Accounting & Auditing
Accrual and Matching Concepts
Cost of goods sold is generally matched against:
A. Sales revenue from goods sold
B. Cash balance
C. Share capital
D. Bank loan
Correct Answer: A
The cost of inventory sold is recognized against the related sales revenue.
Accounting & Auditing
Accrual and Matching Concepts
Closing inventory affects matching because its cost is:
A. Carried forward rather than fully expensed in the current period
B. Always written off immediately
C. Added to salaries
D. Treated as revenue
Correct Answer: A
Unsold inventory remains an asset; only the cost associated with goods sold is recognized as expense.
Accounting & Auditing
Accrual and Matching Concepts
If a one-year insurance premium is paid on 1 October, at 31 December the unexpired portion is generally:
A. A prepaid asset
B. An accrued liability
C. Revenue
D. Drawings
Correct Answer: A
Coverage relating to future months is a prepaid asset.
Accounting & Auditing
Accrual and Matching Concepts
Interest incurred but unpaid at year-end should generally:
A. Increase finance cost and liability
B. Decrease expense
C. Increase prepaid asset
D. Increase revenue
Correct Answer: A
Accrued interest is an expense of the period and an outstanding obligation.
Accounting & Auditing
Accrual and Matching Concepts
Interest earned but not received at year-end should generally:
A. Increase income and create a receivable
B. Be ignored
C. Decrease income
D. Create unearned revenue
Correct Answer: A
Earned interest is recognized as income with an accrued receivable.
Accounting & Auditing
Accrual and Matching Concepts
Bad debt expense recognized for expected credit losses primarily supports:
A. Accrual-based recognition of credit loss effects
B. Cash basis accounting only
C. Going concern only
D. Owner entity concept only
Correct Answer: A
Credit loss recognition reflects economic loss effects rather than waiting solely for cash events.
Accounting & Auditing
Accrual and Matching Concepts
Depreciation is consistent with accrual accounting because it:
A. Allocates depreciable amount over periods benefiting from the asset
B. Records cash paid for an asset each year
C. Revalues cash annually
D. Creates a liability
Correct Answer: A
Depreciation allocates the cost/depreciable amount of a long-term asset across its useful life.
Accounting & Auditing
Accrual and Matching Concepts
A prepaid rent adjustment at period end normally:
A. Reduces rent expense and recognizes an asset
B. Increases rent expense and liability
C. Increases revenue
D. Reduces cash again
Correct Answer: A
The unused portion relates to future periods and remains an asset.
Accounting & Auditing
Accrual and Matching Concepts
At year-end, electricity used but not yet billed should generally be:
A. Accrued as an expense and liability
B. Ignored until paid
C. Recorded as an asset
D. Credited to capital
Correct Answer: A
The consumed service is a current-period expense and the unpaid amount is a liability.
Accounting & Auditing
Accrual and Matching Concepts
Which basis better measures periodic performance of an ongoing business?
A. Accrual basis
B. Pure cash basis
C. Bank statement basis
D. Petty cash basis
Correct Answer: A
Accrual accounting recognizes economic events in the periods to which they relate.
Accounting & Auditing
Accrual and Matching Concepts
Accrued income is income that has been:
A. Earned but not yet received
B. Received but not earned
C. Neither earned nor received
D. Paid in advance
Correct Answer: A
Accrued income is recognized because it has been earned despite cash not yet being collected.
Accounting & Auditing
Accrual and Matching Concepts
Unearned revenue is normally classified initially as:
A. Liability
B. Expense
C. Equity
D. Asset
Correct Answer: A
Cash received before the performance obligation is satisfied represents an obligation.
Accounting & Auditing
Accrual and Matching Concepts
The matching concept aims to:
A. Recognize expenses in the same period as related revenues where appropriate
B. Match assets with liabilities only
C. Match cash receipts with cash payments
D. Delay all expenses
Correct Answer: A
Matching associates relevant costs with the revenue or period to which they relate.
Accounting & Auditing
Accrual and Matching Concepts
Salary for December paid in January should normally be recognized as expense in:
A. December
B. January only
C. Both months in full
D. Neither month
Correct Answer: A
The expense is recognized in the period in which employees render the service.
Accounting & Auditing
Accrual and Matching Concepts
Cash paid in advance for insurance is initially recognized as:
A. Prepaid expense (asset)
B. Accrued liability
C. Revenue
D. Capital
Correct Answer: A
The unexpired benefit is an asset until the insurance service is consumed.
Accounting & Auditing
Accrual and Matching Concepts
An expense incurred but not yet paid is called:
A. Accrued expense
B. Prepaid expense
C. Capital reserve
D. Unearned revenue
Correct Answer: A
An accrued expense belongs to the current period although payment is still outstanding.
Accounting & Auditing
Accrual and Matching Concepts
Under accrual accounting, revenue is generally recognized when:
A. Earned, not merely when cash is received
B. Cash is received only
C. Invoice is printed regardless of performance
D. Management wants higher profit
Correct Answer: A
Accrual accounting recognizes revenue when earned according to applicable recognition criteria, not simply on cash receipt.
Accounting & Auditing
Accounting Principles and Concepts
The double-entry system requires that total debits:
A. Equal total credits for each transaction
B. Always exceed credits
C. Equal total assets
D. Equal cash receipts only
Correct Answer: A
Every transaction is recorded with equal debit and credit effects.
Accounting & Auditing
Accounting Principles and Concepts
Which is an example of a current liability?
A. Trade payables
B. Land
C. Share premium
D. Sales
Correct Answer: A
Trade payables are normally obligations settled in the operating cycle or near term.
Accounting & Auditing
Accounting Principles and Concepts
Which is an example of a current asset?
A. Trade receivables
B. Share capital
C. Long-term loan payable
D. Sales revenue
Correct Answer: A
Trade receivables are generally expected to be realized in the operating cycle or within the relevant current period.