D102 Financial Accounting - Set 4 - Part 3

Correct Answer: When cash is received

Revenue is recognized when the earnings process is substantially complete, typically when goods or services are delivered.

Correct Answer: A gain is recorded

Selling an asset for more than its book value results in a gain, which increases net income.

Correct Answer: Overstated net income

Understating expenses leads to higher net income than it should be, as expenses reduce income.

Correct Answer: Debit accounts payable, credit cash

An increase in accounts payable indicates that the company incurred an expense on credit, thus crediting accounts payable.

Correct Answer: Net income is reduced by the amount of dividends paid

Dividends are paid from net income but do not impact the income statement; they are a distribution of profits.

Correct Answer: A use of cash

A decrease in inventory indicates that inventory has been sold, generating cash inflow.

Correct Answer: Revenue

Sales Returns and Allowances reduce total revenue and are classified as a contra-revenue account.

Correct Answer: Debit accounts payable, credit cash

When an expense is incurred but not paid, it is recorded as a liability (accounts payable) and the related expense.

Correct Answer: The bond liability account increases

Issuing bonds at a premium means the company receives more cash than the face value, increasing the bond liability.

Correct Answer: Balance sheet

The income statement summarizes revenues and expenses to show a company's profitability over a period.