Accounting Test #1 UMD – KAREN SAMELA – Flashcards
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Accounts that relate to a limited period of time are called:
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temporary accounts
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Which of the following accounts are considered permanent accounts?
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Land and Accounts Receivable
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The entry made to close Service Revenue would include a debit to:
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Service Revenue and a credit to Net Income.
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The closing entry for the Salaries Expense account would include a debit to:
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Retained Earnings and a credit to Salaries Expense.
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On a classified balance sheet:
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Notes Payable due in one year is a current liability.
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When preparing the financial statements for a company:
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the account format for the balance sheet lists the assets on the left and liabilities and stockholders' equity on the right.
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Which of the following is CORRECT regarding liquidity?
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A balance sheet lists assets and liabilities in the order of relative liquidity.
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The following accounts are listed in order of liquidity:
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Cash, Accounts Receivable, Inventory, Furniture
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When classifying assets and liabilities:
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furniture and fixtures are long - term assets.
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On a multiple - step income statement, the heading or classification "Other income" refers to:
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Interest income and Investment income.
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On a multiple step income statement, several indicators of profitability are reported that include:
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operating income, income before taxes, and net income.
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Net working capital:
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is computed by subtracting total current liabilities from total current assets.
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A measure of a company's ability to pay current liabilities with current assets is the:
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current ratio
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When analyzing a company's debt ratio:
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the ratio measures a company's ability to pay its total liabilities.
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The debt ratio is computed by dividing
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total liabilities by total assets
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Which of the following combinations of ratios is preferable?
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A high current ratio and a low debt ratio.
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The following accounts are up to date and need no adjustment at the end of the period:
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Cash, Land and Common Stock.
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Adjusting entries:
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adjust unearned revenue
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Adjusting entries:
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are made before the financial statements can be prepared.
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Prepaid expenses will:
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become expenses when their future benefits expire.
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______ is the allocation of the cost of an asset over the assets useful life.
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Depreciation
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______ will be increased when a company receives cash before performing the services.
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Unearned Service Revenue
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The book value of a plant asset is the:
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cost of the asset less the accumulated depreciation.
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With the accrual of revenue:
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the cash is received after the revenue is recorded.
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When an adjustment is made for prepaid rent:
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an asset decreases and an expense increases
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Which account is credited in the adjusting entry to allocate the cost of equipment to an expense account?
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Accumulated depreciation
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Which accounts are used in the adjusting entry to record salaries owed to employees, but not paid until the next accounting period?
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Salaries Expense and Salaries Payable
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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:
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debt to Interest Receivable.
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The Accumulate Depreciation account:
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is a contra asset account.
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Which of the following financial statements are prepared using the adjusted trial balance?
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Balance sheet, income statement, and statement of retained earnings.
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A tired accountant failed to record the adjusting entry for accrued revenues. How does this error affect the balance sheet?
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The assets for the period will be understated.
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Which of the following is NOT a correct statement about adjusting entries?
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Every adjusting entry affects Cash.
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The adjustment for an accrued expense:
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increases expenses and increases liabilities
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The adjustment for an accrued revenue:
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is necessary because a business often earns revenue before they receive the cash.
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The adjusting entry to record the accrual of income tax expense includes a:
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credit to Income Tax Payable.
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If adjusting entries are not prepared, which financial statements are misstated?
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income statement, balance sheet and statement of retained earnings.
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A doctor performed surgery in March and did not receive cash from the patient until July, Under accrual - basis accounting, the doctor recognizes revenue:
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in March
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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:
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In August.
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Under accrual - basis accounting, revenue is recorded:
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when the services are performed, regardless of when the cash is received.
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Which of the following transactions would be recorded under accrual - basis accounting but NOT under cash - basis accounting?
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Purchasing of inventory on account.
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Which of the following is a CORRECT statement about the different accounting methods?
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GAAP requires accrual - basis accounting
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The method of accounting that records revenues ONLY when cash is received is the:
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cash - basis method
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When cash - basis accounting is used, and services are provided on account
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both the income statement and the balance sheet will be incorrect.
