Home Page Social Science Economics Finance Accounting Accounting Quizzes 1-6 - Flashcards

Accounting Quizzes 1-6 – Flashcards

Jose Escobar

8 July 2022

question

Account payable, notes payable and wages payable are examples of liabilities.

answer

True

question

All corporations acquire financing by issuing stock for sale on public stock exchanges.

answer

False

question

Creditors are mainly interested in the profitability of a company.

answer

False

question

Contributed Capital is an Asset on the Balance sheet.

answer

False

question

Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

answer

True

question

Generally Accepted Accounting Standards require profitable companies to distribute some of their profits to their stockholders.

answer

False

question

If a company reports net income on the income statement, then the statement of cash flow must show an increase in cash flows from operating activities for the period.

answer

False

question

In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight board).

answer

False

question

Revenue is reported on the income statement only if cash was received at the point of sale.

answer

False

question

Stockholders are creditors of a company.

answer

False

question

The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.

answer

False

question

The Securities and Exchange Commission (SEC) is the governmental agency that has primary authority for setting accounting standards in the U. S.

answer

False

question

The stockholders' equity of a company is the difference between assets and liabilities.

answer

True

question

Net Income is:

answer

the amount by which revenues exceed expenses.

question

Expenses are shown:

answer

On the income statement in the time period in which they are incurred.

question

Cash flow from investing activities includes:

answer

Amounts received from the sale of the company's office building.

question

Operating activities:

answer

include interest paid on a bank loan.

question

Public corporations:

answer

are businesses whose stock is bought and sold on a stock exchange.

question

In which of the following organizational forms are the owners not taxed on the business profits? :

answer

Corporations

question

The separate entity assumption means:

answer

A company's financial statements reflected only the business activities of that company.

question

Accounting information systems:

answer

Capture and report the results of a business's operating, investing, and financing activities.

question

Public accountants:

answer

Provide services to a variety of business

question

Creditors are:

answer

People or organizations to whom a business owes money.

question

Financial statements are most commonly prepared:

answer

Monthly, quarterly, and annually.

question

Which of the following is true? :

answer

Companies can choose to end their fiscal year on any date they feel is most relevant.

question

Assets:

answer

Represent the resources owned by a company

question

Which of the following are the three basic elements of the balance sheet? :

answer

Assets, liabilities, and stockholders' equity.

question

A company signed an agreement to rent space from another company. This is an example of a recordable transaction.

answer

False

question

A debit may increase or decrease an account, depending on the type of account.

answer

True

question

A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders' equity of a company.

answer

True

question

If the total dollar value of credits to an account exceeds the total dollar value of debits to that account, the ending balance of the account will be a debit balance.

answer

False

question

If total assets increase, then either liabilities or stockholders' equity must also increase.

answer

True

question

Retained earnings is a cumulative earnings of a company which have not been distributed to owners, and is the same as the amount of cash in the bank.

answer

False

question

The ledger consists of all of the accounts used by a business.

answer

True

question

The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts.

answer

True

question

The trial balance is a financial statement that reports the assets, liabilities, and equity of a business at a point in time.

answer

False

question

Transactions are analyzed from the point of view of the company, not the company's owners.

answer

True

question

Which of the following statements regarding the balance sheet is true?:

answer

All liabilities require that the company sacrifice resources at some time in the future.

question

Which of the following statements regarding debits and credits is always true?:

answer

The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger.

question

Which of the following statements regarding the balance sheet is true?:

answer

Any item on a balance sheet labeled payable is a liability of that company.

question

Which of the following statements regarding the concepts underlying the balance sheet are true?:

answer

Under Generally Accepted Accounting Principles, assets are generally written down if the market value declines, but are not written up if the market value increases.

question

Which one of the following would be listed as a long-term asset?:

answer

Buildings and equipment.

question

Which of the following would be listed as a current liability?:

answer

Accounts payable

question

A long-term liability is one that the company:

answer

Will not pay off for over one year.

question

A current asset is one that:

answer

the company will use up or convert into cash in less than one year.

