question

What is accounting?

answer

-Measures business activities -Processes data into reports and communicates the data to decision makers -is often called the language of business

question

A disadvantage of general partnership is:

answer

each partner may conduct business in the name of the entity and make agreements that legally bind all partners

question

True statement for a limited liability company?

answer

Members have limited liability for the debts of the business

question

Two types of accounting:

answer

-Financial -Managerial

question

Decision makers who use accounting info include:

answer

-creditors -the Securities and Exchange Commission -the Internal Revenue Service

question

The ____________ is elected by the stockholders and is responsible for setting policy and appointing officers

answer

Board of Directors

question

Owners of an LLC are called:

answer

Members

question

Advantages of a corporation include:

answer

Limited liability of the stockholders for the corporation's debts

question

Shareholders of a corporation:

answer

Have limited liability for the corporation's debts

question

An important fact to consider when determining how to organize a business is that:

answer

For accounting purposes, a proprietorship is a distinct entity from the proprietor

question

Characteristics of faithfully representative info do NOT include:

answer

Relevant

question

Enhancing qualitative characteristics of accounting info do NOT include:

answer

Materiality

question

Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements, such as creditors. This qualitative characteristic of info is called:

answer

understandability

question

The fair value of a plant asset is equal to:

answer

The amount the business could sell the asset for

question

TRUE OR FALSE U.S. Generally Accepted Accounting Principles are used by many countries in the world

answer

False

question

To be useful, accounting info must have the fundamental qualitative characteristics of:

answer

Relevance and Faithful Reprensentation

question

TRUE OR FALSE The entity assumption draws a sharp boundary around each entity

answer

True

question

TRUE OR FALSE The entity assumption ensures that the business will continue indefinitely

answer

False

question

TRUE OR FALSE Under the entity assumption, the entity is any organization that stands apart as a separate economic unit

answer

True

question

TRUE OR FALSE The transactions of the business cannot be combined with the transactions of the owner

answer

True

question

Verifiability means that the info:

answer

Must be capable of being checked for accuracy, completeness, and reliability

question

The stable monetary unit assumption:

answer

Enables accountants to ignore the effect of inflation on the accounting records

question

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of the purchase is the:

answer

Historical cost principal

question

The accounting equation can be stated as:

answer

Assets-Liabilities= Stockholder's Equity

question

Another way to state the accounting equation is:

answer

Assets=Liabilities + Paid - in capital+ Retained Earnings

question

Liabilities are:

answer

Debts payable to outsiders called creditors

question

What increases retained earnings?

answer

Net income

question

Net income is computed as:

answer

Revenues-Expenses

question

All of the following are expenses EXCEPT for:

answer

Dividends

question

Which of the following statements is TRUE?

answer

Dividends reduce retained earnings

question

Receivables are classified as:

answer

assets

question

Net income:

answer

is often referred to as the "bottom line" on an income statement

question

Revenues are:

answer

increases in retained earnings resulting from delivering goods or services to customers

question

Expenses of a business include:

answer

cost of goods sold and salaries expense

question

What is an accounts payable?

answer

It is a liability for goods or services purchased on credit and supported by the credit standing of the purchaser

question

Which financial statement answers the following question: What is the company's financial position?

answer

Balance sheet

question

Which financial statement answers the following question: What is the company's operating performance over the past year?

answer

Income statement

question

Which financial statement reports cash payments and cash receipts over a period of time?

answer

Statement of cash flows

question

The CORRECT data flow from one financial statement to the next is:

answer

income statement, statement of retained earnings, balance sheet, statement of cash flows

question

The balance sheet is also known as the:

answer

statement of financial posititon

question

The balance sheet reports information about:

answer

assets, liabilities, and owner's equity

question

On the statement of retained earnings:

answer

a net loss is shown in parentheses as a deduction

question

The current portion of a long-term note payable is classified on the balance sheet as a:

answer

current liability

question

The ending balance of Retained Earnings is reported on the:

answer

-Balance Sheet -Statement of Retained Earnings

question

The ending balance of Cash is reported on the:

answer

-Balance Sheet -Statement of Cash Flows

question

The Statement of Retained Earnings is used to prepare the:

answer

Balance Sheet

question

On the Statement of Cash Flows, the ending balance of cash is also found on the:

answer

Balance Sheet

question

Dividends declared are reported on the:

answer

Statement of Retained Earnings

question

The three factors that influence business and accounting decisions are:

answer

economic,legal, and ethical

question

The ________ factor recognizes that while certain actions might be both economically profitable and legal, they still may not be right

answer

Ethical

question

The economic factor in decision making requires the decision maker to:

answer

maximize the economic benefit to the decision maker

question

TRUE OR FALSE A transaction is any event that has a financial impact on the business and that can be measured reliably.

