Accrual Accounting MCQs
Which of the following best describes accrual accounting?
a) Recording transactions when cash is received or paid
b) Recording transactions when they are incurred, regardless of cash flow
c) Recording transactions only when cash flow occurs
d) Recording transactions when they are reported in financial statements
Answer: b) Recording transactions when they are incurred, regardless of cash flow
Accrual accounting recognizes revenue when:
a) Cash is received from customers
b) A sale is made to a customer
c) The product or service is delivered to the customer
d) The customer places an order for a product or service
Answer: c) The product or service is delivered to the customer
Accrual accounting records expenses:
a) When cash is paid to suppliers
b) When invoices are received from suppliers
c) When goods or services are consumed or utilized
d) When employees are paid their salaries
Answer: c) When goods or services are consumed or utilized
Which financial statement is prepared using accrual accounting?
a) Income statement
b) Cash flow statement
c) Balance sheet
d) Statement of retained earnings
Answer: a) Income statement
Accrual Accounting MCQs with Answers
Accrual accounting provides a more accurate picture of a company’s financial performance because it:
a) Reflects the timing of cash inflows and outflows
b) Ignores non-cash transactions
c) Recognizes revenue only when cash is received
d) Matches revenue with the expenses incurred to generate it
Answer: d) Matches revenue with the expenses incurred to generate it
When a company accrues an expense, it means that:
a) The expense has been paid in cash
b) The expense will be paid in the future
c) The expense has been incurred but not yet paid
d) The expense will not be recorded in the financial statements
Answer: c) The expense has been incurred but not yet paid
Which of the following is an example of an accrual adjustment?
a) Recording cash received from a customer
b) Recognizing interest income from a bank deposit
c) Paying salaries to employees
d) Purchasing office supplies with cash
Answer: b) Recognizing interest income from a bank deposit
Accrual accounting is based on the principle of:
a) Matching revenues and expenses
b) Recording transactions at their cash value
c) Reporting only cash transactions
d) Ignoring non-cash transactions
Answer: a) Matching revenues and expenses
Accrual Accounting MCQs with Answers
Under accrual accounting, revenue is recognized when:
a) Cash is received
b) Goods or services are delivered
c) An invoice is issued to a customer
d) A purchase order is received from a customer
Answer: b) Goods or services are delivered
Accrual accounting is required for:
a) Small businesses only
b) Non-profit organizations only
c) Publicly traded companies only
d) All types of businesses and organizations
Answer: d) All types of businesses and organizations
Accrual accounting requires the use of which accounting method?
a) Cash basis accounting
b) Double-entry accounting
c) Single-entry accounting
d) None of the above
Answer: b) Double-entry accounting
Which of the following is true about accrual accounting and cash basis accounting?
a) Accrual accounting focuses on cash transactions, while cash basis accounting focuses on accruals.
b) Accrual accounting and cash basis accounting are the same.
c) Accrual accounting recognizes revenue and expenses when they are incurred, while cash basis accounting recognizes them when cash is received or paid.
d) Accrual accounting is used by small businesses, while cash basis accounting is used by large corporations.
Answer: c) Accrual accounting recognizes revenue and expenses when they are incurred, while cash basis accounting recognizes them when cash is received or paid.
Accrual Accounting MCQs with Answers
In accrual accounting, the matching principle means that:
a) Expenses are matched with the assets acquired
b) Revenues are matched with the liabilities incurred
c) Revenues are matched with the expenses incurred to generate them
d) Assets are matched with the liabilities incurred
Answer: c) Revenues are matched with the expenses incurred to generate them
Which financial statement provides a snapshot of a company’s financial position at a specific point in time under accrual accounting?
a) Income statement
b) Cash flow statement
c) Balance sheet
d) Statement of retained earnings
Answer: c) Balance sheet
Under accrual accounting, when a company receives cash in advance from a customer for goods or services, it is recorded as:
a) Revenue
b) Accounts payable
c) Prepaid revenue
d) Accounts receivable
Answer: c) Prepaid revenue
Accrued expenses are recorded on the balance sheet as:
a) Liabilities
b) Assets
c) Equity
d) Revenue
Answer: a) Liabilities
Accrual Accounting MCQs with Answers
Which of the following is an example of an accrued revenue?
