Accounting Midterm - True or False

A company's fiscal year must correspond to the calendar year.

False

A credit term of "2/10, n/30" means that the buyer may deduct 2% from the invoice if payment is made within ten days from the end of the month.

False

A decrease in an expense account is the equivalent of a decrease in owner's equity.

False

A deferral is the recognition of an expense that has risen but has not yet been recorded.

False

A fiscal period must begin on January 1.

False

A revenue account is closed with a credit to the revenue account and a debit to Income Summary.

False

A trade discount is a cash discount.

False

A worksheet is more useful for a small entity than for a large one.

False

Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

False

Accrued revenue is a term used to describe revenue that has been received but not yet earned.

False

Accumulated depreciation appears on the income statement.

False

Assets become liabilities when they expire.

False

There is sufficient information on a post-closing trial balance to prepare an income statement.

False

To simplify the recording of regular transactions in the next accounting period, all adjusting journal entries are reversed.

False

Total assets, total liabilities and owner's equity on the balance sheet are the same as the totals of the Balance Sheet columns on the worksheet.

False

Transportation in is considered a cost of merchandise purchased.

False

Transportation in is treated as a deduction in the cost of goods sold section of the income statement.

False

Transportation out is included in the cost of goods sold calculation.

False

Trial balances are prepared primarily to ensure that no entries have been omitted.

False

Under the periodic inventory system, cost of goods sold is treated as an account.

False

When "143" is written as "134," there is a sliding error.

False

When the adjusting entries are entered onto a worksheet, it is not necessary to record them in the general journal.

False

When the balance sheet columns of the worksheet are initially footed they should be in balance.

False

When the income statement columns of the worksheet are totaled, the excess of debits over credits is called profit.

False

Working papers provide a written record of the work performed by the accountant or auditor.

True

Acquiring a computer for cash is just exchanging one asset for another and will not result in an expense even in the future periods.

False

Adjusting entries affect cash flows in the current period.

False

Adjusting entries are all dated as at the first day of the new accounting period.

False

After the adjusting and closing entries have been recorded and posted, the general ledger accounts that appear on the balance sheet have no balances.

False

All decreases in owner's equity are a result of expenses.

False

All nominal accounts must be closed before the Income Summary account can be closed.

False

Allowance for bad debts is considered as contra asset account, presented on the liability portion.

False

An adjusting entry prepared at the end of the year for a deferral initially recorded using asset method would involve a credit to an expense account.

False

An asset's book value represents the true market value of the asset.

False

An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

False

An expense account is closed with a debit to the expense account and a credit to Income summary.

False

As equipment is depreciated, its book value increases and it accumulated depreciation increases.

False

Assets, liabilities, capital and withdrawal accounts are extended to the income statement columns of the worksheet.

False

Because adjusting entries are recorded on a worksheet, they do not need to be journalized or posted.

False

Book value of an asset is the original cost of an asset less depreciation expense for the year.

False

Cash discounts are called purchases discounts from the buyer's point of view.

False

Cash loaned from a bank constitutes income.

False

Closing entries can be prepared by referring solely to the Income Statement columns of the worksheet.

False

Closing entries deal primarily with the balances of real accounts.

False

Concepts underlying the preparation of adjusting entries include periodicity and separate entity concept.

False

Depreciation Expense-Building is a permanent account.

False

Discounts offered to the buyer to encourage early payment are trade discounts.

False

During the closing process, expenses are transferred to the credit side of the Income Summary account.

False

Ending merchandise inventory is included in the calculation of cost of goods available for sale.

False

Expenses are increases in equity caused by the entity's income-generating activities.

False

FOB shipping point means the seller incurs the shipping costs.

False

Financial statements are confidential documents which are available only to the owner of the business.

False

Financial statements are prepared from the Adjusted Trial Balance columns of the worksheet.

False

For a merchandising entity, the difference between net sales and operating expenses is called gross margin.

False

For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to cash.

False

General ledger account balances agree with those in the financial statements even before adjusting and closing entries are recorded and posted.

False

If all transactions were originally recorded in conformity with GAAP, there would be no need for adjusting entries at the end of the period.

False

If the seller is to shoulder the cost of delivery, the term is stated as FOB destination.

False

In a worksheet, a net lost is shown in the income statement column only.

False

In recording the adjusting entry for accrued salaries, all the accounts involved are decreased.

False

In the accounting cycle, closing entries are prepared before adjusting entries.

False

Income and expense accounts are moved to the balance sheet columns of the worksheet.

False

Income summary is closed with a debit to Income Summary and a credit to the owner's Withdrawals account.

False

On a worksheet, the balance of the owner's Capital account is its ending amount for the period.

False

On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expense.

False

Paying taxes to the government is an example of financing activity.

False

Primary users of the accounting information are accountant and auditors.

False

Revenue is equal to the cash received by a company during an accounting period.

False

Revenue results from collection of accounts receivable.

False

Reversing entries are made to correct errors in the accounts.

False

Reversing entries can be made for deferrals but not for accruals.

False

Sales return and allowances is an expense account.

False

Temporary accounts are also known as real accounts.

False

Terms 2/10, n/30 is an example of a trade discount.

False

The Income Summary account appears in the income statement.

False

The Income Summary account will appear on the the post-closing trial balance.

False

The Merchandise Inventory account is not affected when a sales allowance is granted.

False

The Wages Payable would appear on the Income Statement.

False

The account commissions Earned would appear on the balance sheet.

False

The account form of the balance sheet shows assets, liabilities and equity in a vertical sequence.

False

The adjusting entries involving Depreciation Expense-Building and Supplies Expense could be reversed.

False

The adjusting entry to allocate part of the cost of a one-year fire insurance policy to expense will cause total assets to increase.

False

The adjusting entry to recognize an expense which is unrecorded and unpaid will cause total assets to increase.

False

The amount for the owner's withdrawals will appear in the income statement columns of the worksheet.

False

The amount placed opposite the owner's Capital in the balance sheet columns of the worksheet is the amount to be reflected for owner's Capital on the balance sheet

False

The balance sheet credit column of the worksheet usually contains only the liability and equity accounts.

False

The balance sheet may be prepared by referring solely to the Balance Sheet columns of the worksheet.

False

The balances of all the accounts that appear on a balance sheet are the same on the adjusted trial balance as they are on a post-closing trial balance.

False

The bill of lading is a document prepared by the seller detailing the terms of delivery.

False

The calculation of cost of goods available for sale during the year is not affected by the previous year's ending inventory.

False

The cost of merchandize purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period.

False

The debit balance of the inventory account in the trial balance under the periodic inventory system is the amount of the inventory at the end of the current year.

False

The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.

False

The difference between revenues from sales and cost of sales is operating income.

False

The excess of expenses over revenues is called loss.

False

The heading for an income statement might include the line "As at December 31, 2015."

False

The matching principle provides guidance in accounting for the recognition of assets.

False

The maximum period covered by a worksheet is six months.

False

The only accounts that are closed are income statement accounts.

False

The owner's Capital account is shown in the Income Statement Credit column on a worksheet.

False

The owner's Withdrawals account will not appear on an adjusted trial balance on the worksheet.

False

The owner's personal withdrawals for the year cause a decrease in profit.

False

The periodic inventory system provides an up-to-date amount of inventory on hand.

False

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

False

The purchase of equipment is an example of a financing activity.

False

The purchase of equipment not for resale should be debited to purchase account.

False

The statement of changes in equity uses only the profit figure from the income statement to explain the change in equity.

False

The term freight prepaid or collect will dictate who shoulders the transportation costs.

False

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the invoice date.

False

The totals of the balance sheet columns of the worksheet will usually be the same as the totals appearing in the formal balance sheet.

False

The worksheet is prepared after the formal adjusting and closing entries.

False

The worksheet should be prepared after the formal financial statements have been prepared.

False

There is no need for a physical inventory count in the perpetual inventory system.

False

There is sufficient information on a post-closing trial balance to prepare a statement of changes in equity.

False

When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.

False

When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be understated.

False

A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.

True

A loss occurs when there are more expenses than revenue.

True

A physical inventory is usually taken at the end of the accounting period.

True

A reversing entry is a journal entry which is the exact opposite of a related adjusting entry made at the end of the period.

True

A reversing entry will include either a debit to a revenue account or a credit to an expense account.