question

Which line items on the balance sheet would be classified as long term?:

answer

Property, Plant, and Equipment; Notes Payable; Other Assets.

question

Which of the following is not an example of an asset?:

answer

Retained Earnings

question

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?:

answer

Notes Payable

question

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to redesign its new store. Sweet Smell's balance sheet would show this as:

answer

$60,000 under Furnishings and Equipment and $60,000 under Notes Payable.

question

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?:

answer

Accounts Payable.

question

Which of the following describes the classification and normal balance of the retained earnings account?:

answer

Stockholders' equity Credit.

question

If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then:

answer

Assets would decrease by $20,000 while liabilities would decrease by $20,000

question

Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million. It is legally obligated to pay for the ad but has not yet done so:

answer

This is an external event that affects the balance sheet.

question

Your Company pays back $2 million on a loan it had received earlier from a bank:

answer

Assets decrease by $2 million, liabilities decrease by $2 million, stockholders' equity is unchanged.

question

A company does not need to record the receipt of a bill for utilities used during this year if they will not pay for it until next year.

answer

False

question

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.

answer

True

question

All revenues come from selling the company's goods or services.

answer

False

question

Costs that benefit future periods are reported as assets.

answer

True

question

Expenses are the same as expenditures.

answer

False

question

GAAP does not allow cash basis accounting to be used in external financial reports.

answer

True

question

If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result.

answer

False

question

If debits equal credits on the trial balance, it means that the accounting records do not contain any errors. False- In any given industry, companies are entirely consistent in the account titles they use on financial statements.

answer

False

question

It is possible for a company to be profitable, yet not enough cash to pay its bills.

answer

True

question

Net Income on the Income Statement is equal to the amount of cash generated by the business.

answer

False

question

Prepaid expenses would be reported on the Balance Sheet.

answer

True

question

Unearned Revenue is reported on the Balance Sheet as a liability.

answer

True

question

Which one of the following statements regarding the accrual and cash basis of accounting is true?:

answer

Using the accrual basis of accounting, if payment is received after delivery of a good or service, and asset is recorded at the time the good or service was delivered.

question

Which one of the following statements regarding the debit/credit processing of revenues and expenses is true?:

answer

Credits increase revenues.

question

Which one of the following statements regarding the trial balance is true?:

answer

The balances for each account reported on an unadjusted trial balance are determined by adding the amounts on the "+" side and subtracting the amounts on the "-" side of each ledger or T-account.

question

Which one of the following statements regarding the Revenue Recognition Principle and Expense Recognition (Matching) Principle is true?:

answer

Expenses are recorded when the company uses goods or services.

question

Which of the following statements regarding revenues and expenses is true?:

answer

Expenses decrease the amount of stockholders' equity.

question

Melody's Piano School operations for the month of May are summarized in the following three transactions: • Provided $500 of instruction to students. • Of the $500 of instruction provided in May, $400 is collected in cash, and an additional $300 is collected for lessons provided in April. • Paid April's piano rental bill of $100. Received May's bill of $150 but did not pay.

answer

What is Melody's Net Income for May using the cash basis of accounting? : $600 What is Melody's Net Income for May using the accrual basis of accounting? : $350

question

Net Income refers to:

answer

The difference between what was earned and the costs incurred during a period.

question

During November 2013, Asler Inc. performs consulting serices. The client does not pay Asler until January, 2014:

answer

Using the accrual basis of accounting, the revenue is reported in November 2013.

question

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. The cost of fertilizer is recorded:

answer

As an asset, which will later be reduced as the fertilizer is used.

question

Which of the following practices would not be considered ethical?:

answer

Recording 31 days of sales in April.

question

A contra account is added to the account it offsets.

answer

False

question

A deferral adjustment may involve one asset and one expense account.

answer

True

question

Adjusting entries often involve cash.

answer

False

question

Corporate income taxes cannot be calculated until all other adjustments are made.

answer

True

question

Depreciation is a measure of the decline in market value of an asset.

answer

False

question

One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

answer

False

question

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.

answer

False

question

The carrying value of an asset is an approximation of the asset's market value.

