Reference no: EM132710777

Question 1: The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

Multiple Choice

A. Recognition principle.

B. Cost principle.

C. Cash basis of accounting.

D. Expense recognition (Matching) principle.

E. Time period principle.

Question 2: The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Multiple Choice

A. Accrual basis accounting.

D. Operating cycle accounting.

C. Cash basis accounting.

E. Revenue recognition accounting.

F. Current basis accounting.

Question 3: The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Multiple Choice

A. Cash basis accounting.

B. The expense recognition (matching) principle.

C. The time period assumption.

D. Accrual basis accounting.

F. Revenue basis accounting.

Question 4: Profit margin is defined as:

Multiple Choice

A. Revenues divided by net sales.

B. Net sales divided by assets.

C. Net income divided by net sales.

D. Net income divided by assets.

E. Net sales divided by net income.

Question 5: On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Multiple Choice

A. A debit to an expense and credit to a prepaid expense for $7,500.

B. A debit to an expense and credit to Cash for $7,500.

C. A debit to a prepaid expense and a credit to Cash for $7,500.

D. A credit to a prepaid expense and a debit to Cash for $7,500.

E. A debit to Cash for $7,500 and a credit to an expense for $7,500.