answer

True

question

Which of the following is NOT a business transaction?

answer

A company fired 10 percent of the employees due to lackluster sales

question

TRUE OR FALSE The account is the basic summary device used in accounting

answer

True

question

TRUE OR FALSE An accounts receivable usually specifies an interest rate

answer

False

question

TRUE OR FALSE Assets include cash, land, and accounts payable

answer

False

question

TRUE OR FALSE Prepaid expenses are an asset

answer

True

question

A record of all the changes in a particular asset during a period of time is found in a(n):

answer

account

question

TRUE OR FALSE Retained Earnings is considered an asset?

answer

False

question

Notes Receivable

answer

Asset

question

Cash

answer

Asset

question

Prepaid Expenses

answer

Asset

question

Which account includes bank account balances in multiple checking accounts?

answer

Cash

question

Notes payable, accounts payable, taxes payable and salaries payable are all examples of:

answer

Liabilities

question

The debt created by a business when it makes a purchase of inventory on account is a(n):

answer

account payable

question

Which of the following transactions will increase Stockholder's Equity?

answer

The company issues common stock to new shareholders

question

Which of the following transactions will increase one asset and decrease another asset?

answer

The purchase of equipment for cash

question

A company performed services for a customer for cash. This transaction increased assets and:

answer

increased revenues

question

A company receives an utility bill and immediately pays it. With this transaction:

answer

stockholders' equity is decreased

question

Company Z sells land for the same amount it paid for it three years ago. When the company records this transaction:

answer

one assets is increased and another asset is decreased

question

When a company borrows money from the bank, which type of account(s) is(are) increased?

answer

asset and liability accounts

question

When a company pays an amount it owes a creditor:

answer

assets are decreased and liabilities are decreased

question

Purchasing supplies on account would:

answer

increase total assets and increase total liabilities

question

Which of the following transactions would decrease an asset and decrease stockholders' equity?

answer

The declaration and payment of a dividend to the shareholders

question

A company received $35,000 cash and issued common stock in exchange. In transaction analysis, how does this transaction affect the accounting equation?

answer

Add $35,000 to Cash account and add $35,000 to common stock account

question

A company purchased supplies of $4,000 on account. In transaction analysis, how does this transaction affect the accounting equation?

answer

Add $4,000 to Supplies account and add $4,000 to Accounts Payable account

question

On May 1, a company provided legal services for a new client. The lawyer asked for $1,300 and the client paid with a check on May 1 before leaving the office. In transaction analysis, how does this transaction affect the accounting equation?

answer

Add $1,300 to Cash account and add $1,300 to Retained Earnings account

question

A company went to the bank and borrowed $15,000 on a long-term note. In transaction analysis, how does this transaction affect the accounting equation?

answer

Add $15,000 to Cash account and add $15,000 to Notes Payable account

question

A company declared and paid dividends of $900. In transaction analysis, how does this transaction affect the accounting equation?

answer

Subtract $900 from Retained Earnings account and subtract $900 from Cash account

question

The left side of a T-account is always the:

answer

Debit side

question

The proper order for the accounting process is:

answer

Transaction occurs, transaction analyzed, journalizing, and posting

question

The ledger:

answer

contains all the accounts used by a business

question

Posting is:

answer

copying the information from the journal to the ledger

question

Every journal entry:

answer

must debit at least one account and credit at least one account

question

An owner makes an investment of cash into the business and receives shares of stock. This transaction would include a:

answer

debit to Cash, and a credit to Common Stock

question

A business paid $44,000 cash to purchase equipment. The business would:

answer

debit Equipment for $44,000 and credit Cash for $44,000

question

A business purchased office supplies of $10,000 on account. The business would:

answer

debit supplies for $10,000 and credit Accounts payable for $10,000

question

A business paid $2,000 on account. The journal entry would:

answer

debit Accounts Payable for $2,000 and credit Cash for $2,000

question

Two employees worked a week and the business paid salaries of $1,500. The journal entry would:

answer

debit Salary Expense for $1,500 and credit Cash for $1,500

question

TRUE OR FALSE Accounts are listed in random order in a trial balance

answer

False

question

TRUE OR FALSE A trial balance is one of a company's major financial statements

answer

False

question

TRUE OR FALSE Although a trial balance can be prepared at any time, the most common time is at the end of the accounting period

answer

True

question

The normal balance of an expense account is a _________ because expenses decrease ____________.

answer

debit, Retained Earnings

question

The normal balance of an account:

answer

falls on the side where increases are recorded

question

The normal balance of a revenue account is a ____________ because revenues increase ___________.

answer

Credit, Retained Earnings

question

When computing the normal balance of an account:

answer

accounts payable should have a credit balance

question

The trial balance is used to determine if:

answer

total debits of all the accounts equal total credits of all the accounts

question

What is true regarding a trial balance?