True

A validated deposit slip indicates that cash and checks were actually deposited.

True

Accounting periods should be of equal length to facilitate comparisons between periods.

True

Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.

True

Accounts that are partly income statement amounts and partly balance sheet amounts are called mixed accounts.

True

Accrued Revenues should be recorded as an asset on the balance sheet.

True

Accumulated depreciation accounts may be referred to as contra-asset accounts.

True

Adjusting entries are useful in apportioning costs among two or more accounting periods.

True

Advertising expense appears as a selling expense on the income statement.

True

After all necessary adjustments are entered in the worksheet, the two adjustments columns are totaled to prove the equality of debits and credits.

True

After all the closing entries have been entered and posted, the balance of the Income Summary account will be zero.

True

An adjusting entry includes at least one balance sheet account and at least one income statement account.

True

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory.

True

An important use of the worksheet is as an aid in the preparation of financial statements

True

An income statement relates to a specified period while a balance sheet shows the financial position of the entity at a particular date.

True

Applying accrual accounting results in a more accurate measurement of profit for the period than does the cash basis of accounting.

True

Book value is the original cost of a building less depreciation for the year.

True

Buying and producing goods and services are examples of operating activities.

True

Cash flow statement reports the amount of cash received and disbursed during the period.

True

Closing entries clear income and expense accounts at the end of the period.

True

Closing entries result in the transfer of profit or loss into the owner's Capital account.

True

During the closing process, revenues are transferred to the credit side of the Income Summary account.

True

Ending merchandise inventory for year 1 automatically becomes beginning merchandise inventory for year 2.

True

Every adjusting entry must change both an income statement account and a balance sheet account.

True

Failure to record the adjusting entry for accrued salaries results in the current year's profit being overstated.

True

Failure to record the adjusting entry for depreciation results in assets and owner's equity being overstated on the balance sheet.

True

Failure to record the adjusting entry for depreciation will overstate assets on the balance sheet.

True

Financial flexibility is the ability to take effective actions to alter the amounts and timings of cash flows so that it can respond to unexpected needs and opportunities.

True

Financial position may be assessed by referring to a balance sheet.

True

Financial statements cannot be prepared correctly until all the accounts have been adjusted.

True

For a merchandizing entity, the difference between net sales and operating expenses is called gross margin.

True

Goods should be recorded at their list price less any trade discounts involved.

True

If an asset has been carried to the debit column of the income and a similar error occurred involving income or liabilities, the worksheet may appear to be correct but the profit figure is actually misstated.

True

If revenue and expenses were equal for an accounting period, the result would be neither a profit nor a loss.

True

If the post-closing trial balance does not balance, then the error(s) definitely occurred at some point during the closing process.

True

In recording the adjusting entries for depreciation, both accounts involved are increased.

True

In the accounting cycle, information from source documents is initially recorded in the journal.

True

Liquidity refers to the availability of cash in the near future after taking account of the financial commitments over this period.

True

Merchandise inventory could include goods that are in transit.

True

Nominal account balances are reduced to zero by closing entries.

True

Not all increases to cash represent revenues.

True

Notes to financial statements include narrative descriptions or more detailed analysis of amounts shown on the face of the balance sheet, income statement, cash flow statement and statement of changes in equity.

True

Of the adjustment for accrued salaries is omitted, liabilities and expenses will be understated.

True

On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expense.

True

One way to handle prepaid items is to initially charge them to an appropriate expense account and at the end of the accounting period transfer the unused portion to an appropriate prepaid account.

True

Pabebe Company bought a building that cost ₱200,000, has accumulated depreciation of ₱20,000. The book value of the building is ₱180,000.

True

Post-closing trial balance tests the equality of the accounts after the adjustments and the closing entries are posted.

True

Purchases returns and allowances is a deduction from purchases.

True

Recording incurred but unpaid expenses is an example of an accrual.

True

Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.

True

Reversing entries are never required.

True

Sales return and allowances is described as a contra-revenue account.

True

Solvency refers to the availability of cash over the longer term to meet financial commitments as they fall due.

True

Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.

True

Supplies expense is a temporary account.

True

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

True

The Adjusted Trial Balance columns of the worksheet are prepared by combining the Trial Balance and Adjustments columns of the worksheet.

