Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
How should income that has been earned but not yet received be classified in the financial statements?
Answer:
Asset
Income earned but not yet received is known as accrued income. According to the accrual basis of accounting, this represents a future economic benefit to the business, as the entity has a legal right to receive the payment, thus classifying it as a current asset on the balance sheet.
2
How is revenue that has been earned but not yet received by the business classified?
Answer:
Accrued revenue
Accrued revenue represents income that has been earned by providing goods or services during the accounting period, but for which payment has not yet been received. Under the accrual basis of accounting, this must be recognized as revenue in the period it is earned, creating an asset on the balance sheet.
3
What is an alternative term used to describe accrued revenue?
Answer:
Earned revenue
Accrued revenue represents income that has been earned by providing goods or services but for which payment has not yet been received. Therefore, it is essentially revenue that has been earned but not yet recorded as cash inflow.
4
How is accrued income classified and presented in the balance sheet?
Answer:
An asset
Accrued income represents revenue that has been earned by providing goods or services but for which payment has not yet been received. Because the business has a legal right to collect this amount in the future, it is recognized as a current asset on the balance sheet until the cash is actually collected.
5
How is interest that has been earned but not yet received classified in accounting?
Answer:
An accrued income
Accrued income represents revenue that has been earned by providing goods or services but for which payment has not yet been received. Since the interest has been earned during the accounting period, it must be recognized as an asset and income, even if the cash receipt occurs in a future period.
6
What is the financial impact of failing to record adjusting entries for accrued income?
Answer:
Understatement of capital
Accrued income represents revenue earned but not yet received. If this is not recorded, the income for the period is understated, which leads to an understatement of net profit and, consequently, an understatement of the owner's capital in the balance sheet.
7
What is another commonly used term for accrued revenue?
Answer:
Earned revenue
Accrued revenue refers to income that has been earned by providing goods or services but for which payment has not yet been received. It is often referred to as earned revenue because the earning process is complete, even though the cash collection occurs in a future accounting period.
8
Which of the following journal entries correctly records the adjustment for earned income?
Answer:
DEBIT= Earned income, CREDIT= Income
When income is earned but not yet recorded, an adjustment is required to recognize the revenue. By debiting the earned income account (often representing a receivable or reduction in unearned income) and crediting the income account, the financial statements accurately reflect the revenue earned during the period, adhering to the accrual basis of accounting.
9
How is revenue that has been earned but not yet collected classified?
Answer:
Accrued revenue
Accrued revenue represents income that a business has earned by providing goods or services, but for which payment has not yet been received. Under the accrual basis of accounting, this revenue must be recognized in the period it is earned to ensure financial statements accurately reflect the entity's performance.
10
Under the accrual basis of accounting, how should a transaction be recorded if services have been provided but the customer has not yet been billed or paid?
Answer:
accrued revenue
Accrued revenue represents income that has been earned by providing a service or product but for which payment has not yet been received or billed. Under the accrual principle, revenue must be recognized in the period it is earned, regardless of when the cash is actually collected.