Saylor BUS103

Which of the following is the correct definition of the accounting equation? Select one: a. Owner's Equity = Assets + Liabilities b. Assets = Liabilities + Owner's Equity c. Liabilities = Assets + Owner's Equity d. Assets = Liabilities + Initial Owner's Equity

b. Assets = Liabilities + Owner's Equity

assets, liabilities, stockholders' equity, dividends, revenues, and expenses. order

group of accounts

When making entries in the General Journal, what rule must always be followed? Select one: a. Credit entries are made first b. Debits must equal credits c. Debit entries are made first d. All entries belong in the general journal

b. Debits must equal credits

Which of the following is a non-operating expense? Select one: a. Selling, General and Administrative Expenses b. Interest expense c. Research & Development expenses d. Depreciation and Amortization

b. Interest expense

If a business receives revenue that has not been earned and they account for the unearned revenue as revenue earned, how will they adjust this issue to align with GAAP? Select one: a. By crediting a liability account b. By crediting the cash account c. By debiting unearned revenue d. By debiting a liability account

a. By crediting a liability account

A small law firm in Chicago was having their payroll and accounting done by a part-time employee. This employee often mentioned that the company was growing quickly and that it was becoming almost impossible to complete all accounting functions within the time allotted. This past year, the law office had their accounting records audited, and they received an audit that identified two instances in which the adjusting entry for accrued salaries did not happen. What impact did this have on the financial statements? Select one: a. The net income would be overstated. b. The cash account would be understated. c. There was no impact, because the salaries did in fact get paid. d. The liabilities would be overstated.

a. The net income would be overstated.

What is the purpose of cross-indexing? Select one: a. To make it possible to trace the origin of an entry b. To keep the journal entries organized c. To make it easy to find an entry later d. To provide extra information about an entry

a. To make it possible to trace the origin of an entry

The sum of all sales during a time period is known as: Select one: a. gross sales b. total sales c. revenue d. net sales

a. gross sales

Generally Accepted Accounting Principles Methodology relies on: Select one: a. literature focused research b. a conceptual framework c. thorough review of facts d. question and answer sessions

a. literature focused research

A company's equity represents what items? Select one: a. retained earnings and shareholder funds b. retained earnings and capital c. shareholder funds and assets d. shareholder funds and liabilities

a. retained earnings and shareholder funds

What two items are subtracted from gross sales to arrive at net sales? Select one: a. sales returns/allowances and sales discounts b. outstanding sales and sales discounts c. sales returns/allowances and sales tax d. sales returns/allowances and cost of goods sold

a. sales returns/allowances and sales discounts

Leon runs a small snack-food business and goes to the local bank to get a loan. Unfortunately, the bank does not approve his loan, primarily due to Leon's lack of business assets. Leon does his own accounting and feels confident in his foundational understanding of the accounting concepts, assumptions, and principles. He takes a closer look at his assets and decides he needs to reevaluate his gains/losses. He considers lowering the amount of losses and increasing the amount of gains, which would significantly change his asset position in his company. However, based on historical information, he will be overstating his assets and financial position. Which accounting concept tells Leon that he is unable to make this kind of decision? Select one: a. Cost/Benefit b. Conservatism c. Matching d. Revenue recognition

b. Conservatism

Before you can complete the accounting worksheet, you will have to close out your temporary accounts into an income summary account. Once the income summary account has been created, it will have to be closed out at the end of the accounting cycle. What happens to the income summary account? Select one: a. It gets closed to the unearned revenue account. b. It gets closed to the capital account c. It gets closed to the service revenue account. d. It gets closed to the cash account.

b. It gets closed to the capital account

What is the first step to take when preparing the financial statements? Select one: a. Entering the beginning balances b. Preparing the adjusted trial balance c. Preparing a post-closing trial balance d. Entering the journal entries

b. Preparing the adjusted trial balance

A source document is best described as Select one: a. An original receipt b. Proof that a business transaction has taken place c. A transaction of any kind d. Paperwork related to a business's revenues

b. Proof that a business transaction has taken place

Which of the following is NOT one of the four basic GAAP principles? Select one: a. Expenses should be recognized when the product it is associated with generates recognized revenue. b. Revenue should be recorded when realized or realizable and when cash is received. c. Assets and liabilities should be reported based on acquisition cost. d. Deciding which information to disclose should be based on a trade-off analysis.

b. Revenue should be recorded when realized or realizable and when cash is received.

