Accounting Exam

Jackie Wildermuth

Blank Endorsement

In a corporation, who approves the issuance of shares stock?

Board of Directors

Doc No

C110, C111, C112, M33, T31

A bankruptcy that results in liquidation of a company's assets is a

Chapter 7 bankruptcy

T or F: If an owner of a company withdrawals cash for personal use, then total assets will decrease and equity will increase

False - equity will decrease

T or F: A sale for which cash will be received at a later date results in an account payable

False- not payable, but receivable

The date on a monthly income statement prepared on July 31 is written as

For Month Ended July 31, 2011

GAAP

Generally Accepted Accounting Principles

what is the IRS?

International Revenue Service

The first digits in the account number 220 mean that the account is in the

Liability division of the chart of accounts

Payor vs. Payee

Payor - wrote the check Payee - received the check

T or P: Accts. Rec.

Permanent

Advantages and disadvantages to forming a company as a sole proprietorship

pros: all profits, total control, ease of formation cons: limited resources, limited expertise, limited life, all debts and liabilities

journalizing

recording transactions in a journal

owner's equity

reflects the value of a business

T or F: A chart of accounts is a list of account titles and numbers showing the location of each account in a ledger

True

T or F: A riskier bond will usually have a higher stated interest rate

True

T or F: A trial balance is a proof of the equality of debits and credit in a general ledger

True

T or F: Accounts in a general ledger are arranged differently than the order in which the accounts appear on the chart of accounts

True

T or F: Accts. Rec. accounts are increased with debit

True

T or F: Advertising Expense 510, Insurance Expense 520, so Electricity Expense being added would be 515

True

T or F: An endorsement consisting only of the endorser's signature is blank endorsement

True

T or F: Assets are items that a company owns

True

T or F: Each transaction changes the balances in at least two individual accounts

True

T or F: Journalizing a transaction occurs before posting

True

T or F: One of the advantages of buying preferred stock is a guarantee of dividends

True

T or F: Prepaid insurance is decreased with a credit

True

T or F: The amounts that a company owns are called assets

True

T or F: The work sheet is used to assist in preparing the revenue, expenses, and net income sections of an income statment

True

T or F: When a business uses EFT to pay vendors, previous arrangements have been made with its bank to process the transactions

True

T or F: When an error in a journal entry has already been posted, the incorrect journal entry should be corrected with an additional journal entry

True

T or F: When cash is received from sales, both cash account and sales account are increased

True

T or F: liabilities occur when a company takes ownership of an asset but does not pay cash at the time of a transaction

True

If own a share of stock in a company, then you have the right to

Vote for a person to be appointed to the Board of Directors

What can a corporation not do?

Vote for a state senator

A business form ordering a bank to pay cash from a bank account is a

check

T or F: A business form ordering a bank to pay cash from a bank account is a

check

to find the balance of an account what should be consulted

general ledger

when services are sold on account for 500

sales is increased with a credit and Accts. Rec. is increased with a debit

If cash is increased by 2,000 when the owner invests cash then capital is...

increased by 2,000

component percentage

is a percentage relationship between one financial statement item and the total that includes that item

general journal

journal with two columns in which all kinds of entries are recorded

fiscal period

length of time for which a business summarizes and reports financial information

When cash is decreased and supplies is increased by an equal amount

liabilities and capital are not changed

Accts. Pay = what type of account

liability

Adjusting supplies and prepaid insurance and recording the related expenses is appropriate according to the accounting concept of

matching

The source document for journalizing an electric funds transfer is a

memorandum

the source document for a correcting entry is

memorandum

When total revenue is greater than total expense, the difference is a

net income

IF a check is endorsed on the bank with the words "For Deposit Only" the check can be cashed by who?

no one, it must deposited

When a Dolle's company pays cash on account to Wildermuth's company, Dolle's company will show that

one asset and one liability have changed

Sales = what type of account

owner's equity

telephone expense = what type of account

owner's equity

cash on hand is known as

petty cash

The procedure for transferring information from a journal entry to a ledger account is

posting

Three main sources of funding for a corporation

stocks, bonds, loans

liabilities

stuff you owe

assets

stuff you own

when supplies are bought on account, the account debited is

supplies

which of the following statements is false

the Dow Jones Industrial Average encompasses all publicly traded stocks

an account number in the journal's "post. ref." column shows

the account to which an amount is posted

When cash is paid for insurance

the balance of the prepaid insurance accounts is decreased

A journal entry includes

the debit and credit parts of a transaction recorded on one page

A check must be signed with

the same signature as on the signature on file on the bank

a paper general journal page is complete when

there is insufficient space to record any more entries

what type of account is dividends

"Dividends" is an equity account, NOT an expense

accounting is referred to as the

"language of business"

calculating depreciation

(Straight - Line Depreciation) - charging an equal amount of depreciation expense for a plant asset in each year of its useful life

bank loan

- Corporations may borrow from a bank - Principal: the amount that is borrowed - Interest: the cost of borrowing a principal amount - Paid monthly to the bank - Compound interest: paying interest on the interest - Amortization: paying off debt in regular installments over a period of time

a corporate bond

- Debt obligations issued to the public - The term of the bonds are a fixed period of time - Bonds also pay a stated rate of interest, usually quarterly - Higher interest on riskier bonds - Risk is of bankruptcy - Bonds do not give the buyer ownership in the company

rights of a corporation

- Own property - Incur liabilities - Enter contracts - Sell ownership in itself (stock) - In order to do business, a corporation must acquire legal approval from a state and or federal agency - Best place to register: Delaware

why would a check get dishonored?