answer

-A trial balance shows the total debits equals total credits -A trial balance is a list of all accounts used in a business with their balances -A trial balance may be prepared at any time during the accounting period

question

A trial balance has which of the following features?

answer

Totals for all accounts listed in the ledger

question

Which account has a normal debit balance?

answer

Advertising Expense

question

The normal balance of the Accounts Receivable account is a ________ because it is a(n) __________ account

answer

debit, asset

question

When listing the accounts on the trial balance, where is the account Dividends listed?

answer

After Retained Earnings

question

The dollar amounts listed on the trial balance are obtained from the:

answer

ending balances in the ledger accounts

question

The trial balance is used to prepare the:

answer

-statement of retained earnings -balance sheet -income statement only

question

A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual- basis accounting, the doctor recognizes revenue:

answer

in March

question

A doctor performed surgery in April and did not receive cash payment from the patient until August. Under cash-basis accounting, the doctor recognizes revenue:

answer

in August

question

Under accrual-basis accounting, revenue is recorded:

answer

when the services are performed, regardless of when the cash is received

question

Which of the following transactions would be recorded under accrual- basis accounting but NOT under cash-basis accounting?

answer

Purchasing of inventory on account

question

Which of the following is a CORRECT statement about the different accounting methods?

answer

GAAP requires accrual-basis accounting

question

The method of accounting that records revenues ONLY when cash is received is the:

answer

cash-basis method

question

When cash -basis accounting is used, and services are provided on account:

answer

both the income statement and the balance sheet will be incorrect

question

An expense occurred in 2013, but it is not paid until 2014. Using the accrual basis of accounting, the expense should appear on:

answer

the 2013 income statement

question

An expense occurred in 2013, and it is not paid until 2014. Using cash- basis accounting, the expense should appear on:

answer

the 2014 income statement

question

An interim period used for reporting purposes is generally:

answer

less than one year

question

The requirement to report accounting information at regular intervals is know as the:

answer

time-period concept

question

Under cash- basis accounting, cash receipts are treated as __________ and cash payments are treated as __________.

answer

revenues;expenses

question

The revenue principle governs two things:

answer

when to record revenue and the amount of revenue to record

question

The revenue principle requires that a business record revenue when the business:

answer

delivers goods or services to a customer

question

Following the expense recognition principle, recognizing expenses along with the related revenues means to:

answer

subtract expenses from the related revenues to compute net income or net loss

question

The following accounts are up-to-date and need no adjustment at the end of the period:

answer

Cash,Land and Common Stock

question

Adjusting entries:

answer

-adjust Unearned Revenue -are made before the financial statements can be prepared

question

Prepaid expenses will:

answer

become expenses when their future benefits expire

question

__________ is the allocation of the cost of an asset over the asset's useful life.

answer

Depreciation

question

__________ will be increased when a company receives cash before performing the services

answer

Unearned Service Revenue

question

The book value of a plant asset is the:

answer

cost of the asset less the accumulated depreciation

question

With an accrual of revenue:

answer

the cash is received after the revenue is recorded

question

When an adjustment is made for prepaid rent:

answer

an asset decreases and an expense increases

question

Which account is credited in the adjusting entry to allocate the cost of equipment to an expense account?

answer

Accumulated Depreciation

question

Which accounts are used in the adjusting entry to record salaries owed to employees, but not paid until the next accounting period?

answer

Salaries Expense and Salaries Payable

question

At the end of the accounting period, a company has accrued interest revenue that they will not receive until the next accounting period. The adjusting entry would include a:

answer

debit to Interest Receivable

question

The Accumulated Depreciation account:

answer

is a contra asset account

question

Which of the following financial statement(s) is(are) prepared using the adjusted trial balance?

answer

Balance sheet, income statement, and statement of retained earnings

question

Which of the following is NOT a correct statement about adjusting entries?

answer

Every adjusting entry affects Cash

question

The adjustment for an accrued expense:

answer

increases expenses and increases liabilities

question

The adjustment for an accrued revenue:

answer

is necessary because a business often earns revenue before they receive the cash

question

The adjusting entry to record the accrual of income tax expense includes a:

answer

credit to Income Tax Payable

question

If adjusting entries are not prepared, which financial statements are misstated?

answer

income statement, balance sheet and statement of retained earnings

question

What form of business organization will give the most freedom to manage the business as someone wishes?

answer

Proprietorship

question

Proprietorship offers the most freedom because

answer

there is a single owner, so the owner has absolute control over the business

question

What form of organization will give creditors the maximum protection in the event that a corporation fails and cannot pay its debts?

