Chapter 3
The Accrual Basics of Accounting

Quiz Instructions

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1. Unearned revenue is what type of an account?
a. Asset
b. Revenue
c. Stockholders' equity
d. Liability

2. On April 1, Tule Inc. paid $3,600 for an insurance premium on a three-year insurance policy. At the end of December, Tule's fiscal year end, what should be the balance in the Prepaid Insurance account?
a. $2,700
b. $3,600
c. $2,400
d. $0

3. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M's accounts?
a. Increase accounts receivable and cash by $1,000,000 each
b. Increase accounts receivable and revenues by $1,000,000 each
c. Increase accounts receivable and unearned revenues by $1,000,000 each
d. No effect at this time

4. Received $4,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting?
a. Cash will increase by $4,000 and accounts receivable decrease by $4,000
b. Cash will increase by $4,000 and revenues will increase $4,000
c. Accounts receivable will increase by $4,000 and revenue will increase by $4,000Incorrect
d. Accounts receivable will increase by $4,000 and cash will increase by $4,000

5. Which of the following is an example of deferred revenue?
a. Prepaid advertising
b. Premiums received in advance
c. Insurance expense
d. Accounts Receivable

6. An example of an accrued revenue is __________.
a. Interest accrued on a note receivable
b. Interest accrued on a note payable
c. Unearned revenues
d. Accounts receivable

7. Accumulated depreciation is what type of account?
a. Deferrals
b. Accruals
c. Contra asset
d. Revenue

8. During July, wage expense of $25,000 was reported on the income statement. If wages payable at July 1st was $2,000, and wages of $20,000 were paid during July, how much was accrued wages payable on July 31st?
a. $2,000
b. $1,500
c. $7,000
d. $1,000

9. When reconciling net income to net cash flows from operating activities on the statement of cash flows, a decrease in accounts payable would __________.
a. Be added back
b. Be subtracted
c. Not be impacted

10. Accounts Receivable had a net decrease of $10,000 for the year. How does this impact the cash flows from operations?
a. Increases it by $20,000
b. No impact
c. Decreases it by $10,000
d. Increases it by $10,000

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