The accounting equation approach differs from the traditional approach in that the accounting equation approach: Select one: a. Classifies accounts as real accounts b. Uses the equation Assets = Liabilities + Capital c. Classifies nominal accounts as revenue and expenses d. Is used in England

b. Uses the equation Assets = Liabilities + Capital

When is the post-closing trial balance performed? Select one: a. after posting all the journal entries for the month b. after the closing entries have been posted the the General Ledger c. before running the financial statements d. only at the end of the month

b. after the closing entries have been posted the the General Ledger

The balance sheet is the only financial statement which ____ Select one: a. must conform to accounting standards. b. applies to a single point in time of a business's calendar year. c. uses estimates. d. uses historical data.

b. applies to a single point in time of a business's calendar year.

Items that a business can use or exchange to produce products of the business are known as: Select one: a. property, plant, equipment b. assets c. materials d. inventory

b. assets

To find gross margin, what is subtracted from net sales? Select one: a. inventory b. cost of goods sold c. sales returns/allowances d. operating expenses

b. cost of goods sold

What account is usually the largest current asset? Select one: a. cash b. inventory c. accounts payable d. accounts receivable

b. inventory

Net worth appears below what group of accounts? Select one: a. stockholder's equity b. liabilities c. cash & cash equivalents d. assets

b. liabilities

What two accounts offset the purchase account? Select one: a. purchase discounts and inventory b. purchase returns/allowances and purchase discounts c. purchase returns/allowances and cost of goods sold d. purchase discount and freight

b. purchase returns/allowances and purchase discounts

In the United States, we typically have a low rate of inflation. Which accounting assumption or concept takes this into consideration as an important element of its relevance on financial accounting? Select one: a. periodicity b. stable dollar c. business entity d. money measurement

b. stable dollar

When is the temporal method used? Select one: a. when a foreign company wants to convert to U.S. dollars b. when a company's functional currency is the U.S. dollar c. when a company wants to show current market value of its assets d. when a company operates in foreign country

b. when a company's functional currency is the U.S. dollar

What is the filing deadline for a Form 10-K for non-accelerated filers? Select one: a. 60 days after the end of the company's fiscal year b. 30 days after the end of the company's fiscal year c. 90 days after the end of the company's fiscal year d. 75 days after the end of the company's fiscal year

c. 90 days after the end of the company's fiscal year

Information important enough to influence the decision of an informed user of the financial statements should be published.

Full disclosure

Gains may be recorded only when realized, but losses should be recorded when they first become evident.

Gain and loss recognition

[Net sales / Average accounts receivable, net] [Liquidity ratio ]

Accounts receivable turnover

Revenues should be earned and realized before they are recorded

Revenue recognition

[Net sales / Average total assets] [Liquidity ratio ]

Total assets turnover

Current assets / Current liabilities] [Liquidity ratio ]

Acid-test

[Earnings available to common stockholders / Weighted‑average number of common shares outstanding] [Profitability test ]

Earnings per share of common stock

Please give the proper order of preparation of the four main financial statements.

Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows

Please give the proper order of the columns in the accounting worksheet from left to right.

Leftmost: [Trial Balance ] [Adjusting Entries] [Adjusted Trial Balance ] [Income Statement ] [Statement of Retained Earnings ] [Balance Sheet ]

[Current market price per share of common share / Earnings per share] [Market test ]

Price-earnings ratio

This characteristic requires that information on economic activity corresponds to the actual underlying activity.

