Accounting Practice Exam 1

The accounting equation can be stated as: Assets -Liabilities = Stockholders' Equity. Assets - Stockholders' Equity + Liabilities = Zero. Assets = Liabilities - Stockholders' Equity. Assets + Stockholders' Equity = Liabilities.

Assets-Liabilities= Stockholders' Equity

Which of the following is a CORRECT statement about the two bases of accounting? GAAP requires accrual accounting. Cash-basis accounting records expenses only at the end of the month. Only the largest companies in the United States use accrual accounting. Cash-basis accounting records revenues when they are earned.

GAAP requires accrual accounting.

When preparing the financial statements, why is the income statement prepared first? The income statement is used to prepare the balance sheet. Net income or net loss from the income statement is used for the statement of retained earnings. The income statement is the most important statement to investors and creditors. The income statement is the easiest statement to prepare.

Net income or net loss from the income statement is used for the statement of retained earnings.

What is the last step in the journalizing process? Record the transaction in the journal. Determine whether each account is increased or decreased by the transaction. Post the journal entry to the ledger. Specify each account affected by the transaction and classify each account by type.

Record the transaction in the journal.

All of the following accounts would be considered assets EXCEPT for: Notes Receivable. Cash. Retained Earnings. Prepaid Expenses.

Retained Earnings

Which of the following statements, regarding the rules of debits and credits, is CORRECT? A liability is increased by a debit. Revenue is increased by a credit. An asset is increased by a credit. Common stock is increased by a debit.

Revenue is increased by a credit.

Which of the following is a TRUE statement regarding expenses? Expenses will never result in the creation of a liability account. The critical event for recording salary expense is the payment of cash. The expense recognition principle recognizes expenses in the same period in which the related revenues are earned. Expenses represent future benefit to the company.

The expense recognition principle recognizes expenses in the same period in which the related revenues are earned.

A record of all the changes in a particular asset during a period of time is found in a(n): prior period's balance sheet. transaction. account. trial balance.

account

When services are performed on account: revenue will not be recorded until the cash is received from the customer. accounts payable is increased. cash is increased. accounts receivable is increased.

accounts receivable is increased.

The balance sheet reports: the changes in retained earnings. assets, liabilities and stockholders' equity. revenues and expenses. assets, liabilities, revenues and expenses.

assets, liabilities and stockholders' equity

Which financial statement answers the following question: What is the company's financial position at fiscal year end? statement of retained earnings income statement statement of cash flows balance sheet

balance sheet

When a business purchases land with a note payable: assets are increased and liabilities are decreased. both assets and liabilities are increased. assets are decreased and stockholder's equity is increased. both assets and stockholders' equity are increased.

both assets and liabilities are increased.

Entries are listed in the journal: alphabetically. chronologically. in order of importance. with income statement accounts first and then balance sheet accounts.

chronologically.

The normal balance of a revenue account is a ________ because revenues increase ________. debit; expenses debit; retained earnings credit; retained earnings credit; assets

credit; retained earnings

An important rule of debits and credits is: debits increase liability accounts. credits increase asset accounts. credits increase revenue accounts. debits decrease asset accounts.

credits increase revenue accounts

When preparing the financial statements of a company: the balance sheet must be prepared using the account format. liabilities are not classified on the balance sheet. the income statement can be prepared using the multistep or report format. current assets are the most liquid assets.

current assets are the most liquid assets.

Accounting: a. is often called the language of business. b. measures business activities. c. processes data into reports and communicates the data to decision makers. d. is all of the above.

d. is all of the above

The left side of a T-account is always the: increase side. debit side. decrease side. credit side.

debit side

The normal balance of an expense account is a ________ because expenses decrease ________. credit; retained earnings debit; retained earnings debit; expenses debit; assets

debit; retained earnings

Liabilities are: debts payable to outsiders called creditors. future economic benefits to which a company is entitled. a form of paid-in capital. the outflow of resources that decrease common stock.

debts payable to outsiders

The conceptual foundation of accounting does NOT include: fundamental qualitative characteristics. enhancing qualitative characteristics. accounting objectives. decision making.

decision making

All of the following are expenses EXCEPT for: Depreciation Expense. Dividends. Salary Expense. Cost of products and services.

dividends

The two types of accounting are: profit and nonprofit. internal and external. bookkeeping and decision-oriented. financial and managerial.

financial and managerial.

A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual accounting, the doctor recognizes revenue: in July. in March. in either March or July. at a time that cannot be determined from the facts.

in march

Which financial statement answers the following question: How well did the company perform during the year? statement of retained earnings balance sheet statement of cash flows income statement

income statement

The CORRECT data flow from one financial statement to the next is: balance sheet, statement of retained earnings, income statement, statement of cash flows. statement of retained earnings, income statement, balance sheet, statement of cash flows. income statement, statement of retained earnings, balance sheet, statement of cash flows. statement of retained earnings, income statement, statement of cash flows, balance sheet.

income statement, statement of retained earnings, balance sheet, statement of cash flows.

A company performed services for a customer for cash. This transaction increased assets and: increased revenues. increased expenses. increased liabilities. decreased stockholders' equity.

increased revenues.

In order to see a complete transaction in one place, you would need to look at the: ledger. journal. trial balance. financial statements.

journal

A chart of accounts: lists all of an organization's accounts and account numbers. lists all of the accounts of an organization in alphabetical order. is used by an organization to determine the balance in all of their accounts. must be the same for all organizations.

lists all of an organization's accounts and account numbers.

On a classified balance sheet: Dividends is a current asset. Accounts Receivable is a current liability. Notes Payable due in one year is a current liability. Salaries Payable is a long-term liability.

note payable due in 1 year is a current liability

The first step in recording a transaction in the journal is: copying the information from the journal to the ledger. entering the debit side of the journal entry on the left margin and the credit side, which is indented to the right. determining whether each account is increased or decreased by the transaction. specifying each account affected by the transaction and classifying the account by type.

specifying each account affected by the transaction and classifying the account by type.

An investor, wishing to assess the reasons for a change in retained earnings over a period of a year, would probably examine the: income statement only. balance sheet. statement of cash flows and the income statement. statement of retained earnings.

statement of retained earnings

The beginning retained earnings balance is found on the: balance sheet. income statement. statement of retained earnings. both the statement of retained earnings and the balance sheet.

statement of retained earnings

Which of the following transactions will increase one asset and decrease another asset? the purchase of equipment for cash the performance of services on account the performance of services for cash the purchase of office supplies on account

the purchase of equipment for cash

The trial balance is used to determine if: total assets equal total liabilities. total debits of the balance sheet accounts equal the total credits of the balance sheet accounts. total debits of the income statement accounts equal the total credits of the income statement accounts. total debits of all the accounts equal total credits of all the accounts.

total debits of all the accounts equal total credits of all the accounts.

A trial balance has which of the following features? totals for all accounts listed in the ledger totals for income statement accounts only totals for balance sheet accounts only Accounts are listed in alphabetical order.

totals for all accounts listed in the ledger.

Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements, such as creditors. This qualitative characteristic of information is called: relevant. faithful representative. understandability. verifiability.

understandibility

Under accrual accounting, revenue is recorded: when the cash is received, regardless of when the services are performed. when the services are performed, regardless of when the cash is received. only if the cash is received at the same time the services are performed. at the end of every month.

when the services are performed, regardless of when the cash is received.

The revenue principle deals with the following: where to record revenue and the amount of revenue to record. when to record revenue and the amount of revenue to record. when to record revenue and where to record this revenue. when to record revenue and when to record related expenses.

when to record revenue and the amount of revenue to record.