a) Cash received from a customer in advance
b) Payment made to a supplier for goods received
c) Salary paid to an employee
d) Rent expense paid for office space
Answer: a) Cash received from a customer in advance
The purpose of accrual adjustments in accrual accounting is to:
a) Record cash transactions
b) Correct errors in financial statements
c) Recognize revenues and expenses in the correct accounting period
d) Calculate depreciation expenses
Answer: c) Recognize revenues and expenses in the correct accounting period
Accrual accounting provides a more comprehensive view of a company’s financial performance compared to cash basis accounting because it:
a) Focuses on cash flow
b) Ignores non-cash transactions
c) Recognizes revenue when cash is received
d) Accounts for all economic events and transactions
Answer: d) Accounts for all economic events and transactions
Accrual accounting is based on the principle of:
a) Recognizing revenue when cash is received
b) Reporting cash transactions only
c) Matching revenues and expenses
d) Ignoring non-cash expenses
Answer: c) Matching revenues and expenses
Accrual Accounting MCQs with Answers
Which of the following statements is true about accrual accounting?
a) It is only applicable to service-based businesses.
b) It records transactions based on cash flows.
c) It is not compliant with generally accepted accounting principles (GAAP).
d) It provides a more accurate representation of a company’s financial position.
Answer: d) It provides a more accurate representation of a company’s financial position.
When a company recognizes accrued expenses, how does it affect the financial statements?
a) Increases assets and increases liabilities
b) Increases assets and decreases liabilities
c) Decreases assets and increases liabilities
d) Decreases assets and decreases liabilities
Answer: c) Decreases assets and increases liabilities
Under accrual accounting, when should revenue be recognized for a long-term project?
a) When the project is completed
b) When the project is halfway completed
c) When the customer signs the contract
d) When the project is paid in full
Answer: a) When the project is completed
Accrual accounting allows for the recognition of revenue even if:
a) The customer hasn’t paid yet
b) The product hasn’t been delivered
c) The service hasn’t been performed
d) All of the above
Answer: d) All of the above
Accrual Accounting MCQs with Answers
Which financial statement reports the net income or net loss of a company for a specific period under accrual accounting?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of retained earnings
Answer: b) Income statement
Accrual accounting requires the use of adjusting entries to:
a) Correct errors in the financial statements
b) Reconcile bank statements
c) Recognize accrued revenues and expenses
d) Calculate depreciation expenses
Answer: c) Recognize accrued revenues and expenses
Under accrual accounting, an expense is recognized when:
a) Cash is paid to suppliers
b) An invoice is received from suppliers
c) Goods or services are consumed or utilized
d) The budget is approved for the expense
Answer: c) Goods or services are consumed or utilized
Which of the following is an example of an accrual adjustment related to revenue?
a) Recognizing rent expense
b) Recording the purchase of equipment
c) Recording interest income
d) Paying salaries to employees
Answer: c) Recording interest income
Accrual Accounting MCQs with Answers
Accrual accounting is required for financial reporting purposes to:
a) Facilitate tax calculations
b) Comply with international accounting standards
c) Speed up cash collections
d) Provide a more accurate view of a company’s financial performance
Answer: d) Provide a more accurate view of a company’s financial performance
Accrual accounting allows for the recognition of revenue even if:
a) The customer hasn’t placed an order yet
b) The payment is received in advance
c) The product is still in the manufacturing process
d) The product is not delivered until next year
Answer: b) The payment is received in advance
Which of the following is an example of an accrued expense?
a) Paying rent in advance for the next month
b) Purchasing office supplies with cash
c) Using a company credit card to pay for business travel expenses
d) Incurring utility expenses during the current month but not yet receiving the bill
Answer: d) Incurring utility expenses during the current month but not yet receiving the bill
Accrual accounting recognizes revenue when it is:
a) Earned
b) Collected
c) Invoiced
d) Deposited
Answer: a) Earned
Accrual Accounting MCQs with Answers
How does accrual accounting handle unearned revenue?
a) It recognizes it as a liability initially and gradually recognizes it as revenue over time.
b) It recognizes it as revenue when cash is received.
c) It does not recognize unearned revenue until it is earned.
d) It recognizes it as revenue immediately.
Answer: a) It recognizes it as a liability initially and gradually recognizes it as revenue over time.