answer

False

question

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

answer

True

question

The purpose of adjusting entries is to transfer net income and dividends to retained earnings.

answer

False

question

Which of the following statements regarding types of adjusting entries is true? :

answer

A deferral adjustment that decreases an asset will include an increase in an expense.

question

Which of the following statements regarding adjusting entries is not true?:

answer

Adjusting entries often affect the cash account.

question

The book value of equipment is equal to which of the following?:

answer

Cost of equipment less accumulated depreciation.

question

Which of the following statements regarding the need for adjustments is not true?:

answer

Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.

question

Which of the following statements regarding the trial balance is correct?:

answer

The adjusted trial balance is a check that the accounting records are still in balance after posting all adjustments to the accounts.

question

Which of the following statements regarding the presentation of a trial balance is correct?:

answer

The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues, and expenses.

question

Which of the following statements regarding financial statements and the trial balance is correct?:

answer

Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits.

question

Which of the following statements regarding the effect of a net loss on the closing process is true?:

answer

If a company has a net loss during the current accounting period, then the ending retained earnings will be smaller than the beginning retained earnings.

question

One major difference between deferral and accrual adjustments is:

answer

Deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.

question

The company uses up $5,000 of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement?:

answer

This is a deferral adjustment.

question

When existing assets are used up in the ordinary course of business:

answer

An expense is recorded.

question

Unearned insurance premiums were $5,500 at the beginning of the year and $7,500 at the end of the year. Insurance premiums collected were $42,000. How much in insurance premiums were earned this year? :

answer

$40,000

question

An audit report expressing an unqualified opinion is generally desired by the company presenting its financial statements.

answer

True

question

An asset turnover ratio of 0.4 means that $4 in net income is generated for every $10 in assets.

answer

False

question

A net profit margin ratio of 0.2 means that $1 of profit is generated for every $5 of sales revenue.

answer

True

question

Financial statements in the quarterly reports are usually audited to ensure that GAAP were followed.

answer

False

question

The International Accounting Standards Board (IASB) is the international counterpart to the FASB in the United States.

answer

True

question

The Sarbanes-Oxley Act requires external auditors to test the company's internal control system.

answer

True

question

External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company.

answer

False

question

The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.

answer

True

question

The opportunity to commit fraud exists if there are weak internal controls.

answer

True

question

The Sarbanes-Oxley Act (SOX) requires the company's board of directors to establish an audit committee of independent directors to oversee the financial matters of the company.

answer

True

question

Which of the following statements regarding the roles of accounting information is not true? :

answer

When directors use financial information, the information is being used in an audit function

question

Which of the following statements regarding ratios is true? :

answer

Ratios can be used to compare companies of different sizes

question

Which of the following statements regarding financial information comparisons is true? :

answer

A time-series analysis compares a company's financial results for one period to its own results in other periods

question

Which of the following statements regarding distribution of financial information is not true? :

answer

An audit involves an examination of every transaction that occurred during the year by an independent auditor

question

Accounting information serves a valuation function when it is used by:

answer

investors to estimate how much the business is worth

question

Which of the following is correct? :

answer

The stockholders elect the board of directors

question

Accounting information serves a management function when it is used by:

answer

Executives to make a business decision

question

A purpose of comparative income statements is to :

answer

Reveal trends in sales

question

Accounting information serves a governance function when it is used by:

answer

Directors to oversee the business

question

Earnings Forecasts:

answer

estimate future net income

question

When auditors conclude that a company's financial statements conform to GAAP, the audit report is said to be? :

answer

Unqualified

question

Which of the following would generally be considered an operating revenue or expense? :

answer

Depreciation expense

question

The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:

answer

Loan Covenant

question

Which of the following statements is true? :

answer

The debt-to-asset ratio requires only information found on the balance sheet.

question

Internal controls include the policies and procedures a company implements to protect against theft of assets, to promote efficiency, and to ensure compliance with laws and regulations.

answer

True

question

A company is either a service company, a merchandising company, or a manufacturer, but cannot be more than one of these.

answer

False

question

The sales returns and allowances account balance should be reported as a deduction from the sales account balance because it is an expense account.

answer

False

question

In a perpetual inventory system, only one journal entry is required to record the sale of merchandise.

answer

False

question

A highly effective internal control should not be implemented if the cost is greater than the benefit.

answer

True

question

A physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

answer

True

question

Gross profit is not a ledger account name.

answer

True

question

A retailer is a company that buys products from manufacturers and sells them to wholesalers.

answer

False

question

Inventory shrinkage is the difference between inventory recorded and inventory counted.

answer

True

question

FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.

answer

False

question

The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies.

answer

False

question

Which one of the statements appearing below is true regarding bank reconciliations? :

answer

After preparing a bank reconciliation, no adjusting journal entries need to be made for outstanding checks or deposits in transit

question

Which of the following statements regarding inventory counts is not true? :

answer

If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account, there must have been shrinkage

question

Which of the following statements regarding shrinkage is not true? :

answer

It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory

question

Which of the following statements regarding the recording of merchandising journal entries in a perpetual inventory system is true? :

answer

When a customer pays within the discount period, accounts receivable is credited for the full amount.

question

Which one of the following statements regarding sales discounts is true? :

answer

If a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the amount of Net Sales.

question

Which of the following statements regarding journal entries under a perpetual inventory system is true? :

answer

When a customer returns inventory, the seller debits sales returns and allowances under a perpetual inventory system.

question

Which of the following statements regarding gross profit is true? :

answer

Gross profit is net sales minus cost of goods sold.

question

A store holding a "25% off" sale will probably experience ______________ gross profit than usual and _______________ sales volume. :

answer

Lower; Higher

question

When a customer returns for credit a defective product it had purchased, the seller would record the transaction using which of the following accounts? :

answer

Sales Returns and Allowances.

question

Segregation of duties means that a company assigns responsibilities so that:

answer

Responsibilities for related activities are assigned to two or more people.

question

Internal controls are concerned with:

answer

Protecting against theft of assets and enhancing the reliability of accounting information.

question

The internal control principle related to separating employees' duties so that the work of one person can be used to check the work of another person is called:

answer

Segregation of Duties.

question

The main purposes of internal controls do not include:

answer

Providing more favorable financial information.

question

Which of the following is an activity in the operations of a manufacturer, but not in the operations of a merchandising or service company? :

answer

Buying raw materials.

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question

Account payable, notes payable and wages payable are examples of liabilities.

answer

True

question

All corporations acquire financing by issuing stock for sale on public stock exchanges.

answer

False

question

Creditors are mainly interested in the profitability of a company.

answer

False

question

Contributed Capital is an Asset on the Balance sheet.

answer

False

question

Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

answer

True

question

Generally Accepted Accounting Standards require profitable companies to distribute some of their profits to their stockholders.

answer

False

question

If a company reports net income on the income statement, then the statement of cash flow must show an increase in cash flows from operating activities for the period.

answer

False

question

In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight board).

answer

False

question

Revenue is reported on the income statement only if cash was received at the point of sale.

answer

False

question

Stockholders are creditors of a company.

answer

False

question

The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.

answer

False

question

The Securities and Exchange Commission (SEC) is the governmental agency that has primary authority for setting accounting standards in the U. S.

answer

False

question

The stockholders' equity of a company is the difference between assets and liabilities.

answer

True

question

Net Income is:

answer

the amount by which revenues exceed expenses.

question

Expenses are shown:

answer

On the income statement in the time period in which they are incurred.

question

Cash flow from investing activities includes:

answer

Amounts received from the sale of the company's office building.

question

Operating activities:

answer

include interest paid on a bank loan.

question

Public corporations:

answer

are businesses whose stock is bought and sold on a stock exchange.

question

In which of the following organizational forms are the owners not taxed on the business profits? :

answer

Corporations

question

The separate entity assumption means:

answer

A company's financial statements reflected only the business activities of that company.

question

Accounting information systems:

answer

Capture and report the results of a business's operating, investing, and financing activities.

