72. The statement “This business produced net income of $520,000” is unclear because it failed to specify:
A. The accounting method, that is, accrual or cash basis.
B. Whether the amount earned is before or after expenses.
C. The time period.
D. The amount of cash withdrawn from the business by the owner.
73. The term revenue can best be described as:
A. The selling price of goods and services rendered to customers during a given accounting period.
B. The cash received from selling goods and serving customers during a given accounting period.
C. The net increase in owners’ equity during a given period.
D. The “bottom line” in the income statement.
74. The realization principle indicates that revenue usually should be recognized and recorded in the accounting records:
A. When goods are sold or services are rendered to customers.
B. When cash is collected from customers.
C. At the end of the accounting period.
D. Only when the revenue can be matched by an equal dollar amount of expenses.
75. In February of each year, the Carlton Hotel holds a very popular wine tasting event. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The realization principle indicates that the revenue from these ticket sales should be recognized in the period in which the:
A. Order is placed.
B. Wine tasting event is held.
C. Payments are received.
D. Expenses associated with the wine tasting are paid in full.
76. Collection of an accounts receivable:
A. Increases the total assets of a company.
B. Decreases the total assets of a company.
C. Does not change the total assets of a company.
D. Reduces a company’s total liabilities.
77. The matching principle is best demonstrated by:
A. Using debits to record decreases in owners’ equity and credits to record increases.
B. The equation Assets = Liabilities + Owners’ Equity.
C. Allocating the cost of an asset to expense over the periods during which benefits are derived from the asset.
D. Offsetting the cash receipts of the period with the cash payments made during the period.
78. Net income is:
A. The excess of debits over credits.
B. The increase in owners’ equity resulting from the profitable operations of the business.
C. The excess of credits over debits.
D. The increase in assets of a company during a year.
79. Clinton prepares monthly financial statements. Which of the following violates the matching principle?
A. A portion of the salary payments made this month are not recognized as expense because some of the work was done by employees last month.
B. The premium on a six-month insurance policy is charged immediately to expense.
C. Expenses for the period exceed revenues.
D. The cost of advertising done during the month is charged to expense even though no payment is due for 60 days.
80. The matching principle:
A. Applies only to situations in which a cash payment occurs before an expense is recognized.
B. Applies only to situations in which a cash receipt occurs before revenue is recognized.
C. Is used in accrual accounting to determine the proper period in which to recognize revenue.
D. Is used in accrual accounting to determine the proper period for recognition of expenses.
81. The reason that revenue is recorded by a credit entry to a revenue account is:
A. That revenue always involves a debit to the Cash account.
B. Explained by the realization principle.
C. Explained by the matching principle.
D. That revenue increases owners’ equity.
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