acct 2 Test 1 Ch 1-3

The American Institute of Certified Public Accountants has the legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles.

False

The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed:

Generally accepted accounting principles.

Which of the following is generally not considered one of the general purpose financial statements issued by a corporation?

Income statement forecast for the coming year.

At the end of October, Flagship Marina received a bill for fuel used in October. Payment is not due until November 30. This transaction:

Should be recorded as an expense of October, regardless of the payment date.

Generally accepted accounting principles:

may change over time

A strong statement of cash flows indicates that significant cash is being generated by:

operating activities

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:

retained earnings

The price of the goods sold or services rendered during a given accounting period is called:

revenue

A statement of cash flows depicts the way profits have changed during a designated period

false

Dividends are an expense to a corporation and appear on the income statement.

false

Increases in owners' equity are recorded by credits; increases in assets and in liabilities are recorded by debits.

false

Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount.

false

Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization.

false

Return on investment is the same as return of investment.

false

The IRS tax return is one of the primary financial statements.

false

The collection of an account receivable will cause total assets to decrease.

false

The payment of a liability causes an increase in owners' equity.

false

The statement of financial position and the income statement are one and the same.

false

Today, the most authoritative source of generally accepted accounting principles is the American Accounting Association.

false

Total assets plus total liabilities must equal total owners' equity.

false

when making a general journal entry, there can only be one debit and one credit.

false

Generally accepted accounting principles are the "ground rules" used in the preparation of:

financial statements

The accounting principle that assumes that a company will operate in the foreseeable future is:

going concern

The general purpose financial statements prepared annually by a corporation would not include the:

income tax return

internal users of financial accounting information include all of the following except:

investors

Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the informational needs of:

investors and creditors

Which of the following assets would most likely be listed last on a statement of financial position?

land

Which of the following activities is not a category into which cash flows are classified?

marketing activities

Suppose a number of your friends have organized a company to develop and sell a new software product. They have asked you to loan them $8,000 to help get the company started, and they have promised to repay your $8,000 plus 10% interest in one year. Of the following, which amount may be described as the return on your investment?

$800 Return on investment is payment for usage of the money—interest in this setting. 10% × $8,000 = $800.

If total assets equal $342,000 and total owners' equity equal $118,500, then total liabilities must equal:

223500

If total assets equal $273,000 and total liabilities equal $204,000, the total owners' equity must equal:

69000

A journal entry to record revenue could include each of the following, except:

A credit to the Capital Stock account.

The purchase of office equipment at a cost of $7,600 with an immediate payment of $4,200 and agreement to pay the balance within 60 days is recorded by the purchaser with:

A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of $3,400 to Accounts Payable.

Land is purchased by making a cash down payment of $40,000 and signing a note payable for the balance of $130,000. The journal entry to record this transaction in the accounting records of the purchaser includes:

A debit to Land for $170,000.

The Financial Accounting Standards Board is:

A private group that conducts research and determines generally accepted accounting principles.

The sequence of accounting procedures used to record, classify, and summarize accounting information is called the:

Accounting cycle.

Which of the following accounts normally has a debit balance?

Accounts receivable.

recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called:

Accrual accounting.

The essential point of a double-entry system of accounting is that every transaction:

Affects two or more ledger accounts and is recorded by an equal dollar amount of debits and credits.

which of the following best defines an asset?

An economic resource owned by a business and expected to benefit future operations.

The principle of adequate disclosure means that a company should disclose:

Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements

Generally accepted accounting principles are intended to assist accountants in preparing financial statements that:

Are relevant, verifiable, comparable, and understandable.

The way in which financial statements relate is known as:

Articulation.

The rules of debit and credit may be summarized as follows:

Asset accounts are increased by debits, whereas, liabilities and owners' equity are increased by credits.

On June 27, Healthy Life Services, Inc. performed extensive tests on lab specimens submitted by several customers and sent invoices totaling $5,200, due in 30 days.

Assets, revenue, and owners' equity are increased in June, regardless of when payments are received for the services rendered.

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a management accounting report is more likely to:

Be tailored to the specific needs of an individual decision maker.

A strong internal control structure:

Contributes to the accuracy and verifiability of the accounting records.

The valuation of assets in the balance sheet is based primarily upon:

Cost, because cost is usually factual and verifiable.

In a ledger, debit entries cause:

Decreases in liabilities, increases in assets, and decreases in owners' equity.

Financial accounting information is:

Designed to assist investors and creditors.

decreases in owners' equity are caused by:

Distributions of assets to the owners and unprofitable operations.

