Chapter 3 Sample Test Questions

When something is purchased and paid for in a year before it will be used to produce income it is called a(n) a. accrued expense b. account payable c. prepaid expense d. account receivable

prepaid expense

The Farm Financial Standards Council (FFSC) a. reviews loan applications b. recommends uniform procedures and standards for preparing farm financial statements c. recommends changes in farm tax regulations to the Internal Revenue Service d. sets financial goals for different types of farms and ranches

recommends uniform procedures and standards for preparing farm financial statements

1. An accounting period must be from January 1 to December 31.

False

An accounting system only needs to be able to record those transactions which are part of the farm's production activities.

False

Cash accounting will always show a lower profit than accrual accounting.

False

Farmers and ranchers must use a calendar year accounting period.

False

Records are of no use when trying to obtain a new loan.

False

Revenue and expenses can be properly matched in the correct time period when using cash accounting.

False

The accrual method of accounting is easier to use than the cash method.

False

The basic accounting equation is Assets + Liabilities = Owner Equity.

False

Selling grain from storage would be which type(s) of farm business activity? a. operating b. investment c. financing d. operating and investment

Operating

A depreciation schedule is a necessary part of a complete accounting system.

True

A single-entry accounting system does not maintain current values for assets and liabilities.

True

Changes in inventory values are not included in a cash accounting system.

True

Depreciation is a noncash expense which is included as an expense when using cash accounting.

True

Good farm records can be useful when applying for a farm loan.

True

Most farmers and ranchers use the cash method of accounting.

True

Profit or net farm income is equal to total revenue for the accounting period minus total expenses for the same period.

True

An organized list of all accounts used by an accounting system is called a. a chart of accounts b. a balance sheet c. an income statement d. a debit

a chart of accounts

One advantage of a double-entry accrual accounting system over a single-entry cash system is a. it is easier to enter transactions b. a current balance sheet is always available c. noncash transactions do not need to be entered d. it can be done on a computer

a current balance sheet is always available

A major advantage of accrual accounting over cash accounting is a. a more accurate estimate of annual profit b. simplicity c. always shows a higher profit d. can use single entry instead of double entry

a more accurate estimate of annual profit

At the end of the year a farmer has an unpaid bill at the local machinery repair shop. It would be shown in an accrual accounting system as a(n) a. prepaid expense b. account receivable c. account payable d. accrued expense

account payable

When using cash accounting which of the following accounts would never be used? a. grain sales b. depreciation c. fertilizer purchases d. accounts payable

accounts payable

Which of the following would not be recorded when using a single-entry, cash accounting system? a. charging $2,000 worth of chemicals at the farm supply store b. billing a neighbor $850 for baling hay c. recognizing that $3,476.34 of interest has accrued since the last interest payment d. all of the above

all of the above

Any item of value is called a(n) a. owner equity b. credit c. profit d. asset

asset

A fiscal accounting period is one which a. covers January 1 through December 31 b. is only 3 months in length c. ends on any date other than December 31 d. can only be used by governmental agencies

ends on any date other than Dec. 31st

A prepaid expense is one where payment is made a. by check b. in an accounting period prior to the one in which the item will be used to produce income c. in a series of payments over time d. before the bill is even received

in an accounting period prior to the one in which the item will be used to produce income

11. Using double entry accounting, transactions can be posted to which accounts a. only income and expense b. only assets and liabilities c. income, expense, asset, and/or liabilities d. only cash and noncash

income, expense, asset and/or liabilities