Wyrnkaa - Chapter 4 Review Questions
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Current Assets have which of the following characteristics:
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They can be used to satisfy Current Liabilities
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They tend to be more liquid than Long Term Liabilities
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They show up first on the Balance Sheet
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All of the above
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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.
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- 2.
Prepaid Expenses are Current ________
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Assets
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Liabilities
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Revenues
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Expenses
Correct Answer
A. AssetsExplanation
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.Rate this question:
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- 3.
When Revenue is earned, but the cash will be received in the future, this results in a(n):
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Account Payable
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Deferred Revenue
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Deferred Expense
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Account Receivable
Correct Answer
A. Account ReceivableExplanation
When revenue is earned, and cash will be received in the future, this results in the creation of an Account Receivable (an Asset).Rate this question:
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- 4.
Revenue for products is generally earned when:
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The product is created
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Risk of ownership passes to the customer
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The customer first uses the product
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The product is made available for sale
Correct Answer
A. Risk of ownership passes to the customerExplanation
The best answer is the second answer choice.
None of the others indicate that revenue has been earned.Rate this question:
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- 5.
In order for Revenue to be recorded or "recognized", it must be:
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Earned and the cash received
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Unearned but cash received
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Earned and cash received or likely to be received
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Earned and agreed with the customer that payment will never be made
Correct Answer
A. Earned and cash received or likely to be receivedExplanation
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.Rate this question:
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- 6.
Accounts Receivable is a Current __________
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Asset
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Liability
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Revenue
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Expense
Correct Answer
A. AssetExplanation
Accounts Receivable is a Current Asset. Receivables are amounts owed to the business by customers.Rate this question:
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- 7.
The purchase of a large asset is typically recorded on:
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The Balance Sheet
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The Income Statement
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Both the Balance Sheet and the Income Statement
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Neither the Balance Sheet nor the Income Statement
Correct Answer
A. The Balance SheetExplanation
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.Rate this question:
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- 8.
Puchasing Inventory results in the creation of:
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An Expense on the Income Statement
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An Expense on the Balance Sheet
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An Asset on the Income Statement
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An Asset on the Balance Sheet
Correct Answer
A. An Asset on the Balance SheetExplanation
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.Rate this question:
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- 9.
Cash received before the Revenue is earned is:
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Account Receivable
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Prepaid Expense
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Deferred Revenue
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Prepaid Revenue
Correct Answer
A. Deferred RevenueExplanation
Cash received prior to earning the revenue is Deferred Revenue, which is a liability.Rate this question:
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- 10.
If you receive cash before earning it, the statements that will be affected are:
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The Income Statement
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The Balance Sheet
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Both the Income Statement and the Balance Sheet
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Neither the Income Statement nor the Balance Sheet
Correct Answer
A. The Balance SheetExplanation
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.Rate this question:
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Jun 20, 2023Quiz Edited by
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Mar 27, 2011Quiz Created by
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