If an Adjusting Entry Is Not Made for an Accrued

question 109

Multiple Choice

If an adjusting entry is not made for an accrued revenue

• A) assets will be overstated.
• B) expenses will be understated.
• C) owner's equity will be understated.
• D) revenues will be overstated.

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Definitions:

Budgeted

Relates to the financial plan that estimates future revenue and expenses over a specific time period.

Denominator Level

In cost accounting, it refers to the total amount of allocation base (e.g., direct labor hours, machine hours) that is used to calculate the predetermined overhead rate.

Standard Cost System

A cost accounting method that assigns expected costs to products to help in setting budgets and analyzing cost variances.

Volume Variance

The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output.