Representational faithfulness

Reversing entries are typically used in what type of accounting? Select one: a. Accrual-type accounting b. Fiscal-type accounting c. Financial-type accounting d. Cash-type accounting

a. Accrual-type accounting

In the accounting cycle, when is the trial balance prepared? Select one: a. After the entering that period's adjusting entries b. Before running the financial statements c. After entering that period's journal entries d. Before closing the books for the month

a. After the entering that period's adjusting entries

Adjusting entries should be made? Select one: a. At the end of the accounting period b. At the end of the fiscal year c. At a specified time during the month d. At the time the financials are run

a. At the end of the accounting period

The closing process only involves which accounts? Select one: a. Revenue, expense and dividend b. Retained earnings, liability and expense c. Asset, revenue and capital stock d. Retained earnings, asset, capital stock

a. Revenue, expense and dividend

What does the income statement represent? Select one: a. a period of time b. assets and liabilities for the month c. revenue and expenses for the month d. a single moment in time

a. a period of time

Jason runs a home-based business and provides his services prior to receiving payment from his clients. To date, all of Jason's clients have paid him in full. Because of this, Jason does not make any reasonable allowances for uncollectable accounts when he is completing his own accounting. Like you, Jason took this course and believes he will be paid. Which accounting principle aligns with Jason's thought process? Select one: a. historical cost b. revenue recognition c. matching principle d. timing principle

b. revenue recognition

What is the primary concern of the statement of cash flows? Select one: a. the amount of cash shown on the balance sheet b. the affect of sales on cash flow c. the flow of cash in and out of the business d. the amount of money a company has on hand

c. the flow of cash in and out of the business

The term FOB is used to designate: Select one: a. whether the buyer or the seller pays for the shipment b. the method of transportation such as air, ground, international c. whether the buyer or seller pays shipping costs & when responsibility for the goods is transferred d. who has legal responsibility for the shipment

c. whether the buyer or seller pays shipping costs & when responsibility for the goods is transferred

Which of the following is NOT an accounting constraint stated by the completion of the course? Select one: a. Cost/Benefit b. Materiality c. Conservatism d. Assumption

d. Assumption

What does a trial balance prove? Select one: a. That the company has an income or a loss b. That no adjusting entries are needed c. That all entries for the period are recorded d. That debits equal credits

d. That debits equal credits

[Net cash provided by operating activities / Average number of shares of common stock outstanding] [Market test ]

Cash flow per share of common stock

Information has this characteristic when it reveals differences and similarities that are real and are not the result of differing accounting treatments.

Comparability

Expenses should be recognized as they are incurred to produce revenues

Matching

[Stockholders' equity / Total assets] [Equity ratio ]

Stockholders' equity ratio

[Stockholders' equity / Total debt] [Equity ratio ]

Stockholders' equity to debt ratio

[Income before interest and taxes / Interest expense] [Profitability test ]

Times interest earned ratio

Brian started a business and decided to incorporate it. He believed he had an outstanding business idea and wanted to share it with the world. Brian turned out to be right; his idea made him a wealthy man. Brian established this corporation and conducted business not as a small business owner but as the leader of a business he felt could continue operating indefinitely. Which accounting principle or objective best reflects this situation? Select one: a. Going concern assumption b. Cost principle c. Economic entity assumption d. Matching principle

a. Going concern assumption

Sherry was a school teacher working in a poor school district. She did not make a lot of money, so she took a second job as a third-shift bookkeeper for a major bank in her local area. As a bookkeeper on third shift, Sherry came into contact with all kinds of company property, including but not limited to copy paper, pens, and pencils. In her capacity as a teacher, Sherry worked with some of the poorest children in her area, and many of them could not afford basic school supplies. Sherry knew her third-shift job had a lot of the supplies her students needed, so she would periodically take many of the supplies from her third-shift job and give them to her students in her teaching job. Eventually, this caught up to her, and she was called into the office and reprimanded. During the reprimand, she met an accountant for this bank. The accountant explained that as a multi-billion dollar business, the bank did not track the quantity of the pencils as an expense in terms of financial reporting; however, this fact did not change the reality that Sherry was stealing company merchandise. Based on the statement the accountant made to Sherry and your understanding of the concepts presented in this course, which accounting principle or objective best describes this situation? Select one: a. Materiality principle b. Matching principle c. Principle of conservatism d. Cost principle Feedback The correct answer is: Materiality principle

a. Materiality principle

Which organization is responsible for developing generally accepted accounting principles? Select one: a. The GAAP group b. The American Institute of Certified Public Accountants c. The Financial Accounting Standards Board d. The Securities and exchange Commission

