chapter 3
Income Measurement
goals   discussion   goals achievement  fill in the blanks   multiple choice   problems   check list and key terms

GOALS ACHIEVEMENT

Select the appropriate response.

In general, accountants measure income using an approach based on:

transactions   or   economics

Which concept holds that an organization's life can be divided into discrete accounting periods (months, quarters, years)?

transactions approach   or   periodicity assumption

The periodicity assumption seems practical and logical; however, it introduces allocation problems when dividing the life of a company into specific units of time.

true   or   false

Under the accrual basis of accounting, revenue should be recognized at the time services are rendered or when goods are sold and delivered to a customer.

right   or   wrong

Business expenses should be recognized in the same period as the revenues they helped to produce. This concept is known as the:

matching principle   or   cash basis of accounting

Adjusting entries are necessary to fulfill the goals of proper income measurement and are consistent with the cash basis of accounting.

true   or   false

The recording and accounting for prepaid expenses, depreciation, and similar items is consistent with the adjusting process for:

multiperiod costs and revenues that must be split among two or more accounting periods

   or  

revenues and expenses that have been earned or incurred in a given period but not recorded in the accounts

Revenues and expenses that gradually accumulate throughout an accounting period are known as:

accruals   or   deferrals

An appropriate journal entry to record accrued interest would involve a debit to Interest Expense and a credit to:

Interest Payable   or   Unearned Interest

Adjusting entries should be determined:

subsequent to preparing financial statements   or   prior to preparing financial statements

An adjusted trial balance is prepared by changing specific account balances in the trial balance by the amount of the adjustments from the adjusting entries.

true   or   false

Prepaid expenses would initially be recorded in an expense account under which adjusting entry approach?

balance sheet approach   or   income statement approach

If the income statement approach is used to record revenues received in advance of being earned, then an adjusting entry will always be necessary at the end of the accounting period.

true   or   false

Under the cash basis of accounting, revenues and expenses are recognized as receipts and payments occur.

true   or   false

Which method of accounting is theoretically preferred and used by virtually all large companies?

accrual basis   or   cash basis