AIPB ACTUAL EXAM QUESTIONS WITH

AIPB ACTUAL EXAM QUESTIONS WITH

ANSWERS GRADED A+

◉Accrued expenses . Answer: 1. Expenses that have been incurred, but

not yet paid for. To put it another way, an accrued expense is paid after being recorded on the books.

• Every adjusting entry for accrued expenses debits an expense account,

increasing expenses on the income statement and reducing net income, and credits a payable account, increasing liabilities on the balance sheet.

3. Failure to record an accrued expense will:

Liabilities will be understated on the balance sheet; Expenses will be understated on the income statement; and, as a result, Net income will be overstated on the income statement.

◉Cash Basis Accounting . Answer: Generally, payments received

(checks, cash, credit card, etc.) are income, and payments made are expenses. Cash basis businesses can almost produce an income statement from their checkbook, presenting total payments from customers as revenue and total disbursements as expenses.

◉Accrual Basis Accounting . Answer: This is the method required by

generally accepted accounting principles (GAAP). GAAP prohibits recording an incoming payment as revenue unless you have earned it.But if you have earned the revenue, you must recognize it (record the 1 / 2

revenue on your books) even if you have not received a single dollar of payment.

◉ACCRUED REVENUE . Answer: 1. Uncollected revenue, that is,

revenue earned but not yet received. To put it another way, receipt of cash takes place after the revenue is earned and recorded on the books.

• Every adjusting entry for accrued revenue debits a receivable account,

increasing assets on the balance sheet, and credits a revenue account, increasing revenue and net income on that period's income statement.

3. Failure to record accrued revenue will:

Assets will be understated on the balance sheet; Revenues will be understated on the income statement ; and, as a result, Net income will be understated on the income statement.

◉Unearned revenue (deferred revenue) . Answer: The receipt of

payment for services not yet performed. There are two ways to record:

1) to debit Cash and credit a liability account named Unearned Revenue, Revenue Collected In Advance, Revenue Received In Advance, etc.; The adjusting entry at the end of the period simply transfers the amount earned (recognized) from the balance sheet (Unearned Revenue) account to the income statement (Revenue) account. 2) The second way to record revenue collected in advance is to debit Cash and credit Revenue. The adjusting entry recorded at the end of the period reduces the balance in the Revenue account to the amount actually earned for the period. The unearned portion is transferred to Unearned Revenue

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