- insufficient funds - wrong signature / forged - void / stop check - altered check - if the written amount doesn't = the # amount

What does the FASB do

1) Create GAAP 2) Examine current accounting practice in business 3) Provide guidance for unusual accounting transactions

Accounting equation =

Assets = Liabilities + Owner's Equity

3 factors for calculating Depreciation Expense

1) Original Cost: the cost of the asset and the cost paid to make the asset usable to a business - (ie: delivery and installation) 2) Estimated Salvage Value: (AKA: "scrap value", "residual value") - the amount that will be received at disposal 3) Estimated Useful Life: How long an asset will be useful to a company (an estimate)

physical vs. functional depreciation

1) Physical depreciation - when an asset is worn out 2) Functional depreciation - when an asset still works, but becomes obsolete

Accounting Cycle

1) analyze transactions 2) journalize transactions 3) post transactions 4) prepare worksheet 5) prepare financial statements 6) journalize adjustments and closing entries 7) post adjustments and closing entries 8) prepare a post-closing trial balance

Two reasons why an investors would buy a share of common stock

1) increase in market value 2) to have ownership

Rank the following creditors in terms of the receipt of funds from a liquidation - preferred stockholder - common stockholder - loan secured by collateral - bondholder

1) loan secured by collateral 2) bondholder 3) preferred stockholder 4) common stockholder

what are the three main types of business?

1) sole proprietorship 2) Partnership 3) corporation

two types of bankruptcy

1. Chapter 7: A liquidation - when all assets of a company are sold and the proceeds are distributive to creditors a) Creditors are who you owe money to b) The company ceases to exist 2. Chapter 11: A re-organization: the company reorganizes its debts and pays off some of them a) The company continues to operate b) A bankruptcy court oversees major management decisions

Post Ref

110, 115, 120, 130, 140, 520, 530

Owner invested 8,000 bought 1,500 of supplies with cash, bought insurance coverage of 500 with cash, and bought 300 more supplies on account, total assets =

8,300

A properly amortized loan will have:

A near-zero principal balance at the end of the term of a loan

Uncollectible accounts

A/R that cannot be collected - Necessary because always a risk that someone won't pay you back - Allowance should be MATCHED in the same period that revenue is earned - Impossible to know exactly which accounts will become uncollectible

When services are sold on account

Accts. Rec. is debited, sales is credited

when 1,500 cash is received on account

Accts. Rec. is decreased with a credit and cash is increased with a debit

AICPA

American Institute of Certified Public Accounts

differences between common & preferred stocks

Common: - More risky ○ Last to receive a payment in bankruptcy - Voting - No guaranteed dividends Preferred: - Less risky ○ Second last to receive a payment in bankruptcy - Non-voting - Guaranteed dividends

Debits =

Credits

Adjusting Entries

Debit Expense, Credit Asset

what does EFT stand for?

Electronic Funds Transfer

T or F: If a business has only two asset accounts, Accts. Rec. and Cash, the two accounts should be numbered 110 for Accts. Rec. and 120 for Cash

False

T or F: One of the columns in the General Ledger provides a direct reference to a source docs

False

T or F: Owner's Equity = Assets + Liabilities

False

T or F: The left side of an asset account is the credit side bc assets accounts are on the left side of the accounting equation

False

T or F: The owner of a corporate bond has a share of ownership in the issuing company

False

T or F: To correct an error in a journal, erase the incorrect item and write the correct item in the same place

False

T or F: When an owner invests cash in a business, owner's equity decreases

False

T or F: When cash is paid for rent expense, total assets decrease and owner's equity increases

False

T or F: a balance sheet reports information over a period of time, indicating the financial progress of a business in earning a net income or net loss

False

T or F: the component percentage "% of sales" is calculated by dividing sales and total expense by net income

False

T or F: the petty cash fund is a liability with a normal debit balance

False

For deposit only

Restrictive Endorsement

SEC

Securities Exchanged Commission

Pay to the order of Jackie Wildermuth

Special Endorsement

T or P: Income Summary

Temporary

T or P: Sales

Temporary

T or P: Utilities Expense

Temporary

income statement

a financial statement showing revenue and expenses for the fiscal period

balance sheet

a financial statement that reports assets, liabilities, and owner's equity as a specific date

journal

a form for recording transactions in chronological order

A form showing a proof of a petty cash payment is

a petty cash slip

If the trial balance columns are not equal and the difference can by divided evenly by 9, the error most likely is

a transposed numbers

Permanent accounts

accounts used to accumulate information from one fiscal period to the next AKA "real accounts"

Temporary accounts

accounts used to accumulate information until it is transferred to the owner's equity account AKA "nominal accounts"

Equity account

amounts earned by a corporation and not yet distributed to the shareholders

adjustments

changes recorded on a work sheet to update general ledger accounts at the end of the fiscal period

A decrease in owner's equity resulting from the operation of a business for the use of the business is

an expense

When a transaction changes both sides of the accounting equation

an increase on the left side must equal an increase on the right side

A lost check with a blank endorsement on it can be cashed by

anyone who has the check

Accts. Rec. = what type of account

asset

What type of account is prepaid insurance

asset

furniture = what type of account

asset

Right side of T account

credit

Increase in a revenue account are shown on a T accounts...

credit side

The entry to record receipt of cash from the owner as an investment

debit cash, credit capital

Normal balance side of an asset account

debit side

the normal balance side of an expense account is

debit side

when cash is paid for an expense, the expense account is

debited

A journal entry consists of

debits and credits, source documents, and date

a check that a bank refuses to pay is called a

dishonored check

The recording of debit and credit parts of a transaction is called

double-entry accounting

For personal use

drawing

entry

each transactions recorded in a journal