1. Because accounting often requires estimates to be made to assess the effect of a transaction, the shorter the time period, the easier it becomes to determine the proper adjustments.
2. The time period assumption states that the economic life of a business entity can be divided into artificial time periods.
3. The time period assumption is often referred to as the matching principle.
4. A company's calendar year and fiscal year are always the same.
5. Accounting time periods that are one year in length are referred to as interim periods.
6. Expense recognition often follows revenue recognition.
7. The revenue recognition principle and the matching principle are helpful guides used in determining net income or net loss for a period.
8. The matching principle requires that efforts be related to accomplishments.
9. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
10. The cash basis of accounting is not in accordance with generally accepted accounting principles.
11. Adjusting entries are often made because some business events are not recorded as they occur.
12. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.
13. Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.
14. An adjusting entry always involves two balance sheet accounts.
15. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.
16. Accrued revenues are revenues which have been received but not yet earned.
17. If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.
18. The cost of a capital asset less accumulated amortization reflects the net book value of the capital asset.
19. The net book value of a capital asset is always equal to its market value because amortization is a valuation technique.
20. Accumulated Amortization is a liability account and has a credit normal account balance.
21. A liability-revenue account relationship exists with an unearned rent revenue adjusting entry.
22. The balances of the Amortization Expense and the Accumulated Amortization accounts should always be the same.
23. Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
24. Asset prepayments become expenses when they expire.
25. A contra asset account is subtracted from a related account in the balance sheet.
26. Accrued revenues are revenues that have been earned and received before financial statements have been prepared.
27. Financial statements can be prepared from the information provided by an adjusted trial balance.
28. The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.
29. Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.
30. An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account.