Accounting 2010 Quizes

What are the steps in the operating cycle of a merchandising business?

1. It begins when the company purchases inventory from an individual or a business, called a vendor 2. The company then sells the inventory to a customer 3. Finally, the company collects cash from customers

What are the two types of inventory accounting systems?

1. Periodic inventory system 2. Perpetual inventory system

Merchandiser

A business that sells merchandise, or goods, to customers.

Purchase Discount

A discount that businesses offer to purchasers as an incentive for early payment

Johnson Waterworks Corporation provides plumbing services. Transactions during the first year of operations are provided below. a) Received $11,000 cash and issued common stock to Mitchell Johnson. b) Paid $1,200 for equipment to be used for plumbing repairs. c) Borrowed $15,000 from a local bank and deposited the money in the checking account. d) Paid $400 in rent for the year. e) Paid $400 for plumbing supplies to be used on various jobs next year. f) Completed a plumbing repair for a law firm and received $3,500. Calculate the amount of total assets at the end of the first year. Assume the plumbing supplies of $400 are left at the end of the year. A. $29,100 B. $1,200 C. $26,000 D. $1,600

A. $29,100

International Financial Reporting Standards ______________________ U.S. Generally Accepted Accounting Principles. A. Are generally less specific than B. Are the same as C. Leave less room for professional judgment than D. Are based less on principle than

A. Are generally less specific than

Saturn, Inc. paid $13,000 on accounts payable. How does this transaction affect the accounting equation of Saturn? A. Assets decrease by $13,000 and liabilities decrease by $13,000 B. Assets increase by $13,000 and liabilities increase by $13,000 C. Assets increase by $13,000 and equity decreases by $13,000 D. Assets decrease by $13,000 and equity increases by $13,000

A. Assets decrease by $13,000 and liabilities decrease by $13,000

The ability of a company to repay its liabilities can be determined from its _____________. A. Debt Ratio B. Journal C. Bankers D. Creditors

A. Debt Ratio

A business pays cash for dividends. Which of the following accounts is debited? A. Dividends B. Cash C. Common Stock D. Accounts Payable

A. Dividends

The account title used for recording the payment of rent in advance for an office building is A. Prepaid Rent B. Rent Revenue C. Rent Expense D. Rent Payable

A. Prepaid Rent

Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)? A. Securities and Exchange Commission (SEC) B. Public Company Accounting Oversight Board (PCAOB) C. Financial Accounting Standards Board (FASB) D. American Institute of Certified Public Accountants (AICPA)

A. Securities and Exchange Commission (SEC)

A shortened form of the ledger is called a _________________. A. T-account B. Balance Sheet C. Trial Balance D. Chart of Accounts

A. T-account

Which of the following statements is true of a sole proprietorship? A. The sole proprietor is personally liable for the liabilities of the business B. A sole proprietorship is taxed separately from the owner C. A sole proprietorship joins two or more individuals as co-owners D. A sole proprietorship has to pay business income taxes

A. The sole proprietor is personally liable for the liabilities of the business

A compound journal entry has more than two accounts, but the total dollar value of the debits still must equal total dollar value of the credits. A. True B. False

A. True

Certified Public Accountants are licensed professional accountants who serve the general public. A. True B. False

A. True

Common stock represents the basic ownership of every corporation. A. True B. False

A. True

In a sole proprietorship, the owner is personally liable for the debts of the business. A. True B. False

A. True

In reviewing the T-account for Accounts Payable, you find that the beginning balance is zero, the total increases are $7,200 and the total decreases are $4,000. This means that the ending balance of the account is a credit balance of $3,200. A. True B. False

A. True

The balance sheet reports on the assets, liabilities, and stockholders' equity of the business as of a specific date. A. True B. False

A. True

Unearned revenue is a liability account. A. True B. False

A. True

An adjusting entry that credits Salaries Payable is an example of a _______________________. A. accrued expense B. accrued revenue C. deferred expense D. deferred revenue

A. accrued expense

Which of the following accounting elements does the matching principle help to match? A. expenses and revenues B. expenses and assets C. revenues and liabilities D. expenses and liabilities

A. expenses and revenues

Following is a list of account balances of Nabers Delivery Services as of December 31st, after the first year of operation Accounts Receivable $5,000 Accounts Payable $5,000 Salaries Expense $4,000 Repairs Expense $600 Truck $9,000 Equipment $10,000 Notes Payable $8,500 Cash $11,500 Supplies Expense $1,400 Service Revenue $31,000 Gasoline Expense $3,200 Salaries Payable $200 What is the amount of total liabilities at the end of the year? A. $13,500 B. $13,700 C. $22,900 D. $19,700