a. The GAAP group

Which of these is NOT one of the seven major laws that govern the securities industry? Select one: a. The Securities Act of 1940 b. The Investment Advisers Act of 1940 c. The Sarbanes-Oxley Act of 2002 d. The Securities Act of 1933

a. The Securities Act of 1940

When is a reversing entry made? Select one: a. The beginning of each accounting period b. Before the trial balance is prepared c. The end of the fiscal year d. The end of each accounting period

a. The beginning of each accounting period

A Form 10-K gives a comprehensive summary of _____________. Select one: a. a company's materiality b. a company's performance c. a company's structure d. a company's employees

b. a company's performance

The basic principles of the International Financial Reporting Standards is stated in: Select one: a. the underlying assumptions b. the basic principles c. the Conceptual Framework for Financial Reporting d. the basic accounting models

c. the Conceptual Framework for Financial Reporting

Each journal entry must have Select one: a. A dollar value b. A description c. A source document d. Both a debit and a credit

d. Both a debit and a credit

The revenue recognition principle states that: Select one: a. income minus expenses equals net profit or loss b. revenue is recorded at month end c. expenses must be recorded in the month they occur d. income and expenses must match

d. income and expenses must match

After applying the temporal method a company must report any gains/losses on which financial statement? Select one: a. statement of cash flow b. statement of gains or losses c. balance sheet d. income statement

d. income statement

The decision to disclose an event is based on? Select one: a. generally accepted accounting principles b. the timing of the event c. the voluntary principle d. materiality

d. materiality

Which of the following transactions would be a financing activity on the statement of cash flows? Select one: a. purchase of equipment financed by convertible bonds b. interest received c. interest paid on convertible bonds d. purchase of treasury stock

d. purchase of treasury stock

What are the two methods that can be used to prepare the income statement? Select one: a. cash-based and accrual-based b. multi-step and one-step c. simple and complex d. single-step and multi-step

d. single-step and multi-step

What precipitated the changes in the Sarbanes-Oxley Act of 2002? Select one: a. reports of insider trading b. lack of auditor independence c. reports of lax financial oversight d. the Enron scandal

d. the Enron scandal

What time period is represented on the balance sheet? Select one: a. the close of the accounting cycle b. a specific moment in time c. the close of month end d. the close of business on the date of the balance sheet

d. the close of business on the date of the balance sheet

[Dividend per share of common stock / Current market price per share] [Market test ]

Dividend yield on common stock

Transfers of resources are recorded at prices agreed on by the parties at the time of the exchange.

Exchange-price (cost)

What does a reversing entry cancel out? Select one: a. An incorrect entry from the current period b. An incorrect entry from the prior period c. An adjusting entry from the prior period d. An entry that was double recorded

c. An adjusting entry from the prior period

Which of the following is a financing activity that would impact a company's cash flow statement? Select one: a. The company makes a sale on credit to a customer. b. The company issues a discount on the sale of some of its products. c. Company took out a loan from a bank. d. The company makes a loan to one of its employees.

c. Company took out a loan from a bank.

In a T-account the normal balance side shows Select one: a. Decreases b. The account title c. Increases d. Opening balance

c. Increases

Sales or purchases are examples of the following type of journal: Select one: a. Transaction Journal b. General Journal c. Special Journal d. Payroll Journal

c. Special Journal

The posting process transfers the journal entries from General Journal and the Special Journals to? Select one: a. The Trial Balance b. The Financial Statements c. The General Ledger Accounts d. The Special Ledger

c. The General Ledger Accounts

Which working document lists the balances from all accounts in the Ledger? Select one: a. Journal entry b. Source document c. Unadjusted trial balance d. Cash ledger

c. Unadjusted trial balance

The American Institute of Certified Public Accountants provides: Select one: a. ethical standards for the profession b. the grading and development of the Uniform CPA Examination c. all of these answers d. auditing standards for the audits of private companies and non-profit organizations

c. all of these answers

Where do the assets appear on a two column balance sheet? Select one: a. before liabilities b. after liabilities c. on the left d. on the right

