Working Capital

Question 1

What is deferred revenue?

Answer 1

Money received in advance for goods or services that have not yet been delivered or performed

Examples include subscription fees, advance rent payments, or prepaid memberships.

Question 2

How is deferred revenue treated in accounting?

Answer 2

Recognized as a liability on the balance sheet until the service or product is delivered, then recognized as revenue on the income statement.

Question 3

What is deferred expense?

Answer 3

Expenses paid in advance for goods or services that will be consumed in the future

Examples include prepaid insurance, rent, or advertising costs.

Question 4

How is a deferred expense recorded in accounting?

Answer 4

Recorded as an asset on the balance sheet and gradually expensed as the service or benefit is used up.

Question 5

True or False: Deferred revenue deals with benefits you’ve prepaid for but haven’t fully utilized.

Answer 5

False

Question 6

Fill in the blank: Deferred revenue deals with _______ that you’ve received but haven’t earned yet.

Answer 6

obligations

Question 7

Fill in the blank: Deferred expenses deal with benefits you’ve _______ for but haven’t fully utilized.

Answer 7

prepaid

Question 8

What is the main difference between deferred revenue and deferred expenses?

Answer 8

Deferred revenue is an obligation for services not yet performed, while deferred expenses are prepaid costs for future benefits.

Question 9

What are accrued expenses?

Answer 9

Expenses that have been incurred but not yet paid.

Question 10

True or False: Accrued expenses are recorded before the cash is paid.

Answer 10

True

Question 11

Define deferred revenue.

Answer 11

Revenue that has been received but not yet earned.

Question 12

Fill in the blank: Accrued expenses are typically recorded as a ___.

Answer 12

liability

Question 13

What is an example of an accrued expense?

Answer 13

Wages payable

Question 14

True or False: Deferred revenue is a liability on the balance sheet.

Answer 14

True

Question 15

What happens to accrued expenses when payment is made?

Answer 15

They are eliminated from the liability account.

Question 16

Which financial statement reflects accrued expenses?

Answer 16

Balance sheet

Question 17

Multiple Choice: Which of the following is NOT an example of deferred revenue? A) Subscription fees B) Rent received in advance C) Utilities payable

Answer 17

C) Utilities payable

Question 18

What is the journal entry to record an accrued expense?

Answer 18

Debit the expense account and credit the accrued liabilities account.

Question 19

Fill in the blank: When a company earns revenue that was previously deferred, it ___ the deferred revenue account.

Answer 19

debits

Question 20

True or False: Accrued expenses can be estimated.

Answer 20

True

Question 21

What is the effect of accrued expenses on net income?

Answer 21

They decrease net income.

Question 22

Define the term ‘matching principle’ in accounting.

Answer 22

The principle that expenses should be matched with the revenues they help to generate.

Question 23

Multiple Choice: Which of the following accounts is increased when recognizing deferred revenue? A) Cash B) Revenue C) Deferred Revenue

Answer 23

C) Deferred Revenue

Question 24

What type of account is accrued expenses classified as?

Answer 24

Liability account

Question 25

Fill in the blank: Deferred revenue is recognized as revenue when the service is ___ or the product is delivered.

Answer 25

performed

Question 26

True or False: Accrued expenses are always paid within the same accounting period they are incurred.

Answer 26

False

Question 27

What is the primary purpose of recording accrued expenses?

Answer 27

To ensure that expenses are recognized in the correct accounting period.

Question 28

Multiple Choice: Which of the following is a common type of deferred revenue? A) Taxes payable B) Gift card sales C) Accounts receivable

Answer 28

B) Gift card sales

Question 29

What happens to deferred revenue when the service is performed?

Answer 29

It is recognized as revenue on the income statement.

Question 30

Fill in the blank: Accrued expenses are typically recorded at the ___ amount.

Answer 30

estimated

Question 31

True or False: Both accrued expenses and deferred revenue are important for accurate financial reporting.

Answer 31

True

Question 32

What accounting principle requires that accrued expenses be recorded in the period they occur?

Answer 32

Accrual basis of accounting

Question 33

Multiple Choice: Which of the following best describes accrued expenses? A) Cash outflow B) Future obligation C) Past obligation

Answer 33

C) Past obligation

Question 34

What is the impact of not recording accrued expenses?

Answer 34

It can lead to understated liabilities and overstated net income.