The accrual basis of accounting is required for financial statements prepared for:
a) Tax purposes
b) Internal management reporting
c) Regulatory reporting
d) All of the above
Answer: d) All of the above
Accrual accounting helps in assessing the financial performance of a company by:
a) Focusing on cash flows only
b) Ignoring non-cash transactions
c) Matching expenses with revenues
d) Recognizing cash transactions only
Answer: c) Matching expenses with revenues
Under accrual accounting, how are prepaid expenses recorded?
a) As assets
b) As liabilities
c) As revenues
d) As expenses
Answer: a) As assets
Accrual Accounting MCQs with Answers
The accrual of interest on a loan would result in:
a) An increase in assets and a decrease in liabilities
b) A decrease in assets and a decrease in liabilities
c) An increase in assets and an increase in liabilities
d) A decrease in assets and an increase in liabilities
Answer: c) An increase in assets and an increase in liabilities
Accrual accounting helps in providing a more accurate measure of a company’s profitability by:
a) Focusing on cash inflows and outflows
b) Recognizing revenue when cash is collected
c) Recognizing expenses when cash is paid
d) Matching revenues with the expenses incurred to generate them
Answer: d) Matching revenues with the expenses incurred to generate them
Accrual accounting is based on the principle of:
a) Recognizing revenue when cash is received
b) Reporting transactions at their cash value
c) Matching revenues and expenses
d) Ignoring non-cash transactions
Answer: c) Matching revenues and expenses
Accrual accounting is commonly used in:
a) Small businesses only
b) Non-profit organizations only
c) Government entities only
d) All types of businesses and organizations
Answer: d) All types of businesses and organizations
Accrual Accounting MCQs with Answers
Which of the following statements is true regarding accrual accounting?
a) It is only applicable to publicly traded companies.
b) It focuses solely on cash flows.
c) It disregards non-cash transactions.
d) It recognizes revenues and expenses when they are earned or incurred, regardless of cash flow.
Answer: d) It recognizes revenues and expenses when they are earned or incurred, regardless of cash flow.
Accrual accounting helps in improving financial decision-making by:
a) Ignoring non-cash transactions.
b) Providing a real-time view of cash balances.
c) Recognizing revenues and expenses at the time of cash flow.
d) Matching revenues and expenses to the period in which they occur.
Answer: d) Matching revenues and expenses to the period in which they occur.
Accrued revenues are recorded on the balance sheet as:
a) Assets
b) Liabilities
c) Equity
d) Expenses
Answer: a) Assets
Accrual accounting requires the use of which accounting principle?
a) Revenue recognition principle
b) Cash basis principle
c) Materiality principle
d) Consistency principle
Answer: a) Revenue recognition principle
Accrual Accounting MCQs with Answers
Accrual accounting is essential for financial statement users because it:
a) Simplifies the recording of transactions.
b) Focuses on cash management.
c) Provides a more accurate depiction of financial performance and position.
d) Matches expenses with liabilities.
Answer: c) Provides a more accurate depiction of financial performance and position.
When a company records an adjusting entry to accrue revenue, it means that:
a) The revenue has been earned but not yet received in cash.
b) The revenue will be earned in the future.
c) The revenue has been received in advance.
d) The revenue will not be recorded in the financial statements.
Answer: a) The revenue has been earned but not yet received in cash.
Accrual accounting allows for the recognition of expenses:
a) Only when cash is paid.
b) Only when invoices are received.
c) When goods or services are consumed or utilized.
d) When employees are paid their salaries.
Answer: c) When goods or services are consumed or utilized.
The accrual basis of accounting is required by:
a) Law for all businesses.
b) The Internal Revenue Service (IRS) for tax reporting.
c) Generally Accepted Accounting Principles (GAAP) for financial reporting.
d) Small businesses only.
Answer: c) Generally Accepted Accounting Principles (GAAP) for financial reporting.
Accrual Accounting MCQs with Answers
Under accrual accounting, when a company incurs an expense but has not yet paid for it, the expense is recorded as a(n):
a) Prepaid expense
b) Accrued expense
c) Unearned expense
d) Deferred expense
Answer: b) Accrued expense
Accrual accounting provides a more accurate measure of a company’s financial performance because it:
a) Focuses on cash receipts and payments.
b) Recognizes revenues only when cash is collected.
c) Matches revenues with the expenses incurred to generate them.
d) Ignores non-cash transactions.
Answer: c) Matches revenues with the expenses incurred to generate them.