CHAPTER 3
THE MATCHING CONCEPT AND THE ADJUSTING PROCESS
Chapter 3—The Matching Concept and the Adjusting Process
Chapter 3—The Matching Concept and the Adjusting Process
TRUE/FALSE
1. The system of accounting where revenues are recorded when they are earned and expenses are
recorded when they are incurred is called the cash basis of accounting.
ANS: F DIF: 2 OBJ: 01
2. The accrual basis of accounting requires revenue be recorded when cash is received from
customers.
ANS: F DIF: 2 OBJ: 01
3. Generally accepted accounting principles require accrual-basis accounting.
ANS: T DIF: 2 OBJ: 01
4. The revenue recognition concept states that revenue should be recorded in the same period as
the cash is received.
ANS: F DIF: 2 OBJ: 01
5. The matching concept requires expenses be recorded in the same period that the related revenue
is recorded.
ANS: T DIF: 2 OBJ: 01
6. The financial statements measure precisely the financial condition and results of operations of a
business.
ANS: F DIF: 2 OBJ: 01
7. Adjusting entries are made at the end of an accounting period to adjust accounts on the balance
sheet.
ANS: F DIF: 2 OBJ: 02
8. Adjusting entries affect only expense and asset accounts.
ANS: F DIF: 2 OBJ: 02
9. Prepaid Rent is a deferred expense.
ANS: T DIF: 1 OBJ: 02
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Chapter 3—The Matching Concept and the Adjusting Process
10. An example of deferred revenue is Unearned Rent.
ANS: T DIF: 2 OBJ: 02
11. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue
has been earned.
ANS: T DIF: 2 OBJ: 02
12. An adjusting entry would adjust revenue so it is reported when earned and not when cash is
received.
ANS: T DIF: 2 OBJ: 02
13. An adjusting entry would adjust an expense account so the expense is reported when incurred.
ANS: T DIF: 2 OBJ: 02
14. An adjusting entry to accrue an incurred expense will affect total liabilities.
ANS: T DIF: 2 OBJ: 02
15. The difference between deferred revenue and accrued revenue is that accrued revenue has been
recorded and needs adjusting and deferred revenue has never been recorded.
ANS: F DIF: 2 OBJ: 02
16. Deferrals are recorded transactions that delay the recognition of an expense or revenue.
ANS: T DIF: 1 OBJ: 02
17. Adjustments for accruals are needed to record a revenue that has been earned or an expense that
has been incurred but not recorded.
ANS: T DIF: 2 OBJ: 02
18. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to
a liability account.
ANS: F DIF: 2 OBJ: 02
19. An unearned revenue is a liability.
ANS: T DIF: 02 OBJ: 02
20. The systematic allocation of land's cost to expense is called depreciation.
ANS: F DIF: 2 OBJ: 03
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Chapter 3—The Matching Concept and the Adjusting Process
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The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset.
ANS: T DIF: 2 OBJ: 03
The Accumulated Depreciation's account balance is the sum of depreciation expense recorded in past periods.
ANS: T DIF: 2 OBJ: 03
Accumulated Depreciation accounts are liability accounts.
ANS: F DIF: 1 OBJ: 03
Accumulated Depreciation is reported on the income sheet.
ANS: F DIF: 1 OBJ: 03
A building was purchased for $75,000. Assuming annual depreciation of $2,500, the book value of the building one year later is $77,500.
ANS: F DIF: 2 OBJ: 03
A contra asset account for Land will normally appear in the balance sheet.
ANS: F DIF: 2 OBJ: 03
Depreciation Expense is reported on the balance sheet as an addition to the related asset.
ANS: F DIF: 1 OBJ: 03
A company pays $12,000 for twelve month's rent on October 1. The adjusting entry on December 31 is debit Rent Expense, $4,000 and credit Prepaid Rent, $4,000.
ANS: F DIF: 4 OBJ: 03
A company pays $240 for a yearly trade magazine on August 1. The adjusting entry on
December 31 is debit Unearned Subscription Revenue, $100 and credit Subscription Revenue, $100.
ANS: F DIF: 4 OBJ: 03
A company depreciates its equipment $350 a year. The adjusting entry for December 31 is debit Depreciation Expense, $350 and credit Equipment, $350.
ANS: F DIF: 4 OBJ: 03
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