Test Answers on Accounting Flashcards

Merchandise inventory is reported as a(n) current asset During the month, merchandise is sold for $80,500 cash and for $119,000 on account. The cost of merchandise sold is $101,500. What is the amount of gross profit? $98,000 The operating cycle of a business is comprised of a. purchase activity. b. sales activity. c. All of […]

Why do companies wait until the end of the accounting period to make adjustments to record related revenues and expenses in the correct period? Because recording many operating activities that take place over a period of time or several periods daily such as using insurance that has been prepaid or owing wages to employees for […]

Accounting equation The basic tool of accounting, stated as Assets = Liabilities + Equity Asset An economic resource that is expected to be of benefit in the future Balance sheet Reports on an entity’s assets, liabilities, and stockholders’ equity as of a specific date Expense Decreases in equity that occur in the course of selling […]

In the cost equation TC = F + VX, which term refers to the volume of activity? X The engineering method of estimating costs: All of the above are correct statements. Voyager Corporation has developed the following cost formula for its maintenance costs: Y = $300 + $2X, where X = the number of direct […]

Management accounting vs financial accounting Financial accounting is retrospective, used primarily externally by investors, and governed by rules set by the SEC and FASB. Also more aggregated Management accounting is prospective, used internally by managers, and is not governed by any set rules Strategy About an organization making choices about what it will do and […]

1 Identify the major financial statements and other means of financial reporting. Companies most frequently provide (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners’ or stockholders’ equity. Financial reporting other than financial statements may take various forms. Examples include the president’s letter and […]

Adjusting Accounts • Prepaid expenses • Unearned revenues • Accrued expenses • Accrued revenues • Adjusted trial balance time period assumption presumes that an organization’s activities can be divided into specific time periods such as a month, a three-month quarter, a six-month interval, or a yea Explain the importance of periodic reporting and the time […]

Accounting cycle Standard set of accounting procedures to record transactions and prepare financial statements. Accounting information system A system that collects and processes transaction data and then disseminates the financial information to interested parties. Accounting information systems vary widely from one business to another, depending on the nature of the business and its transactions, the […]

For a merchandising business, the revenue account is called: A) gross profit B) gross sales C) earnings D) sales E) net income D The difference between the revenues and the cost of merchandise sold is referred to as the: A) gross profit B) gross sales C) earnings D) net income E) sales A The proper […]

Changes in owner’s equity that result from investments or withdrawals of assets by the owner are included in the Statement of Owner’s Equity Owner’s equity can be increased through Investments by owner The balance in an expense account is closed to a(n) Income Summary Account The order in which financial statements should be prepared is […]

An accounting system must be able to A report information. B All of these choices are correct. C record financial information. D organization information. B The best definition for processing systems is the A means by which the system collects, summarizes, and reports accounting information. B policies and procedures that protect assets from misuse. C […]

If total assets decreased by 88,000 during a period of time and stockholders equity increased by 71,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total liabilities is 159,000 decrease Declaring and paying cash dividends decreases stockholder’s equity How does receiving a bill to be paid […]

The matching concept states that the revenues and related expenses should be reported in the same period Using accrual accounting, expenses are recorded and reported only when they are incurred, whether or not cash is paid Prior to the adjusting process, accrued revenue has been earned and not recorded as revenue Deferred expenses have not […]