Wyrnkaa - Chapter 4 Review Questions

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Questions: 10 | Attempts: 62 | Updated: Jun 20, 2023

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Wyrnkaa - Chapter 4 Review Questions - Quiz

This quiz will test your understanding of the material covered in the fourth chapter of "What You Really Need to Know About Accounting". Visit https://www. Notforaccountants. Com/learning-tools. Php for more quizzes.

Questions and Answers

1.

Current Assets have which of the following characteristics:
- A.
  
  They can be used to satisfy Current Liabilities
- B.
  
  They tend to be more liquid than Long Term Liabilities
- C.
  
  They show up first on the Balance Sheet
- D.
  
  All of the above
Correct Answer
D. All of the above

Explanation
Current Assets are more liquid than other assets, and show up at the top of the Balance Sheet. They are generally the assets that would be used to cover Current Liabilities.

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2.

Prepaid Expenses are Current ________
- A.
  
  Assets
- B.
  
  Liabilities
- C.
  
  Revenues
- D.
  
  Expenses
Correct Answer
A. Assets

Explanation
Prepaid Expenses are Current Assets. Even though the word "expense" is in the name, Prepaid Expenses are those that are paid before the expense is actually incurred. Because the expense has not been incurred yet, the prepaid amounts are considered assets.

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3.

Accounts Receivable is a Current __________
- A.
  
  Asset
- B.
  
  Liability
- C.
  
  Revenue
- D.
  
  Expense
Correct Answer
A. Asset

Explanation
Accounts Receivable is a Current Asset. Receivables are amounts owed to the business by customers.

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4.

In order for Revenue to be recorded or "recognized", it must be:
- A.
  
  Earned and the cash received
- B.
  
  Unearned but cash received
- C.
  
  Earned and cash received or likely to be received
- D.
  
  Earned and agreed with the customer that payment will never be made
Correct Answer
C. Earned and cash received or likely to be received

Explanation
Revenue cannot be recorded ("recognized") until it is BOTH earned and received/receivable ("realized/realizable").

The first answer choice is incorrect because cash does not have to be received in order for revenue to be recognized. It has to be received OR receivable (hence, 'Accounts Receivable').

The second answer choice would be a Deferred Revenue (a liability). The last answer choice would not qualify as revenue - it is volunteer work.

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5.

Revenue for products is generally earned when:
- A.
  
  The product is created
- B.
  
  Risk of ownership passes to the customer
- C.
  
  The customer first uses the product
- D.
  
  The product is made available for sale
Correct Answer
B. Risk of ownership passes to the customer

Explanation
The best answer is the second answer choice.

None of the others indicate that revenue has been earned.

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6.

If you receive cash before earning it, the statements that will be affected are:
- A.
  
  The Income Statement
- B.
  
  The Balance Sheet
- C.
  
  Both the Income Statement and the Balance Sheet
- D.
  
  Neither the Income Statement nor the Balance Sheet
Correct Answer
B. The Balance Sheet

Explanation
Receiving cash for products or services before that cash is earned results in an increase in Cash and an increase in Deferred Revenue. These are both Balance Sheet items.

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7.

Cash received before the Revenue is earned is:
- A.
  
  Account Receivable
- B.
  
  Prepaid Expense
- C.
  
  Deferred Revenue
- D.
  
  Prepaid Revenue
Correct Answer
C. Deferred Revenue

Explanation
Cash received prior to earning the revenue is Deferred Revenue, which is a liability.

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8.

When Revenue is earned, but the cash will be received in the future, this results in a(n):
- A.
  
  Account Payable
- B.
  
  Deferred Revenue
- C.
  
  Deferred Expense
- D.
  
  Account Receivable
Correct Answer
D. Account Receivable

Explanation
When revenue is earned, and cash will be received in the future, this results in the creation of an Account Receivable (an Asset).

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9.

The purchase of a large asset is typically recorded on:
- A.
  
  The Balance Sheet
- B.
  
  The Income Statement
- C.
  
  Both the Balance Sheet and the Income Statement
- D.
  
  Neither the Balance Sheet nor the Income Statement
Correct Answer
A. The Balance Sheet

Explanation
Asset purchases result in an increase in assets for the item purchased, and either 1) a corresponding decrease in cash (an asset) or 2) a corresponding increase in accounts payable (a liability). Either way, the entire transaction takes place on the Balance Sheet.

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10.

Puchasing Inventory results in the creation of:
- A.
  
  An Expense on the Income Statement
- B.
  
  An Expense on the Balance Sheet
- C.
  
  An Asset on the Income Statement
- D.
  
  An Asset on the Balance Sheet
Correct Answer
D. An Asset on the Balance Sheet

Explanation
The purchase of Inventory is the purchase of an Asset. Asset purchases take place on the Balance Sheet.

Also, remember that there are no Expenses on the Balance Sheet and no Assets on the Income Statement.

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Current Version
Jun 20, 2023

Quiz Edited by
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Mar 27, 2011

Quiz Created by
Nfapublishing

Wyrnkaa - Chapter 4 Review Questions

Current Assets have which of the following characteristics:

Prepaid Expenses are Current ________

Accounts Receivable is a Current __________

In order for Revenue to be recorded or "recognized", it must be:

Revenue for products is generally earned when:

If you receive cash before earning it, the statements that will be affected are:

Cash received before the Revenue is earned is:

When Revenue is earned, but the cash will be received in the future, this results in a(n):

The purchase of a large asset is typically recorded on:

Puchasing Inventory results in the creation of: