Accounting Quizzes 1-6 – Flashcards

Unlock all answers in this set

Unlock answers
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.
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New