ch3

Financial Accounting

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ch3 Student: ___________________________________________________________________________ 1. The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers. True False 2. A retail store would likely have a shorter operating cycle than an automotive manufacturer. True False 3. The time period assumption implies that the life of a business entity can be reported in time periods such as quarters and years. True False 4. An example of operating revenues would be the revenue created by the sale of an automobile by a car dealership. True False 5. Revenue is recognized at the time that cash is collected from a customer for services to be provided in the future. True False 6. Unearned revenues are reported as liabilities on the balance sheet. True False 7. Interest expense is reported on the income statement as an operating expense. True False 8. Earnings per share must be either reported on the income statement or disclosed in the notes to the financial statements. True False 9. Investment income is reported on the income statement as operating revenues and therefore increases operating income. True False 10. Expenses are decreases in assets or increases in liabilities incurred in order to generate revenues. True False
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11. Salary expense is recognized on the income statement when the salaries are paid rather than when the employee provides the services. True False 12. A gain resulting from the sale of plant and equipment does not create operating income on the income statement. True False 13. Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid. True False 14. Under accrual accounting, revenues are recognized when earned and expenses are recognized when incurred. True False 15. Application of generally accepted accounting principles requires that the accrual basis of accounting be used for reporting revenues and expenses on the income statement. True False 16. The matching principle requires expenses to be recorded on the income statement when incurred in generating revenues. True False 17. The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer regardless of the timing of the cash collection from customers. True False 18. Selling inventory to a customer on account results in an increase in both assets and revenues. True False 19. Cash collected prior to the providing of the good or service results in an increase in both assets and liabilities.
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ch3 - ch3 Student: _ 1. The operating cycle is the time...

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