Accounting Definitions

Which of the following is an asset? A. Investments B. Common stock C. Mortgage payable D. Retained earnings

A. Investments

Which of the following accounts is classified as a contra revenue account? A. Sales Returns and Allowances B. Cost of Goods Sold C. Sales Revenue D. Purchase Discounts

A. Sales Returns and Allowances

From an internal control standpoint, the asset most susceptible to improper diversion and use is:

Cash

Which of the following is not a liability? A. Accounts Payable B. Unearned Service Revenue C. Interest Payable D. Accounts Receivable

D. Accounts Receivable

Which of the following is not considered an asset? A. Inventory B. Accounts receivable C. Equipment D. Accounts payable

D. Accounts payable

Free cash flow represents A. cash provided by operations less adjustments for capital expenditures and dividends. B. a measurement of a company's cash generating ability. C. a measure of solvency. D. All of these answer choices are correct.

D. All of these answer choices are correct.

Which of the following is not one of the three forms of business organization? A. Corporations B. Partnerships C. Proprietorships D. Investors

D. Investors

Which of the following external groups uses accounting information to determine whether the company can pay its obligations? A. Chief Financial Officer B. Creditors C. Marketing managers D. Investors in common stock

B. Creditors

Which of the following is not a principal type of business activity? A. Financing B. Delivering C. Operating D. Investing

B. Delivering

Each of the following companies is a merchandising company except a: A. candy store. B. moving company. C. furniture store. D. wholesale parts company.

B. moving company.

Which of the following would be deducted from the balance per books on a bank reconciliation?

Bank service.

Which one of the following is not an objective of a system of internal controls?

Ensure the overall fairness of the financial statements.

Which of the following is not classified properly as a current asset?

Equipment

Sam's Grocery Store has the following policy. 'Only one cashier can have access to a cash drawer.' Which internal control principle supports this policy?

Establishment of responsibilities.

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?

FIFO method

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the

FIFO method

In a classified balance sheet, assets are usually classified as A. current assets; long-term investments; tangible assets; and intangible assets. B. current assets; long-term investments; property, plant, and equipment; and common stocks. C. current assets; long-term assets; property, plant, and equipment; and intangible assets. D. current assets; long-term investments; property, plant, and equipment; and intangible assets.

D. current assets; long-term investments; property, plant, and equipment; and intangible assets.

All of the following are examples of internal control procedures except: A. reconciling the bank statement. B. using prenumbered documents. C. insistence that employees take vacations. D. customer satisfaction surveys.

D. customer satisfaction surveys.

Which of the following methods will result in the highest depreciation in the first year?

Declining-balance

A very small company would have the most difficulty in implementing which of the following internal control activities?

Separation of duties

Accounts receivable are valued and reported on the balance sheet

at cash realizable value.

Which of the following is not an intangible asset?

Truck

Closing entries:

cause the revenue and expense accounts to have zero balances.

Selling the bonds at a premium has the effect of

causing the total cost of borrowing to be lower than the bond interest paid.

The account Allowance for Doubtful Accounts is classified as a(n)

contra account to Accounts Receivable.

The Sales Returns and Allowances account is classified as a(n)

contra revenue account

Treasury Stock is a(n)

contra stockholders' equity account

When a company performs a service but has not yet received payment, it

debits Accounts Receivable and credits Service Revenue.

A useful measure of solvency is the

debt to assets ratio.

In preparing a bank reconciliation, outstanding checks are

deducted from the balance per bank.

A current asset is

expected to be converted to cash within one year.

One of the accounting concepts upon which adjustments for prepayments and accruals are based is:

expense recognition

The expense recognition principle matches:

expenses with revenues.

The common characteristic possessed by all assets is

future economic benefit.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount

greater than face value.

Sales revenue less cost of goods sold is called

gross profit

Deposits in transit

have been recorded on the company's books but not yet by the bank.

The gross profit rate is computed by dividing gross profit by

net sales

The receivable that is usually evidenced by a formal instrument of credit is a(n)

note receivable.

