Accouting Exam 1
revenues: debit ___ and credit ____
decrease, increase
stockholder's equity: debit ___ and credit ____
decrease, increase
1. Financial accounting does not deal with which of the following? A) Making business decisions. B) Communicating financial results to investors. C) Measuring a company's economic activity. D) Preparing financial reports.
A
12. On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle, on which date should Johnson record service revenues? A) May 7 (date of service) B) May 10 (date of cash receipt) C) Evenly over the three dates. D) May 5 (date of phone call)
A
19. Which of the following is a possible closing entry? A) Debit Service Revenue, credit Retained Earnings. B) Debit Dividends, credit Retained Earnings. C) Debit Cash, credit Service Revenue. D) Debit Cash, credit Retained Earnings.
A
20. Which of the following is a permanent account? A) Retained Earnings B) Dividends C) Service Revenue D) Advertising Expense
A
22. When a company incurs workers' salaries but does not pay them, how will the basic accounting equation be affected? A. Stockholders' equity decreases and liabilities increase. B. Assets decrease and liabilities decrease. C. Assets increase and stockholders' equity increases. D. Liabilities decrease and stockholders' equity increases.
A
37. Permanent accounts would not include: A. Interest Expense. B. Salaries Payable. C. Prepaid Rent. D. Unearned Revenues.
A
9. A company received a bill for newspaper advertising services received, $400. The bill will be paid in 10 days. How would the transaction be recorded today? A) Debit Advertising Expense $400, credit Accounts Payable $400. B) Debit Accounts Payable $400, credit Cash $400. C) Debit Accounts Payable $400, credit Advertising Expense $400. D) Debit Advertising Expense $400, credit Cash $400.
A
10. On July 31, ALOE Inc. received $5,000 cash from a customer who previously purchased ALOE's products on account. What should ALOE Inc. record at the time it receives cash? A) Debit Accounts Receivable, $5,000; credit Cash, $5,000. B) Debit Cash, $5,000; credit Accounts Receivable, $5,000. C) Debit Cash, $5,000; credit Service Revenue, $5,000. D) Debit Cash, $5,000; credit Accounts Payable, $5,000.
B
11. Which of the following accounts would normally have a credit balance? A) Income Tax Payable, Service Revenue, Dividends. B) Accounts Payable, Service Revenue, Common Stock. C) Salaries Payable, Unearned Revenue, Delivery Expense. D) Cash, Repairs and Maintenance Expense, Dividends.
B
23. Expenses normally carry a _______ balance and are shown in the _________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance Sheet
B
19. Net income appears in which two financial statements? A. Balance sheet and income statement. B. Statement of stockholders' equity and balance sheet. C. Income statement and statement of stockholders' equity. D. Net income appears in only one financial statement.
C
18. Which of the following is the correct order for preparing the financial statements? A. Balance sheet, statement of stockholders' equity, and income statement. B. Balance sheet, income statement, and statement of stockholders' equity. C. Statement of stockholders' equity, income statement, and balance sheet. D. Income statement, statement of stockholders' equity, and balance sheet.
D
2. McGill purchases additional office equipment to better serves its customers. This purchase is classified as what type of activity? A) Company activity. B) Operating activity. C) Financing activity. D) Investing activity.
D
21. Purchasing supplies for cash has what effect on the accounting equation? A. Increase assets. B. Decrease stockholders' equity. C. Decrease liabilities. D. No effect.
D
6. On January 1, Lindstrom has total assets of $100,000, total liabilities of $30,000, and total stockholders' equity of $70,000. Lindstrom purchases $20,000 of supplies on account and $2,000 if prepaid rent for cash. After these transactions, total assets will equal $ ________. A) $ 82,000 B) $ 100,000 C) $ 120,000 D) $ 122,000
D
7. If a company provides services on account, which of the following is true? A) Expenses increase. B) Liabilities increase. C) Assets decrease. D) Stockholders' equity increases.
D
For USA companies, ___ are the rules, ____ makes the rules and ____ enforces the rules
GAAP, FASB, SEC
liability: debit ___ and credit ____
decrease, increase
balance in retained earnings =
add net income to beginning balance then deduct dividends
3 steps when preparing journal entry
analyze transaction, debit and credit rules, prepare
trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements
auditors
last day of accounting period, presents financial position of the company at a certain date
balance sheet
stockholder's equity =
common stock + retained earnings
normal account balance for SE
credit
normal account balance for liability
credit
normal account balance for revenue
credit
liabilities and stockholder's equity are increased by
credits
normal account balance for asset
debit
normal account balance for dividends
debit
normal account balance for expense
debit
assets are increased by ____
debits
expenses ____ SE
decrease
____ are not an expense and thus not shown in income statement
dividends
revenue is recognized when cash is ___ on accrual basis
earned
measures business activities of a company and communicates those measurements to external parties for decision making purposes
financial accounting
issuing common stock is a ____ activity
financing
paying dividends to stockholders is a is a ____ activity
financing
transactions with investors, issuing stock and borrowing money are _____ activities
financing
compare revenues and expenses for a period of time, no single piece of company information better explains companies stock price
income statement
revenues ____ SE
increase
one way to increase assets is to
increase liabilities
asset: debit ___ and credit ____
increase, decrease
dividends: debit ___ and credit ____
increase, decrease
expenses: debit ___ and credit ____
increase, decrease
expense is recognized when cash is ____ on accrual basis
incurred
purchase and sale of resources, buying long term assets are _____ activities
investing
purchasing land is a ____ activity
investing
claims of creditors
liabilities
assets =
liabilities + stockholder's equity
expenses are recorded in the same period as they revenues they help generate
matching principle
if revenues > expenses
net income
if revenue < expenses
net loss
providing services to customers is a ____ activity
operating
transactions relating to primary operations are ___ activities
operating
statement of cash flows can be broken down into 3 categories
operating, investing, financing
2 or more individuals share control
partnership
sarbanes oxley act
regulation of auditors
net income =
revenues - expenses
financial statement that measures activities involving cash receipts and cash payments over an interval of time
statement of cash flows
claims of owners
stockholder's equity