Hello, in this presentation, we will take a look at multiple choice questions related to the adjusting process. First question, the broad principle that requires expenses to be reported in the same period as the revenue that were earned as a result of the expenses is the a revenue recognition principle B, cost recognition, C cash basis of accounting, the matching principle, a time period assumption, once again, the broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the a recognition principle. You might look at that government kind of sounds like it could be a principle that would be apply to we're going to say the cost recognition principle. And again, you kind of might be saying cost we're talking we are talking about basically the expense recognition principle here. So you might be looking at that see says cash basis of accounting.

And that's not going to be it because cash basis is the opposite of this here cash would just be we're going to recognize expenses when we pay cash. So we can cross that one out. D is the matching principle that might ring a bell. So that sounds kind of familiar. And then he says, the time period principle, and that has to do with when when you know when do we recognize reporting in terms of months or years, so it's not going to be the time period principle. So what we have left, then the broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the recognition principle, cost recognition or matching.

And you might be able to get this just through the terminology that we have here. We're where it says we're going to basically recognize the expenses kind of when they match up to the revenue That's gonna be the matching principle. So that's what we call the expense side the accrual principle, the expense side, the matching could be expense recognition principle as well. And the idea of the matching the reason it's more complex of a name typically is because our goal on the revenue side is revenue recognition principle that's easy to remember. Because it's revenue recognition principle that seems pretty straightforward. But on the on the other side of it, the reason it's straightforward is because revenue is our goal to achieve revenue.

And on the matching side, we have to recognize expenses as they're consumed to help us achieve those goals. We have to match the expenses when they were consumed in order to get the related revenue that we got. Next question. The system of recognizing revenues when cash is received and reporting expenses when cash is paid is called a accrual basis. Be operating cycle, see revenue recognition, D cash basis, ie current basis. Once again, the system of recognizing revenues when the cash is received and recording expenses when cash is paid is called a accrual principle, that's actually going to be the opposite because this is this is talking about we're going to recognize things when received and paid in terms of cash and revenue expenses.

And they and so that's accrual means we're going to have the revenue recognition when earned and the matching principle. So be says operating cycle doesn't really have anything to do with the operating cycle so it doesn't look right. C says revenue recognition. Once again, that's going to be kind of the opposite. This is talking about we're recognizing revenue when we got cash and revenue recognition would meet when we earned it. So it doesn't look like that would be the one D says cash basis.

And that sounds pretty good actually here because we're recognizing when cash is we received an expenses when cash is paid. So I'm going to go ahead and circle that now and say that sounds pretty good. And then he says, current basis, which sounds kind of like an a generic term. I'm not sure if that is an actual term. So I'm going to cross it out and say D is probably the answer once again, the whole thing is the system of recognizing revenues when cash is received and reporting expenses when cash is paid is called D cash basis. Next question, the accrual basis of accounting.

A is generally preferred for reporting financial statements because it is more accurate than cash basis for most business decisions. B is flawed because it does not give complete information about cash flows. C recognizes revenue when cash received. D recognizes expenses when cash paid. He eliminates the need for adjusting entries. So if we go through those one skin, we're going to say the accrual basis of accounting, a is generally preferred for reporting financial statements because it is more accurate and cash basis for most business decisions.

That sounds pretty good right there because remember when when we think about the accrual basis, the book is always going to like, or you know, whatever most accounting principles will like the accrual basis. So whenever you're looking at materials, including these materials, you want to be biased towards the accrual basis. So when it says the accrual basis is better, we're probably gonna say, that's probably what we're looking for there. And it's true, of course, it is true, the accrual basis does report better in some ways. So and that's because of the matching principle so they compare ability. So then B says is flawed because it does not give complete information about cash flows.

Now, you might say that, that sounds kind of good, too. Because we might consider that so we'll come back to that as well c says, recognizes revenue when cash received. And that's not true because it's going to recognize revenue when earned not when cash received, that would be cash basis. D says, recognizing expenses when cash is paid, once again, not true, because that would be a cash basis. And note that if you saw these two, you might say, if you were confused and say, Hmm, maybe it'll sound good. But the fact that they're both there and they cannot be both the correct answer will allow us to eliminate those typically as well.

He is going to say eliminates the need for adjusting entries. Our normal process is an accrual process and we have an adjusting process within it. So it doesn't eliminate the need for adjusting entries. So we're left with a and b. So the question once again, the accrual basis of accounting a is generally preferred for reporting financial statements. That sounds pretty good because it is more accurate in cash basis for most business decisions, I'm going to go ahead and pretty much say that's probably going to be there, but be even says is flawed because it does not give complete information about cash flows.

And this might, this may actually be kind of true. I mean, if you look at the income statement, we don't see that. It's not based on cash flows, it's based on when revenue was earned, and expenses incurred. But there is going to be a cash flow statement typically within the financial statements as well, which will kind of cover that hopefully, and then allow us to report the income statement in a way that we have a matching principle so that so that, you know, we can compare periods to periods. So if you're, if you're kind of thinking about these two, once again, you want to be saying I'm biased towards the accrual basis, and you should be because it is better. But just recall that, you know, there is always going to be bias here.

So we're going to say it's probably not going to be that we're going to stick with a final answer. The accrual basis of accounting a is generally preferred for reporting financial statements because it is more accurate than cash basis for most business decisions.