True

The Merchandise Inventory account is not affected when a sales allowance is granted.

True

The adjusting entries involving Rent Receivable and Salaries Payable could be reversed.

True

The adjusting entry to recognize earned commission revenues not previously recorded or billed will cause total assets to increase.

True

The adjusting entry to recognize earned revenues which was received in advance will cause total liabilities to decrease.

True

The adjustment to record depreciation of property and equipment consists of a debit to depreciation expense and a credit to accumulated depreciation.

True

The amount of accrued revenues is recorded by debiting an asset account and crediting an income account.

True

The amount of owner's withdrawals can be found on the worksheet.

True

The balance into the merchandise inventory account at the beginning of the period represents the cost of the merchandize on hand at that time.

True

The balance of the Unearned Revenues account will appear in the balance sheet credit column of the worksheet.

True

The balance of the owner's capital account represents the cumulative net result of income, expense and withdrawal transactions.

True

The balance sheet is also known as the statement of financial position.

True

The balance sheet is prepared based on the final equity balance in the statement of changes in equity.

True

The balance sheet provides the financial statement user the type and amounts of each asset, liability and capital account at a particular date.

True

The balances of the Accumulated Depreciation accounts will appear on the credit side of the worksheet's Balance Sheet columns.

True

The change in inventory level from the beginning to the end of the year affects cost of goods sold.

True

The chart of accounts for a merchandizing entity differs from that of a service entity.

True

The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.

True

The ending inventory of one period is the beginning inventory of the next period.

True

The expiration of usefulness of equipment during an accounting period is called depreciation.

True

The final trial balance is called a post-closing trial balance.

True

The focal point of the accounting cycle is the financial statements

True

The income statement of an entity that provides services only will not have cost of goods sold.

True

The income statement shows the types and amounts of revenues and expenses for the accounting period.

True

The income summary account is used to close the income and expense accounts.

True

The last step in worksheet preparation is to enter the profit or loss figure as a balancing figure in the income statement and balance sheet columns.

True

The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for purchases and collection of cash.

True

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

True

The perpetual inventory system requires recording the cost of each sale as it occurs.

True

The post-closing trial balance contains asset, liability, withdrawal and capital accounts.

True

The post-closing trial balance will contain only real accounts.

True

The post-closing trial balance will have fewer accounts than the adjusted trial balance.

True

The purchase of land is an example of an investing activity.

True

The purpose of reversing entries is to simplify the bookkeeping process.

True

The sales discounts account is a contra-income account and will have a debit balance.

True

The statement of cash flows discloses significant events related to the operating , investing, and financing activities of a business.

True

The statement of changes in equity discloses the withdrawals during the period.

True

The statement of changes in equity relates the income statement to the balance sheet by showing how the owner's Capital account changed during the accounting period.

True

The third step in worksheet preparation is to enter the adjusted account balances in the adjusted trial balance columns.

True

The two main systems for accounting for merchandize are periodic and perpetual.

True

The worksheet helps the accountant discover existing posting and calculation errors.

True

The worksheet is a convenient device for completing the accounting cycle.

True

The worksheet is a type of accountant's working paper.

True

The worksheet is not presented with the financial statements.

True

The worksheet is used to pull together up-to-date account balances needed to prepare the financial statements.

True

There is sufficient information on a post-closing trial balance to prepare a balance sheet.

True

Transportation in is considered a cost of merchandise purchased.

True

Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory Account.

True

Under the periodic inventory system, the purchases account I'd used to accumulate a purchases of merchandise for resale.

True

Under the perpetual inventory, the cost of merchandise is debited to Merchandise Inventory at the time of purchase.

True

When profit or loss is exactly zero, one of the usual closing entries will be avoided.

True

When services are not paid for until after they have been performed, the accrued expense is recorded by an adjusting entry at the end of the accounting period.

True

When the Income Statement columns of the worksheet are initially footed, they should be out of balance by the amount of profit or loss.

True

When the freight term is "FOB Destination, Freight Collect," it means the seller shoulders the freight but the buyer pays it.

True

When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.

True

When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.

True

When there is no direct connection between revenues and costs, the costs are systematically allocated among the periods benefited.

True

Withdrawals are recorded in the Balance Sheet Debit column of a worksheet.

True