ACC 250 · Introduction to Financial Accounting
Nine questions on recognizing revenue and expense and on the timing accounts,
then one month of operating transactions to record and two totals to work out.
Fall 2026
What revenue comes with
Which statement about recognizing revenue is NOT correct?
C. Revenue comes with an increase in an asset or a decrease in a liability: Cash for a cash sale (A), Accounts Receivable for a sale on account (B). A sale on account brings in no cash, so D is true too. Deferred Revenue increases when a customer pays before delivery; nothing has been delivered yet, so that cash is a liability, not revenue. Revenue comes later, when the work is done and Deferred Revenue decreases.
What an expense comes with
Which statement about recognizing an expense is NOT correct?
C. An expense comes with a decrease in an asset or an increase in a liability: Cash paid for a cost (A), a bill not yet paid (B), wages owed (D), or insurance coverage used up (E). Buying supplies increases Supplies, an asset; the expense comes later, when the supplies are used and Supplies decreases.
Q3–Q6 · Four timing accounts
Which account does each definition describe? Answer each question with a letter from A to D.
C, A, D, B. The four come in mirror pairs. Selling or buying on credit leaves an amount owed: customers owe you (Accounts Receivable, an asset), and you owe suppliers (Accounts Payable, a liability). Cash moving before delivery leaves work still to happen: a customer paid you first (Deferred Revenue, a liability), or you paid a supplier first (Prepaid Expenses, an asset).
Revenue recognition
During March, Lakeside Florist delivered $18,000 of flowers and collected the cash, delivered $7,000 of flowers to a hotel that will pay in April, and received $2,000 from a bride for a wedding it will decorate in May. How much revenue should it recognize in March?
C. Revenue is recognized when the goods are delivered, whatever the cash does. The $18,000 and the $7,000 were both delivered in March, so both count — $25,000. The $2,000 is cash in hand for flowers not yet delivered, so it is a liability (Deferred Revenue), not revenue, until May.
Expense recognition · the matching principle
Lakeside Florist reports the five items below for March. Which one of them is an expense of March?
B. An expense belongs to the period in which the resource is used up, not the period it is paid for. March got the work, so March gets the expense even though the cash leaves in April. A and C are resources bought but not yet used, so they are still assets; E is February’s expense being paid off, and D is not an expense at all.
Net profit margin
For March, Lakeside Florist reports revenues of $25,000 and expenses of $19,000. What is its net profit margin?
B. Net income is $25,000 − $19,000 = $6,000, and the margin divides it by revenue: $6,000 ÷ $25,000 = 0.24, or 24%. It says the shop keeps 24 cents of every sales dollar. Dividing by expenses instead gives option C, and option D is the share revenue spent rather than kept.
Questions 10–15 · The accounts
Write the number of the account that belongs on each line of the journal entry. Every entry draws on the ten accounts below, and an account may be used more than once, or not at all.
Q10 · Transaction A — Catered for cash
Transaction A. Willow Creek catered a corporate lunch for $14,000 and collected the cash the same day. Record transaction A.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 3. Cash (+A) | 14,000 | |
| 7. Service Revenue (+R, +SHE) | 14,000 |
3, then 7. The lunch has been catered, so the service is delivered and the $14,000 is revenue. Cash came in at the same time, so the asset Cash is debited. Revenue raises shareholders’ equity, and equity accounts increase with a credit.
Q11 · Transaction B — Catered on account
Transaction B. Willow Creek catered a second event for $9,000 and billed the client, who will pay in May. Record transaction B.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 2. Accounts Receivable (+A) | 9,000 | |
| 7. Service Revenue (+R, +SHE) | 9,000 |
2, then 7. The event has been catered, so the $9,000 is revenue in April even though no cash has moved. What the company holds instead is the right to collect, which is the asset Accounts Receivable. The only difference from transaction A is which asset goes up.
Q12 · Transaction C — Cash before the work
Transaction C. Willow Creek received $6,000 from a couple for a wedding it will cater in June. Record transaction C.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 3. Cash (+A) | 6,000 | |
| 4. Deferred Revenue (+L) | 6,000 |
3, then 4. Cash arrived, so Cash is debited — but nothing has been catered, so none of it is revenue yet. The company owes the couple a wedding, and that obligation is the liability Deferred Revenue. It becomes revenue in June, when the work is done.
Q13 · Transaction D — Paying ahead
Transaction D. Willow Creek paid $4,800 for a twelve-month insurance policy that begins on May 1. Record transaction D.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 6. Prepaid Insurance (+A) | 4,800 | |
| 3. Cash (−A) | 4,800 |
6, then 3. The cash is gone, but the coverage has not started, so nothing has been used up and there is no expense yet. What the company now owns is a year of future protection — the asset Prepaid Insurance. One asset was traded for another; Insurance Expense begins in May, a month at a time.
Q14 · Transaction E — The bill arrives first
Transaction E. Willow Creek received an $800 utility bill for April, which it will pay in May. Record transaction E.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 8. Utilities Expense (+E, −SHE) | 800 | |
| 1. Accounts Payable (+L) | 800 |
8, then 1. The electricity was used up in April, so April carries the $800 expense whatever month the bill is paid. Nothing has been paid, so the credit is the obligation to pay: Accounts Payable. An expense reduces shareholders’ equity, and it is recorded as a debit for exactly that reason.
Q15 · Transaction F — Worked now, paid later
Transaction F. Willow Creek’s employees worked in April and will be paid $5,200 on May 3. Record transaction F.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 9. Wages Expense (+E, −SHE) | 5,200 | |
| 10. Wages Payable (+L) | 5,200 |
9, then 10. The work was done in April, so the $5,200 is an April expense even though payday is 3 May. The company owes its employees, so the credit is the liability Wages Payable. This is the same shape as transaction E — the resource is used up before the cash leaves.
Q16 · Revenue for April
Willow Creek had no other transactions in April. How much revenue should it report for April?
The six transactions
Revenue — April
Amount: $23,000
$23,000. Only A’s $14,000 and B’s $9,000 were earned by catering an event in April. C’s $6,000 is cash for a June wedding, so it sits in Deferred Revenue and is not revenue yet — which is why the April total is not $29,000.
Q17 · Net income for April
What is its net income for April?
The six transactions
Net income — April
Amount: $17,000
$17,000. April’s expenses are E’s $800 of utilities and F’s $5,200 of wages, $6,000 in all, so net income is $23,000 − $6,000 = $17,000. D’s $4,800 of insurance is not in it: the cash is spent, but the coverage has not started, so none of it has been used up.
Revenue is recognized when goods or services are delivered, whatever the cash does.
An expense is recognized in the period the resource is used up, whatever the cash does.
Cash received before delivery is a liability (Deferred Revenue); cash paid before use is an asset (Prepaid Expenses).