Adjusting entries affect at least:

one income statement account and one balance sheet account.

Ratios that measure the income or operating success of a company for a given period of time are

profitability ratios.

Equipment is classified on the balance sheet as

property, plant, and equipment.

Regular dividends are declared out of

retained earnings

Retained earnings at the end of the period is equal to

retained earnings at the beginning of the period plus net income minus dividends.

Net income will result during a time period when

revenues exceed expenses.

When an asset is sold, a gain occurs when the

sale price exceeds the book value of the asset sold

Gross profit equals the difference between

sales revenue and cost of goods sold.

Colonial Co. purchased a machine. It paid for the machine with cash and did not obtain any financing. What it the effect on its balance sheet?

total assets remain unchanged.

The payout ratio is computed by dividing

total cash dividends paid to common stockholders by net income.

In a service-type business, revenue is recognized:

when the service is performed.

The receipt of cash in advance from a customer

increases assets and liabilities.

The reconciliation of the cash register tape with the cash in the register is an example of

independent internal verification.

A trial balance

is a list of accounts with their balances at a given point in time.

The right side of an account

is the credit side.

Par value

is the value assigned per share in the corporate charter

The factor which determines whether or not goods should be included in a physical count of inventory is

legal title

Debts and obligations of a business are referred to as

liabilities

Liabilities are classified on the balance sheet as current or

long-term

Which of the following statements is not true about a 2-for-1 split?

Total paid-in capital increases

The accounting equation may be expressed as

Assets = Liabilities + Stockholders' Equity

Which of the following correctly identifies normal balances of accounts? A. Assets----------------Debit Liabilities-------------Credit Common Stock------Credit Revenues------------Credit Expenses------------Credit B. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Debit Expenses------------Credit C. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Credit Expenses------------Debit D. Assets---------------Credit Liabilities------------Debit Common Stock-----Debit Revenues------------Credit Expenses------------Debit

C. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Credit Expenses------------Debit

Which one of the following represents the expanded basic accounting equation? A. Assets - Liabilities - Dividends = Common Stock + Revenues - Expenses B. Assets = Revenues + Expenses - Liabilities C. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues D. Assets = Liabilities + Common Stock + Dividends - Revenue - Expenses

C. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues

Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase? A. Marketing managers B. Creditors C. Investors in common stock D. Chief Financial Officer

C. Investors in common stock

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

Cash needed to replace the plant asset

Assets purchased for resale are recorded in which of the following accounts? A. Inventory B. Equipment C. Supplies D. Patents

Inventory

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

LIFO

Which of the following is not an internal control procedure for cash?

Payments should be made with cash.

Which depreciation method is most frequently used in businesses today?

Straight-line

Bad Debt Expense is considered

a necessary risk of doing business on a credit basis.

As an incentive for customers to pay their accounts promptly, a business may offer its customers

a sales discount

The term "receivables" refers to

amounts due from individuals or companies.

The right to receive money in the future is called a(n)

account receivable

An adjusting entry:

affects a balance sheet account and an income statement account.

The closing entry process consists of closing:

all temporary accounts.

The usual sequence of steps in the transaction recording process is

analyze, journalize, post to the ledger.

Current liabilities are due

and payable within one year.

If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck,

assets will be increased by $40,000.

The amount of stock that may be issued according to the corporation's charter is referred to as the

authorized stock.

The current portion of long-term debt should

be reclassified as a current liability

The amount of cost of good available for sale during the year depends on the amounts of

beginning merchandise inventory and net costs of purchases

Working capital is calculated by taking

current assets minus current liabilities.

Liabilities are generally classified on a balance sheet as

current liabilities and long-term liabilities.

Current assets divided by current liabilities is known as the

current ratio.

A bank statement

shows the activities that increased or decreased the depositor's account balance.

The normal balance of any account is the

side which increases that account.

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)

systematic and rational manner

The left side of an account is

the debit side.

The LIFO inventory method assumes that the cost of the latest units purchased are:

the first to be allocated to cost of goods sold.