question

Public accountants:

answer

Provide services to a variety of business

question

Creditors are:

answer

People or organizations to whom a business owes money.

question

Financial statements are most commonly prepared:

answer

Monthly, quarterly, and annually.

question

Which of the following is true? :

answer

Companies can choose to end their fiscal year on any date they feel is most relevant.

question

Assets:

answer

Represent the resources owned by a company

question

Which of the following are the three basic elements of the balance sheet? :

answer

Assets, liabilities, and stockholders' equity.

question

A company signed an agreement to rent space from another company. This is an example of a recordable transaction.

answer

False

question

A debit may increase or decrease an account, depending on the type of account.

answer

True

question

A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders' equity of a company.

answer

True

question

If the total dollar value of credits to an account exceeds the total dollar value of debits to that account, the ending balance of the account will be a debit balance.

answer

False

question

If total assets increase, then either liabilities or stockholders' equity must also increase.

answer

True

question

Retained earnings is a cumulative earnings of a company which have not been distributed to owners, and is the same as the amount of cash in the bank.

answer

False

question

The ledger consists of all of the accounts used by a business.

answer

True

question

The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts.

answer

True

question

The trial balance is a financial statement that reports the assets, liabilities, and equity of a business at a point in time.

answer

False

question

Transactions are analyzed from the point of view of the company, not the company's owners.

answer

True

question

Which of the following statements regarding the balance sheet is true?:

answer

All liabilities require that the company sacrifice resources at some time in the future.

question

Which of the following statements regarding debits and credits is always true?:

answer

The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger.

question

Which of the following statements regarding the balance sheet is true?:

answer

Any item on a balance sheet labeled payable is a liability of that company.

question

Which of the following statements regarding the concepts underlying the balance sheet are true?:

answer

Under Generally Accepted Accounting Principles, assets are generally written down if the market value declines, but are not written up if the market value increases.

question

Which one of the following would be listed as a long-term asset?:

answer

Buildings and equipment.

question

Which of the following would be listed as a current liability?:

answer

Accounts payable

question

A long-term liability is one that the company:

answer

Will not pay off for over one year.

question

A current asset is one that:

answer

the company will use up or convert into cash in less than one year.

question

Which line items on the balance sheet would be classified as long term?:

answer

Property, Plant, and Equipment; Notes Payable; Other Assets.

question

Which of the following is not an example of an asset?:

answer

Retained Earnings

question

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?:

answer

Notes Payable

question

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to redesign its new store. Sweet Smell's balance sheet would show this as:

answer

$60,000 under Furnishings and Equipment and $60,000 under Notes Payable.

question

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?:

answer

Accounts Payable.

question

Which of the following describes the classification and normal balance of the retained earnings account?:

answer

Stockholders' equity Credit.

question

If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then:

answer

Assets would decrease by $20,000 while liabilities would decrease by $20,000

question

Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million. It is legally obligated to pay for the ad but has not yet done so:

answer

This is an external event that affects the balance sheet.

question

Your Company pays back $2 million on a loan it had received earlier from a bank:

answer

Assets decrease by $2 million, liabilities decrease by $2 million, stockholders' equity is unchanged.

question

A company does not need to record the receipt of a bill for utilities used during this year if they will not pay for it until next year.

answer

False

question

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.

answer

True

question

All revenues come from selling the company's goods or services.

answer

False

question

Costs that benefit future periods are reported as assets.

answer

True

question

Expenses are the same as expenditures.

answer

False

question

GAAP does not allow cash basis accounting to be used in external financial reports.

answer

True

question

If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result.

answer

False

question

answer

False

question

It is possible for a company to be profitable, yet not enough cash to pay its bills.

answer

True

question

Net Income on the Income Statement is equal to the amount of cash generated by the business.

answer

False

question

Prepaid expenses would be reported on the Balance Sheet.

answer

True

question

Unearned Revenue is reported on the Balance Sheet as a liability.

answer

True

question

Which one of the following statements regarding the accrual and cash basis of accounting is true?:

answer

Using the accrual basis of accounting, if payment is received after delivery of a good or service, and asset is recorded at the time the good or service was delivered.