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An expense occurred in 2013, but is is not paid until 2014. Using the accrual basis of accounting, the expense should appear on:
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the 2013 income statement.
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An interim period used for reporting purposes is generally:
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less than one year.
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The requirement to report accounting information at regular intervals is known as the:
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time - period concept.
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Under cash - basis accounting, cash receipts are treated as _____ and cash payments are treated as _________.
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revenues; expenses
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The revenue principle governs two things:
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when to record revenue and the amount of revenue to record.
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The revenue principle requires that a business record revenue when the business:
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deleivers goods or services to a customer.
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Following the expense recognition principle, recognizing expenses along with the related revenues means to:
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subtract expenses from the related revenues to compute net income or net loss.
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The left side of a T - account is always the:
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debit side
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An important rule to remember when working with T accounts is:
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to credit an account means to enter an amount on the right - hand side of the T account.
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Which of the following statements about the rules of debits and credits is CORRECT?
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Revenue is increased by a credit.
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Decreases in stockholders equity that result from the cost of operating the business are:
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expenses
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Which accounts are increased by debits?
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Accounts Receivable and Utilities Expense
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Accounting transactions are initially recorded in the:
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Journal
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An account will have a debit balance if:
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the amount of the debits exceeds the amount of the credits.
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The proper order for the accounting process is:
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transactions occurs, transactions analyzed, journalizing, and posting.
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The ledger:
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contains all the accounts used by a business.
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Posting is:
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copying the information from the journal to the ledger.
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Every Journal entry:
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must debit at least one account and credit at least one account.
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An owner makes an investment of cash into the business and receives shares of stock. This transaction would include a:
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debit to Cash and a credit to Common Stock.
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A business paid $40,000 cash to purchase equipment. The business would:
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debit Equipment for $40,000 and credit cash for $40,000.
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A business purchased office supplies of $15,000 on account. The business would:
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debit supplies for $15,000 and credit Accounts Payable for $15,000.
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A business paid $1,900 on account. The journal entry would:
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debit Accounts Payable for $1,900 and credit Cash for $1,900.
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The normal balance of an account:
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falls on the side where increases are recorded.
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When computing the normal balance of an account:
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accounts payable should have a credit balance.
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A chart of accounts:
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lists all of an organizations accounts and account numbers.
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A trial balance has which of the following features?
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Totals for all accounts listed in the ledger.
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The debt created by a business when it makes a purchase of inventory on account is an:
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account payable
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Which of the following transactions will increase Stockholders Equity.
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The company issues common stock to new shareholders.
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Which of the following transactions will increase one asset and decrease another asset?
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The purchase of equipment for cash
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A company performed services for a customer for cash. This transaction increase assets and:
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increased revenues
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A company receives an utility bill and immediately pays it. With this transaction:
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stockholders equity is decreased.
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Company Z sells land for the same amount it paid for it three years ago. When the company records this transaction:
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one asset is increased and another asset is decreased.
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When a company borrows money from the bank, which type of accounts are increased?
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asset and liability accounts
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When a company pays an amount it owes a creditor:
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assets are decreased and liabilities are decreased.
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Purchasing supplies on account would:
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increase total assets and increase total liabilities.
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Which of the following transactions would decrease an asset and decrease a stockholders equity?
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The declaration and payment of a dividend to the shareholders.
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A company received $31,000 cash and issued common stock in exchange. In transaction analysis, how does this transaction affect the accounting equation?
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Add $31,000 to cash account and add $31,000 to common stock account.
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A company purchased supplies of $6000 on account. In transaction analysis, how does this transaction affect the accounting equation?
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Add $6,000 to supplies account and add $6,000 to Accounts payable account.
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On May 1, a company provided legal services for a new client. The lawyer asked for $1,100 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?
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Add $1,100 to cash account and add $1,100 to Retained Earnings account.
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A company went to the bank and borrowed $13,000 on a long term note. In this transaction analysis, how does this transaction affect the accounting equation?
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Add $13,000 to Cash account and add $13,000 to Notes Payable account.
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A company declared and paid dividends of $600. In transaction analysis, how does this transaction affect the accounting equation?
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Subtract $600 from retained earnings account and subtract $600 from Cash account.
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