Which of the following is considered a return "on" investment?

Dividends.

Owners' equity in a business increases as a result of which of the following?

Earnings from profitable operation of the business.

An accounting principle must receive substantial authoritative support to qualify as generally accepted. Among the organizations and agencies that have been influential in the development of generally accepted accounting principles, which of the following has provided the most influential leadership?

FASB Financial Accounting Standards Board.

An expense is best defined as:

Past, present, or future payments of cash required to generate revenues.

The change in owners' equity due to only revenue and expense transactions is explained by the:

Income statement.

The principal difference between management accounting and financial accounting is that financial accounting information is:

Intended primarily for use by decision makers outside the business organization.

The matching principle:

Is used in accrual accounting to determine the proper period for recognition of expenses.

A strong statement of financial position shows:

Large amounts of liquid assets relative to the liabilities due in the near future.

In accounting, the terms debit and credit indicate, respectively:

Left and right.

Financial statements are prepared:

Primarily for the benefit of persons outside of the business organization.

The basic purpose of generally accepted accounting principles is to:

Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements.

the financial statements of a business entity:

Provide information about the cash flow prospects of the company.

Financial statements are designed primarily to:

Provide people outside the business organization with information about the company's financial position and operating results.

Revenues increase owners' equity because:

Revenues increase net income, which increases retained earnings.

Which one of the following is not considered as one of the three primary financial statements?

Statement of budgeting activities.

Which of the following statements is considered a "snapshot" of the business in financial or dollar terms?

Statement of financial position.

Management accountants primarily are concerned with developing information:

Suited to the needs of decision makers within the organization.

Which of the following best describes liquidity?

The ability to pay the debts of the company as they become due.

Capital stock represents:

The amount invested in the business by stockholders when shares of stock were initially issued by a corporation.

A balance sheet is designed to show:

The assets, liabilities, and owners' equity of a business as of a particular date.

Which financial statement is prepared as of a specific date?

The balance sheet

Retained earnings appears on:

The balance sheet.

Which financial statement is primarily concerned with reporting the financial position of a business at a particular time?

The balance sheet.

The concept of adequate disclosure means that:

The company must inform users of any significant facts necessary for proper interpretation of the financial statements, including events occurring after the financial statement date.

Each year, the accountant for Southern Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates:

The cost principle.

The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner are collectively referred to as:

The internal control structure.

Retained earnings is

The owners' equity that has accumulated as a result of profitable operations.

The amount of owners' equity in a business is not affected by:

The percentage of total assets held in cash.

The best definition of an accounting system is:

The personnel, procedures, technology, and records used by an entity to develop accounting information and communicate this information to decision makers.

Which of the following is not a generally accepted accounting principle relating to the valuation of assets?

The safety principle - assets are valued at no more than the value for which they are insured.

the term revenue can best be described as:

The selling price of goods and services rendered to customers during a given accounting period.

In the phrase "generally accepted accounting principles," the words accounting principles refers to:

The standards, assumptions, and concepts that serve as "ground rules" for financial reporting.

Posting is the process of:

Transferring debit and credit entries from the journal into the appropriate ledger accounts

Which of the following is not a user of internal accounting information?

creditor

Which of the following is not an objective of generally accepted accounting principles?

to minimize the amount of income taxes owed.

A transaction that causes an increase in an asset may also cause a decrease in another asset, an increase in a liability, or an increase in owners' equity.

true

An accounting practice can become a "generally accepted accounting principle" through widespread use, even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations.

true

Articulation between the financial statements means that they relate closely to each other on the basis of the same underlying transaction information.

true

Financial accounting standards issued by the FASB are considered generally accepted accounting principles.

true

In its simplest form an account has only three elements: a title, a left side (called debit), and a right side (called credit).

true

Ledger accounts are updated through a process called posting.

true

Revenues increase owners' equity and are, therefore, recorded by crediting the revenues account.

true

The accounting equation may be stated as "assets minus liabilities equals owners' equity."

true

The credit side of an account is the right side, while the debit side is the left side.

true

The going concern principle assumes that the business will continue indefinitely.

true

The left-hand side of an account is used for recording debits and the right-hand side for recording credits.

true

The owner of a sole proprietorship is personally liable for the debts of the business, whereas the stockholders of a corporation are not personally liable for the debts of the business.

true

The practice of showing assets on the balance sheet at their cost, rather than at their current market value is explained, in part, by the fact that cost is supported by objective evidence that can be verified by independent experts.

true

total assets must always equal total liabilities plus total owners' equity

true