What are accrued expenses?
a) Expenses that have been paid in advance
b) Expenses that are owed but have not yet been paid
c) Expenses that have been incurred but not recorded
d) Expenses that are not eligible for tax deductions
Answer: b) Expenses that are owed but have not yet been paid
Which accounting principle is associated with accrued expenses?
a) Matching principle
b) Consistency principle
c) Materiality principle
d) Revenue recognition principle
Answer: a) Matching principle
When are accrued expenses recognized in financial statements?
a) At the time they are incurred
b) At the time they are paid
c) At the end of the accounting period
d) When they are approved by management
Answer: a) At the time they are incurred
Which of the following is an example of an accrued expense?
a) Prepaid rent
b) Unearned revenue
c) Salaries payable
d) Depreciation expense
Answer: c) Salaries payable
How are accrued expenses usually recorded in the accounting system?
a) As a debit to an expense account and a credit to a liability account
b) As a debit to a liability account and a credit to an expense account
c) As a debit to an asset account and a credit to a liability account
d) As a debit to a liability account and a credit to an asset account
Answer: a) As a debit to an expense account and a credit to a liability account
Which financial statement would include accrued expenses?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of retained earnings
Answer: a) Balance sheet
How do accrued expenses affect net income and cash flow?
a) They increase net income and decrease cash flow.
b) They decrease net income and increase cash flow.
c) They have no impact on net income and cash flow.
d) They increase both net income and cash flow.
Answer: b) They decrease net income and increase cash flow.
True or False: Accrued expenses are always short-term liabilities.
Answer: False. Accrued expenses can be both short-term and long-term liabilities, depending on the time frame within which they are expected to be settled.
Which accounting entry is made to record an accrued expense?
a) Debit Accounts Payable, Credit Expense
b) Debit Expense, Credit Accounts Payable
c) Debit Accounts Receivable, Credit Expense
d) Debit Expense, Credit Accounts Receivable
Answer: b) Debit Expense, Credit Accounts Payable
Which accounting principle ensures that accrued expenses are properly recorded?
a) Consistency principle
b) Materiality principle
c) Matching principle
d) Prudence principle
Answer: c) Matching principle
What is the purpose of accruing expenses?
a) To delay the payment of expenses
b) To track expenses that have been paid in advance
c) To ensure accurate financial reporting by recognizing expenses when incurred
d) To reduce the overall expense amount in the financial statements
Answer: c) To ensure accurate financial reporting by recognizing expenses when incurred
Which financial statement would show the adjustment for an accrued expense?
a) Trial balance
b) Cash flow statement
c) Income statement
d) Adjusted trial balance
Answer: d) Adjusted trial balance
What happens to accrued expenses at the end of an accounting period?
a) They are carried forward to the next period.
b) They are closed out to the owner’s equity account.
c) They are paid immediately.
d) They are adjusted and recorded in the financial statements.
Answer: d) They are adjusted and recorded in the financial statements.
How are accrued expenses typically classified on the balance sheet?
a) Prepaid expenses
b) Long-term liabilities
c) Current liabilities
d) Operating expenses
Answer: c) Current liabilities
How are accrued expenses reflected in the cash flow statement?
a) As an increase in cash from operating activities
b) As an increase in cash from investing activities
c) As a decrease in cash from operating activities
d) As a decrease in cash from financing activities
Answer: c) As a decrease in cash from operating activities
Which financial ratio may be impacted by accrued expenses?
a) Return on Investment (ROI)
b) Current ratio
c) Gross profit margin
d) Earnings per share (EPS)
Answer: b) Current ratio
How are accrued expenses typically reported in the income statement?
a) As a reduction in revenue
b) As an increase in revenue
c) As an increase in expenses
d) As a reduction in expenses
Answer: c) As an increase in expenses
True or False: Accrued expenses are recorded as an asset on the balance sheet.
Answer: False. Accrued expenses are recorded as liabilities on the balance sheet.
What is the journal entry to reverse an accrued expense at the beginning of the next accounting period?
a) Debit Expense, Credit Accounts Payable
b) Debit Accounts Payable, Credit Expense
c) Debit Accounts Payable, Credit Cash
d) Debit Expense, Credit Cash
Answer: b) Debit Accounts Payable, Credit Expense
How do accrued expenses impact the financial position of a company?
a) They increase the company’s assets and liabilities.
b) They decrease the company’s assets and liabilities.
c) They increase the company’s assets and decrease its liabilities.
d) They decrease the company’s assets and increase its liabilities.