answer

Partnership

question

If a _____________ fails and cannot pays its liabilities, creditors ______ force the partners to pay the business's debts from their personal assets

answer

Partnership, can

question

This type of organization (partnership) affords more protection for creditors than a proprietorship because _________________

answer

there are two or more owners to share the business' debts

question

Inflation has been around 5.5% for some time. Woodlake Realtors is considering measuring its land values in inflation-adjusted amounts

answer

Stable-monetary-unit concept

question

You get an especially good buy on a fax machine, paying only $300 when it normally cost $800. What is your accounting value for this fax machine?

answer

Historical cost Principle

question

Burger King, the restaurant chain, sold a store location to McDonald's. How can Burger King determine the sale price of the store-by a professional appraisal, Burger King cost, or the amount actually received from the sale?

answer

Historical cost principle

question

General Motors wants to determine which division of the company- Chevrolet or GMC- is more profitable

answer

Entity assumption

question

What are the economic resources of a business that are expected to be of benefit in the future

answer

Assets

question

_________ represents the claims to the __________ held by the owners of the business

answer

Owners' equity, assets

question

Assets must be at least as large as

answer

owners' equity

question

Owners' equity can be smaller than

answer

assets

question

Both liabilities and owners' equity are claims to

answer

assets

question

_________ are the outsider claims of the assets of a business

answer

Liabilities

question

__________ represents the insider claims to the assets of the business

answer

Owners' equity

question

Accounts Receivable

answer

Asset

question

Long-term debt

answer

Liability

question

Merchandise inventory

answer

Asset

question

Prepaid expenses

answer

Asset

question

Accrued expenses payable

answer

Liability

question

Equipment

answer

Asset

question

Notes Payable

answer

Liability

question

Retained Earnings

answer

Stockholders' Equity

question

Land

answer

Asset

question

Accounts Payable

answer

Liability

question

Common Stock

answer

Stockholders' Equity

question

Supplies

answer

Asset

question

Identify the two basic categories of items on an income statement

answer

Revenues and expenses

question

What do we call the bottom line of the income statement?

answer

Net income (or net loss)

question

Revenues-Expenses =

answer

Net income

question

Assets-Liabilities-Common Stock=

answer

Retained Earnings

question

Accounts Payable (financial statement)

answer

Balance sheet

question

Inventory

answer

Balance sheet

question

Interest revenue

answer

Income statement

question

Long-term debt (financial statement)

answer

Balance sheet

question

Net cash used for financing activites

answer

Statement of Cash Flows

question

Salary expense

answer

Income statement

question

Cash (financial statement)

answer

Balance sheet and Statement of cash flows

question

Dividends

answer

Statement of cash flows and Statement of retained earnings

question

Increase or decrease in cash

answer

Statement of cash flows

question

Net income

answer

Statement of cash flows, Income sheet, Statement of retained earnings

question

Net cash provided by operating activities

answer

Statement of cash flows

question

Retained earnings

answer

Balance sheet and Statement of retained earnings

question

Sales Revenue

answer

Income statement

question

Common stock (financial statement)

answer

Balance sheet

question

Revenue (financial statement)

answer

Income statement

question

Dividends (financial statement)

answer

Statement of retained earning and Statement of cash flows

question

Ending cash balance

answer

Balance sheet and Statement of cash flows

question

Total assets

answer

Balance sheet

question

Selling, general, and administrative expense

answer

Income statement

question

Adjustments to reconcile net income to net cash provided by operations

answer

Statement of cash flows

question

Cash spend to acquire the building (financial statement)

answer

Statement of cash flows

question

Current liabilities (financial statement)

answer

Balance sheet

question

Income tax expense (financial statement)

answer

Income statement

question

Net income (financial statement)

answer

Income statement, statement of retained earnings, and statement of cash flows

question

Common Stock (financial statement)

answer

Balance sheet

question

Ending balance of retained earnings (financial statement)

answer

Balance sheet and statement of retained earnings

question

income tax payable (financial statement)

answer

balance sheet

question

Accounts payable

answer

Liabilitiy

question

How can a business earn large profits but have a small balance of retained earnings?

answer

Paying large dividends will cause retained earnings to be low

question

Give two reasons why a business can have a steady stream of net income over a five-year period and still experience a cash shortage

answer

heavy investing activity and paying of debts can result in a cash shortage even if net income has been high

question

If you could pick a single source of cash for your business, what would it be? Why?

answer

The single best source of cash for a business is collections from customers. This source of cash is best because it results from the core operating activities of the business

question

How can a business be unprofitable several years in a row and still have plenty of cash?

answer

Borrowing money, issuing stock to stockholders, and selling land, buildings and equipment can bring in cash even when the company has experienced losses.

question

Companies prefer to have their largest source of cash come from where?

answer

Operating activities

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