question

Which one of the following statements regarding the debit/credit processing of revenues and expenses is true?:

answer

Credits increase revenues.

question

Which one of the following statements regarding the trial balance is true?:

answer

The balances for each account reported on an unadjusted trial balance are determined by adding the amounts on the "+" side and subtracting the amounts on the "-" side of each ledger or T-account.

question

Which one of the following statements regarding the Revenue Recognition Principle and Expense Recognition (Matching) Principle is true?:

answer

Expenses are recorded when the company uses goods or services.

question

Which of the following statements regarding revenues and expenses is true?:

answer

Expenses decrease the amount of stockholders' equity.

question

answer

What is Melody's Net Income for May using the cash basis of accounting? : $600 What is Melody's Net Income for May using the accrual basis of accounting? : $350

question

Net Income refers to:

answer

The difference between what was earned and the costs incurred during a period.

question

During November 2013, Asler Inc. performs consulting serices. The client does not pay Asler until January, 2014:

answer

Using the accrual basis of accounting, the revenue is reported in November 2013.

question

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. The cost of fertilizer is recorded:

answer

As an asset, which will later be reduced as the fertilizer is used.

question

Which of the following practices would not be considered ethical?:

answer

Recording 31 days of sales in April.

question

A contra account is added to the account it offsets.

answer

False

question

A deferral adjustment may involve one asset and one expense account.

answer

True

question

Adjusting entries often involve cash.

answer

False

question

Corporate income taxes cannot be calculated until all other adjustments are made.

answer

True

question

Depreciation is a measure of the decline in market value of an asset.

answer

False

question

One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

answer

False

question

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.

answer

False

question

The carrying value of an asset is an approximation of the asset's market value.

answer

False

question

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

answer

True

question

The purpose of adjusting entries is to transfer net income and dividends to retained earnings.

answer

False

question

Which of the following statements regarding types of adjusting entries is true? :

answer

A deferral adjustment that decreases an asset will include an increase in an expense.

question

Which of the following statements regarding adjusting entries is not true?:

answer

Adjusting entries often affect the cash account.

question

The book value of equipment is equal to which of the following?:

answer

Cost of equipment less accumulated depreciation.

question

Which of the following statements regarding the need for adjustments is not true?:

answer

Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.

question

Which of the following statements regarding the trial balance is correct?:

answer

The adjusted trial balance is a check that the accounting records are still in balance after posting all adjustments to the accounts.

question

Which of the following statements regarding the presentation of a trial balance is correct?:

answer

The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues, and expenses.

question

Which of the following statements regarding financial statements and the trial balance is correct?:

answer

Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits.

question

Which of the following statements regarding the effect of a net loss on the closing process is true?:

answer

If a company has a net loss during the current accounting period, then the ending retained earnings will be smaller than the beginning retained earnings.

question

One major difference between deferral and accrual adjustments is:

answer

Deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.

question

The company uses up $5,000 of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement?:

answer

This is a deferral adjustment.

question

When existing assets are used up in the ordinary course of business:

answer

An expense is recorded.

question

answer

$40,000

question

An audit report expressing an unqualified opinion is generally desired by the company presenting its financial statements.

answer

True

question

An asset turnover ratio of 0.4 means that $4 in net income is generated for every $10 in assets.

answer

False

question

A net profit margin ratio of 0.2 means that $1 of profit is generated for every $5 of sales revenue.

answer

True

question

Financial statements in the quarterly reports are usually audited to ensure that GAAP were followed.

answer

False

question

The International Accounting Standards Board (IASB) is the international counterpart to the FASB in the United States.

answer

True

question

The Sarbanes-Oxley Act requires external auditors to test the company's internal control system.

answer

True

question

External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company.

answer

False

question

The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.

answer

True

question

The opportunity to commit fraud exists if there are weak internal controls.

answer

True

question

The Sarbanes-Oxley Act (SOX) requires the company's board of directors to establish an audit committee of independent directors to oversee the financial matters of the company.