B. $13,700 Accounts Payable $5,000 Notes Payable $8,500 Salaries Payable $200 Total Liabilities $13,700

The equity of Alliance Company is $170,000 and the total liabilities are $30,000. The total assets are ______________. A. $60,000 B. $200,000 C. $340,000 D. $140,000

B. $200,000

Which of the following financial statements lists the entity's assets, liabilities, and stockholders' equity as of a specific date? A. Statement of Retained Earnings B. Balance Sheet C. Income Statement D. Statement of Cash Flows

B. Balance Sheet

Which of the following is shown on the balance sheet as well as the statement of cash flows? A. Stockholders' equity (ending balances) B. Cash (ending balance) C. Total Assets (ending balance) D. Net income

B. Cash (ending balance)

The owners' claims to the assets of the business are called ____________. A. Debt B. Equity C. Expenses D. Return on assets

B. Equity

All asset accounts and equity accounts increase with a debit. A. True B. False

B. False

An accounts receivable requires the business to pay cash in the future. A. True B. False

B. False

Debit refers to the right side of the T-account, and credit refers to the left side. A. True B. False

B. False

The Common Stock account is increased by a debit. A. True B. False

B. False

The trial balance is also known as the balance sheet. A. True B. False

B. False

As per the economic entity assumption, an organization and its owners should be seen as the same entity. A. True B. False

B. False An economic entity is an organization that stands apart as a separate economic entity.

International Financial Reporting Standards (IFRS) is the main U.S. accounting rule book and is currently created and governed by the Financial Accounting Standards Board. A. True B. False

B. False Generally Accepted Accounting Principles represent the accounting guidelines, currently formulated by the Financial Accounting Standards Board. GAAP is the main U.S. accounting rule book.

Office Supplies is an expense because the supplies will be used up in the future. A. True B. False

B. False Office Supplies in an asset because the supplies will be used up in the future.

On the statement of cash flows, investing activities include cash contributions by stockholders. A. True B. False

B. False On the statement of cash flows, financing activities include cash contributions by stockholders.

As per the ________, the entity will remain in operation for the foreseeable future. A. Monetary Unit Assumption B. Going Concern Assumption C. Economic Entity Concept D. Cost Principle

B. Going Concern Assumption

Which of the following is the order of steps to journalize an entry? A. Identify the accounts and the account type → Record the transaction → Decide whether each account increases or decreases, then apply the rules of debits and credits B. Identify the accounts and the account type → Decide whether each account increases or decreases, then apply the rules of debits and credits → Record the transaction C. Decide whether each account increases or decreases, then apply the rules of debits and credits → Identify the accounts and the account type → Record the transaction D. Record the transaction → Identify the accounts and the account type → Decide whether each account increases or decreases, then apply the rules of debits and credits

B. Identify the accounts and the account type → Decide whether each account increases or decreases, then apply the rules of debits and credits → Record the transaction

Which of the follow statements regarding the primary objective of financial reporting is correct? A. To be useful, information must follow the Generally Accepted Accounting Principles which are created and governed by the Securities and Exchange Commission B. Information that is faithfully represented is complete, neutral, and free from error C. Relevant information ensures that users of the information will make the correct decisions D. The primary objective of financial reporting is to provide information useful for the acquisition of long-term assets

B. Information that is faithfully represented is complete, neutral, and free from error

A business purchases $3,500 of office supplies for cash. Which of the following sets of ledger accounts reflects the posting of this transaction? A. Office Supplies Accounts Payable 3500 | | 3500 B. Office Supplies Cash 3500 | | 3500 C. Office Supplies Accounts Payable | 3500 3500 | C. Office Supplies Cash | 3500 3500 |

B. Office Supplies Cash 3500 | | 3500

Kostner Financial Services, Inc. performed accounting services for a client in December. A bill was mailed to the client on December 30. The company received the client's check by mail on January 5. Which of the following accounts should appear on the income statement for the year ended December 31 as related to the services performed? A. Unearned Revenue B. Service Revenue C. Prepaid Expense D. Accounts Payable

B. Service Revenue

Which of the following sequences is the normal sequence of flow of accounting data? A. Journal → Source document → Ledger B. Source document → Journal → Ledger C. Source document → Ledger → Journal D. Ledger → Journal → Source document

B. Source document → Journal → Ledger

Following is a list of account balances of Lincoln Lawn Services as of December 31, after the first year of operations. Calculate the net income. Accounts Receivable 6,000 Accounts Payable 5,000 Salaries Expense 7,000 Repairs Expense 900 Truck 11,000 Equipment 12,000 Notes Payable 26,100 Cash 20,000 Supplies Expense 200 Service Revenue 32,000 Gasoline Expense 7,200 Salaries Payable 1,200 A. $17,900 B. $31,100 C. 16,700 D. 49,000

C. 16,700

Which of the following statements is true of accrual basis accounting? A. Accrual basis accounting always results in greater net income than cash basis accounting. B. Accrual basis accounting records expenses only when cash has been paid for them. C. Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP). D. Accrual basis accounting records revenue only when cash is received.

C. Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP).

Thirty years ago, Citywide Grocery Corporation purchased a building for its grocery store for $30,000. Based on inflation estimates, the amount of the building has been adjusted in the accounting records. The building is now reported at $75,000 in Citywide's financial statements. Which of the following concepts or principles of accounting is being violated? A. Economic entity Assumption B. Revenue Realization Concept C. Cost Principle D. Going Concern Assumption

C. Cost Principle

The field of accounting that focuses on providing information internal decisions makers is____________. A. Governmental Accounting B. Non-monetary Accounting C. Managerial Accounting D. Financial Accounting

C. Managerial Accounting

Which of the following accounts decreases with a debit? A. Cash B. Rent Expense C. Notes Payable D. Accounts Receivable

C. Notes Payable

A business purchases $500 of office supplies on account. Which of the following accounts is debited? A. Utilities Expense B. Accounts Payable C. Office Supplies D. Cash

C. Office Supplies

Which of the following statements is true of revenues? A. Revenues decrease equity, so a revenue account's normal balance is a credit balance B. Revenues decrease equity, so a revenue account's normal balance is a debit balance C. Revenues increase equity, so a revenue account's normal balance is a credit balance D. Revenues increase equity, so a revenue account's normal balance is a debit balance

C. Revenues increase equity, so a revenue account's normal balance is a credit balance

A business repays the amount borrowed on a note with cash. Which of the following accounts is credited? A. Notes Payable B. Notes Receivable C. Accounts Payable D. Cash

D. Cash

Mars Electronic Company receives cash from a stockholder, John Tilden, and issues common stock to him. The two accounts involved in this transaction are _______________. A. Common Stock and Accounts Payable B. Common Stock and Accounts Receivable C. Accounts Payable and Cash D. Cash and Common Stock

D. Cash and Common Stock

A business purchases equipment by paying $9,087 in cash and issuing a note payable of $13,264. Which of the following occurs? A. Cash is debited for $9,087, Equipment is credited for $13,264, and Notes Payable is debited for $4,177 B. Cash is credited for $9,087, Equipment is credited for $22,351, and Notes Payable is debited for $13,264 C. Cash is debited for $9,087, Equipment is debited for $13,264,and Notes Payable is credited for $22,351. D. Cash is credited for $9,087, Equipment is debited for $22,351, and Notes Payable is credited for $13,264.

D. Cash is credited for $9,087, Equipment is debited for $22,351, and Notes Payable is credited for $13,264.

Adventures Unlimited Company distributes cash dividends. How does this transaction affect the accounting equation? A. The assets decrease and equity increases B. The assets, liabilities, and equity remain the same C. The assets increase and liabilities decrease D. The assets decrease and equity decreases

D. The assets decrease and equity decreases

A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash receipt would include a ________. The company uses a liability account for revenue received in advance. A. debit to Note Payable for $5,000 B. credit to Accounts Payable for $5,000 C. debit to Prepaid Expenses for $5,000 D. credit to Unearned Revenue for $5,000

D. credit to Unearned Revenue for $5,000

Operation Expenses

Expenses other than Costs of Goods Sold

Perpetual Inventory System

Keeps a running computerized record of merchandise inventory

What is the type of business that merchandisers sell?

Merchandise Inventory

Gross Profit

Net Sales Revenue minus Cost of Goods Sold

Periodic Inventory System

Requires a physical count of inventory to determine inventory on hand

Cost of Goods Sold (COGS)

The cost of merchandise sold to customers

Credit Terms

The payment terms of purchase or sale as stated on the invoice - EX: 3/15, n/30 means a 3% discount if paid within 15 days, otherwise the full amount is due in 30 days

Invoice

The seller's request for payment from the purchaser - They are also called bills - Sellers have sales invoices - Purchasers have purchase invoices

Wholesaler

buys goods from a manufacturer and sells them to retailers

Retailer

buys merchandise from manufacturers or a wholesaler and then sells the goods to consumers

What does the income statement of merchandiser report?

~ Sales Revenue rather than Service Revenue ~ The cost of merchandise sold to customers called Cost of Goods Sold (COGS) ~ Gross Profit, which is net Sales Revenue minus Cost of Goods Sold ~ Operation Expenses, which are expenses other than Costs of Goods Sold