 Hello! In this presentation, we will take a look at multiple choice questions that have to do with the adjusting process. First question. The accounting principle that requires revenue to be recorded when earned is A. Matching principle B. Accrual reporting principle C. Time period assumption D. Revenue recognition principle E. Going concern principle Once again question the accounting principle that requires revenue to be recorded when earned is. So the matching principle possibly I'm going to skip that one. Accrual reporting principle. Accrual reporting sounds pretty good. It's going to talk about accrual time period assumption for the last one. We're going to say that one probably doesn't really ring a bell to me. I'm going to cross that out now. Next one. Revenue recognition principle. It's got the word revenue in it and that's what we're looking at here. So that seems like a good one. The E then says going concern assumption. That doesn't have anything to do with what we're talking about here. It looks like. So I'm going to cross that one out. Matching principle. Accrual reporting and revenue recognition principles. What we have now. Question once again. The accounting principle that requires revenue to be recorded when earned. Now the matching principle isn't accrual principle but it's actually the expense side. So I'm going to cross that out. Accrual reporting principle. That is kind of a general setting where we're going to say accrual principles include the matching principle and revenue recognition. So you could say hey you know this is a right. This is an accrual thing here that won't when we recognize revenue but the more proper answer would actually be the revenue recognition principle. It's more specific. That's what the actual accrual principle are. So this isn't accrual principle but it's a more specific accrual principle related to when revenue should be recognized. Next question. Interim financial statements are reports. A. That cover less than one year. B. That are prepared before any adjustments. C. That show the assets liabilities and equity in one column. D. Where revenues are reported on the income statement when cash is earned. And E. Where the adjustment process is used to assign revenues to the periods they are earned. That question once again. Interim financial statements are reports. That cover less than one year. That looks like a plausible answer where we got less than a year. B. That are prepared before any adjustments. Possibly. We're saying they're interim. They're not quite done yet. I'll leave that for now. C. That show that assets liabilities and equity in one column. And it sounds kind of arbitrary. I don't think they're going to say that it has to do with one column. Just formatting in other words rather than having two columns. D. Where revenues are reported on the income statement when cash is received. So that's going to be a cruel principle. It's an accrual principle but I'm not sure it applies to interim financial statements and not all financial statements that are on a cruel basis. So I'm going to say that probably is not it. E. We're going to say where the adjustment process is used to assign revenues to the period they are earned. Once again we're looking at the adjustment process basically to apply the revenue recognition principle. And the revenue recognition principle is not specific to just the interim time period. So I'm going to say that's probably not it. Once again we have the question of interim financial statements are reports A. They cover less than one year and B. That are prepared before any adjustments. Of these two I think A is going to be the one that we want to see here. So interim financial statements are reports A. That cover less than one year. Next question. Adjusting entries. A. Affect only income statement accounts. B. Affect only balance sheet accounts. C. Affect cash accounts. D. Affect both income statement and balance sheet accounts and E. Affect only equity accounts. Once again question of adjusting entries. A. We're going to say affects only income statement accounts. I don't think that's the case. The adjusted entries remember are happening at the end of the time period in order to make our financial statements correct as of that time period on an accrual basis. Because we are dealing with timing differences we typically will have one of each account balance sheet and the income statement. So we're going to say it's not just the income statement. B. Says affects only the balance sheet. Again that's not it. And we probably think of the income statement accounts before the balance sheet possibly because we are dealing with timing differences and the income statement is the timing statement. So we're trying to decide when those revenue and expenses have a timing effect. But as we do that we also of course need to record the other side which is going to be a balance sheet account. C. Says affects cash. Affect cash accounts. Now the adjusting entries actually the one account that is not affected in the adjusting entries is the cash account. Which is very different from of course normal journal entries where the cash account is affected all the time. Most of the time. About 75% we're going to say. D. We say affect both income statement and balance sheet accounts. I'm going to say that's the one. I'm going to say that's probably it. If we read E. It says affects only equity accounts. That's not going to be true either even if we assume equity including in the entire income statement. Because the income statement is kind of part of equity. We're we're saying it still has balance sheet accounts. That's not true. So we're going to say D. Best answer. Once again question of adjusting entries. D. Affect both income statement and balance sheet accounts.