Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

1. Question

   (L.O. 2) Which of the following statements best describes the matching principle?

   1. Total debits to expense accounts should equal total credits to revenue accounts.
   2. Total debits must be matched with total credits in the ledger accounts.
   3. Amounts on the balance sheet must be matched with amounts reported on the income statement.
   4. Expenses should be recognized in the same period that the related revenues are recognized.

   Approach and Explanation: Mentally define the matching principle before you read the answer selections. Jot down the key words of your definition. The revenue recognition principle gives us guidance to determine when to recognize (record and report) revenue. The expense recognition (matching) principle then dictates that the expenses incurred in generating the revenue earned during the current period should be recognized in the same period as the revenue it helped to create. Answer selections “a” and “c” are nonsensical responses. Answer selection “b” refers to the fact that there is an equality of debits and credits in the ledger but that equality is due to the basic accounting equation and the double-entry accounting system, not the matching principle. (Solution = d.)

2. Question

   (L.O. 2) Which of the following statements is associated with the accrual-basis of accounting?

   1. The timing of cash receipts and disbursements is emphasized.
   2. A minimum amount of record keeping is required.
   3. This method is used less frequently ...