Answer: d) They decrease the company’s assets and increase its liabilities.
What is the main difference between accrued expenses and accounts payable?
a) Accrued expenses are paid in advance, while accounts payable are paid at the time of purchase.
b) Accrued expenses are long-term liabilities, while accounts payable are short-term liabilities.
c) Accrued expenses represent expenses incurred but not yet paid, while accounts payable are amounts owed for goods or services purchased on credit.
d) Accrued expenses are recorded on the income statement, while accounts payable are recorded on the balance sheet.
Answer: c) Accrued expenses represent expenses incurred but not yet paid, while accounts payable are amounts owed for goods or services purchased on credit.
How are accrued expenses treated in the financial statements during the closing process?
a) They are transferred to a contra-asset account.
b) They are closed to the retained earnings account.
c) They are transferred to the prepaid expenses account.
d) They are closed to the accounts payable account.
Answer: b) They are closed to the retained earnings account.
Which financial statement provides information about the timing and extent of accrued expenses?
a) Income statement
b) Cash flow statement
c) Statement of changes in equity
d) Notes to the financial statements
Answer: d) Notes to the financial statements
What is the impact of accruing an expense on the financial statements?
a) It increases liabilities and decreases equity.
b) It increases liabilities and increases equity.
c) It decreases liabilities and decreases equity.
d) It decreases liabilities and increases equity.
Answer: a) It increases liabilities and decreases equity.
What is the purpose of the adjusting entry for accrued expenses?
a) To record the payment of expenses
b) To allocate expenses to the correct accounting period
c) To reverse previously recorded expenses
d) To record the collection of accounts payable
Answer: b) To allocate expenses to the correct accounting period.
Which financial statement would be directly affected by the recognition of an accrued expense?
a) Cash flow statement
b) Balance sheet
c) Income statement
d) Statement of changes in equity
Answer: c) Income statement
What is the typical journal entry to record an accrued expense?
a) Debit Accounts Payable, Credit Expense
b) Debit Expense, Credit Accounts Payable
c) Debit Accounts Receivable, Credit Expense
d) Debit Expense, Credit Accounts Receivable
Answer: b) Debit Expense, Credit Accounts Payable
How are accrued expenses disclosed in the financial statements?
a) As a separate line item in the income statement
b) As a separate line item in the balance sheet
c) As a footnote or disclosure in the financial statements
d) As an adjustment in the cash flow statement
Answer: c) As a footnote or disclosure in the financial statements
Which accounting concept supports the recognition of accrued expenses?
a) Materiality
b) Going concern
c) Consistency
d) Periodicity
Answer: d) Periodicity
True or False: Accrued expenses can only arise from the purchase of goods or services.
Answer: False. Accrued expenses can arise from various sources, including salaries, interest, and taxes.
What is the effect of accrued expenses on the financial ratios of a company?
a) They have no impact on financial ratios.
b) They increase liquidity ratios.
c) They decrease profitability ratios.
d) They increase solvency ratios.
Answer: c) They decrease profitability ratios.
When an accrued expense is paid, what is the corresponding journal entry?
a) Debit Accounts Payable, Credit Cash
b) Debit Cash, Credit Accounts Payable
c) Debit Expense, Credit Cash
d) Debit Cash, Credit Expense
Answer: b) Debit Cash, Credit Accounts Payable
What is the purpose of adjusting entries for accrued expenses?
a) To recognize revenue that has been earned but not received
b) To record expenses that have been incurred but not yet paid
c) To adjust for errors in the financial statements
d) To allocate prepaid expenses to the correct accounting period
Answer: b) To record expenses that have been incurred but not yet paid
Which financial statement reflects the impact of accrued expenses on the company’s profitability?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of retained earnings
Answer: b) Income statement
How do accrued expenses affect the cash flow of a company?
a) They increase cash inflow from operating activities.
b) They decrease cash inflow from operating activities.
c) They increase cash outflow from investing activities.
d) They have no direct impact on cash flow.
Answer: b) They decrease cash inflow from operating activities.