When Using Accrual Basis Accounting, Financial Statement Preparers Must

question 117

Multiple Choice

When using accrual basis accounting, financial statement preparers must

• A) provide a supplementary note detailing that accrual accounting has been used.
• B) state within a note that cash basis accounting is not acceptable under GAAP.
• C) provide no supplementary note because the underlying assumption is that accrual basis of accounting is used on all financial statements.
• D) none of the above.

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Definitions:

Standard Costing

An accounting method that assigns predetermined costs to cost units, used to control costs and measure performance.

Labour Efficiency Variance

The difference between the actual labor hours used and the standard labor hours expected for the level of production achieved.

Variable Overhead

Indirect manufacturing costs that vary with the level of production output, such as utilities and maintenance expenses.

Labour Rate Variance

The difference between the actual cost of labor and its budgeted (or standard) cost, often arising from paying different wages than anticipated.