According to IFRS, revenue is recognized when there is a decrease in assets or an increase in liabilities.
2. The normal balance of the accumulated depreciation is always a debit.
3. A company needs to divide the life of its business into accounting periods in order to provide useful and relevant information to the people who use its financial statements.
4. Accumulated depreciation is shown as a deduction from the asset on the company's Balance Sheet.
5. The cost of the asset is depreciated over the physical life of the asset.
6. The cash basis of accounting is more useful than the accrual basis as the balance in the bank account is always reflected in the financial statements.
7. An adjusted trial balance is necessary to prepare financial statements.
8. The accrual basis of accounting is more complex than the cash basis of accounting as it involves such decisions as determining when to record revenues and expenses.
9. The difference between the cost of the asset and its accumulated depreciation is called the “carrying amount” of the asset.
10. Adjusting entries are often made because some business events are not recorded as they occur.
11. The annual depreciation expense is equal to the cost of the asset divided by the useful life of the asset (in years).
12. The straight-line method of depreciation will allocate a portion of the cost of the asset to each year of useful life of the asset.
13. Expense recognition is tied to revenue recognition when there is a direct association between the cost incurred and the earning of revenue.
14. If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.
15. According to IFRS, an expense is recognized when there is an increase in assets or a decrease in liabilities.
16. In the accrual method of accounting, expenses are recognized when the services are used or the goods are consumed, not when the cash is paid.
17. Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
18. Many business transactions will affect more than one accounting period.
19. An adjusting entry always involves two balance sheet accounts.
20. The cash basis of accounting is not in accordance with generally accepted accounting principles.
21. In the accrual basis of accounting, revenue is recognized when the cash for the transaction is received.
22. Accrued expenses are expenses that have been incurred but have not been recorded yet in the records.
23. Adjusting journal entries are only necessary when year end financial statements are prepared.
24. The fiscal year of the company must be the same as a calendar year.
25. Revenue recognition is restricted to situations when the revenue can be reliably measured and a collection is reasonably certain.
26. Accumulated depreciation is a contra asset account.
IFRS refers to the International Financial Reporting Standards and they allow companies to operate in several countries with standardized accounts which can therefore be understood regardless of location.
1. False. There will be an increase in assets and/ or a decrease in liabilities resulting in increased equity.
2. False. It is a credit - a "contra" account which reflects below the asset it relates to.
5. False. It is depreciated over its estimated "useful" life.
6. False. It may work in a small business but the accrual basis reflects the fact that revenue that is earned is recorded regardless of when the actual "cash" is received.
11. False. There are various methods of depreciation
14. False. Prepaid expenses expire as time passes
15. False. There is a decrease in assets and liabilities are incurred
19. False. One will be an Income statement account (revenue or expense) and a balance sheet account (asset or liability account)
21. False. Revenue is recognized when it is earned.
24. False. The fiscal year is one year's duration
1. FALSE. Revenue is recognized when there is an increase in assets and/or decrease in liabilities that eventually make the owner's equity to increase.
2. FALSE. The normal balance of accumulated depreciation is credit, since it is a contra asset account.
3. FALSE. Since a business is established with a view that there is no time span for its existence, hence the accounting period is not made by dividing life but a suitable financial period is selected to analyze the working of company throughout the period, and so that relevant information can be provided.
5. FALSE.The cost of a fixed asset is depreciated over its estimated useful life.
7. Its not necessary that an adjusted trial balance is made, as on undergraduate level one can easily make a financial statement without preparing an adjusted trial balance.
11. TRUE. but this is the only Straight line method, though there are many other methods too.
14. FALSE. Adjusting entries have to be recorded in order to show the increase in expense and decrease in the prepaid cost.
15. FALSE. When there is a decrease in assets and increase in liabilities.
19. FALSE. it is not necessary, since adjusting entries are related to a balance sheet account and an income statement account.
21. FALSE. According to the concept of accounting, revenue is recognized when it is earned, irrespective of when it is received.
22. FALSE. Accrued expenses are expenses that have been incurred but are unpaid and outstanding.
24. the fiscal year of a company maybe starting at any month but includes 12 months.