answer

True

question

Which of the following statements regarding the roles of accounting information is not true? :

answer

When directors use financial information, the information is being used in an audit function

question

Which of the following statements regarding ratios is true? :

answer

Ratios can be used to compare companies of different sizes

question

Which of the following statements regarding financial information comparisons is true? :

answer

A time-series analysis compares a company's financial results for one period to its own results in other periods

question

Which of the following statements regarding distribution of financial information is not true? :

answer

An audit involves an examination of every transaction that occurred during the year by an independent auditor

question

Accounting information serves a valuation function when it is used by:

answer

investors to estimate how much the business is worth

question

Which of the following is correct? :

answer

The stockholders elect the board of directors

question

Accounting information serves a management function when it is used by:

answer

Executives to make a business decision

question

A purpose of comparative income statements is to :

answer

Reveal trends in sales

question

Accounting information serves a governance function when it is used by:

answer

Directors to oversee the business

question

Earnings Forecasts:

answer

estimate future net income

question

When auditors conclude that a company's financial statements conform to GAAP, the audit report is said to be? :

answer

Unqualified

question

Which of the following would generally be considered an operating revenue or expense? :

answer

Depreciation expense

question

answer

Loan Covenant

question

Which of the following statements is true? :

answer

The debt-to-asset ratio requires only information found on the balance sheet.

question

Internal controls include the policies and procedures a company implements to protect against theft of assets, to promote efficiency, and to ensure compliance with laws and regulations.

answer

True

question

A company is either a service company, a merchandising company, or a manufacturer, but cannot be more than one of these.

answer

False

question

The sales returns and allowances account balance should be reported as a deduction from the sales account balance because it is an expense account.

answer

False

question

In a perpetual inventory system, only one journal entry is required to record the sale of merchandise.

answer

False

question

A highly effective internal control should not be implemented if the cost is greater than the benefit.

answer

True

question

A physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

answer

True

question

Gross profit is not a ledger account name.

answer

True

question

A retailer is a company that buys products from manufacturers and sells them to wholesalers.

answer

False

question

Inventory shrinkage is the difference between inventory recorded and inventory counted.

answer

True

question

FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.

answer

False

question

The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies.

answer

False

question

Which one of the statements appearing below is true regarding bank reconciliations? :

answer

After preparing a bank reconciliation, no adjusting journal entries need to be made for outstanding checks or deposits in transit

question

Which of the following statements regarding inventory counts is not true? :

answer

If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account, there must have been shrinkage

question

Which of the following statements regarding shrinkage is not true? :

answer

It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory

question

Which of the following statements regarding the recording of merchandising journal entries in a perpetual inventory system is true? :

answer

When a customer pays within the discount period, accounts receivable is credited for the full amount.

question

Which one of the following statements regarding sales discounts is true? :

answer

If a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the amount of Net Sales.

question

Which of the following statements regarding journal entries under a perpetual inventory system is true? :

answer

When a customer returns inventory, the seller debits sales returns and allowances under a perpetual inventory system.

question

Which of the following statements regarding gross profit is true? :

answer

Gross profit is net sales minus cost of goods sold.

question

A store holding a "25% off" sale will probably experience ______________ gross profit than usual and _______________ sales volume. :

answer

Lower; Higher

question

When a customer returns for credit a defective product it had purchased, the seller would record the transaction using which of the following accounts? :

answer

Sales Returns and Allowances.

question

Segregation of duties means that a company assigns responsibilities so that:

answer

Responsibilities for related activities are assigned to two or more people.

question

Internal controls are concerned with:

answer

Protecting against theft of assets and enhancing the reliability of accounting information.

question

The internal control principle related to separating employees' duties so that the work of one person can be used to check the work of another person is called:

answer

Segregation of Duties.

question

The main purposes of internal controls do not include:

answer

Providing more favorable financial information.

question

Which of the following is an activity in the operations of a manufacturer, but not in the operations of a merchandising or service company? :

answer

Buying raw materials.

Accounting Quizzes 1-6 – Flashcards

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