c. on the left

Adequate disclosure on the financial statements is one item necessary to: Select one: a. receive a qualified opinion on an audit report b. to have a complete financial statement c. receive an unqualified opinion on an audit report d. receive a clean audit report

c. receive an unqualified opinion on an audit report

Which of the following accounts has a normal debit balance? Select one: a. inventory expense b. net sales revenue c. sales returns and allowances d. sales revenue

c. sales returns and allowances

What is another name for the balance sheet? Select one: a. statement of cash position b. statement of revenue c. statement of financial position d. statement of assets

c. statement of financial position

Which of the following is NOT a step in constructing a multi-step income statement? Select one: a. Subtract income tax expense from income before taxes. b. Subtract non-operating expenses from income from operations. c. Subtract operating expenses from gross profit to determine income from operations. d. Add all revenues, then subtract all expenses.

d. Add all revenues, then subtract all expenses.

Barnby Clothing Company decided to buy a new factory and expand the business. The purchase cost was $300,000. Barnby Clothing Company paid $150,000 in cash and took out a loan for the remainder of the purchase cost. When Barnby completed this transaction, what happened to the accounting equation? Select one: a. An expense was credited, and an asset was debited. b. A liability was debited, and an asset was credited. c. An asset was credited, another asset was debited, and an expense was credited. d. An asset was credited, another asset was debited, and a liability was credited.

d. An asset was credited, another asset was debited, and a liability was credited.

Which of the following is the correct order of how assets should be presented on a balance sheet? Select one: a. Cash; inventory; accounts receivable; property, plant, and equipment (PPE). b. Cash; inventory; property, plant, and equipment (PPE); accounts receivable. c. Accounts receivable; cash; inventory property, plant, and equipment. d. Cash; accounts receivable; inventory; property, plant and equipment (PPE).

d. Cash; accounts receivable; inventory; property, plant and equipment (PPE).

Closing the accounting cycle is often referred to as? Select one: a. Running the month end entries b. Posting closing entries c. Finishing the books d. Closing the books

d. Closing the books

The purpose of the double-entry procedure in accounting is to Select one: a. Create the financials b. Record debits and credits c. Prepare the journals d. Keep the accounting equation in balance

d. Keep the accounting equation in balance

After closing the income and revenue account balances into the Income Summary account, the balance in the income summary represents? Select one: a. Beginning balance for the period b. The retained earnings for the period c. Ending balance for the period d. Net income or loss for the period

d. Net income or loss for the period

Which of the following best summarizes why there may be a difference between a company's pretax income and taxable income? Select one: a. GAAP requires that companies use historical costs, while the tax code does not. b. The tax code requires full disclosure, GAAP does not. c. All of these answers d. Pretax income is based on revenue recognition; taxable income is based on the company's cashflow.

d. Pretax income is based on revenue recognition; taxable income is based on the company's cashflow.

In the beginning of the year, Cameron purchased $3,000 worth of office supplies for his home office which resulted in a debit to Supplies. On December 31, he took inventory of his office supplies and noticed that he had about $700 worth of supplies left to use. Which of the following would be a part of the journal entry to account for the use of supplies? Select one: a. Supplies: credited $2,300 AND Supplies: debited $700 b. Supplies: debited $700 c. Supplies expense: credited $2,300 d. Supplies: credited $2,300

d. Supplies: credited $2,300

What does it mean when a business has a working capital deficit? Select one: a. Inventory levels are too high. b. The business's accounts payable are greater than its accounts receivable. c. The business does not have the resources to pay its debts. d. The business lacks the current assets to pay its short-term expenses and liabilities.

d. The business lacks the current assets to pay its short-term expenses and liabilities.

Which of these is NOT an event that requires disclosure? Select one: a. a subsequent event b. a prior period adjustment c. a change in accounting principles d. a change in management style

d. a change in management style

Where should the disclosure appear? Select one: a. in the supplemental statements b. in the financial statements c. in the notes to the financial statements d. all of these

d. all of these

According to the Full Disclosure Principle, what items require full disclosure? Select one: a. any inconsistent transactions on the balance sheet b. any unusual transactions involving stockholder's equity c. any transactions that take place after month end d. any information important enough to influence an informed user

d. any information important enough to influence an informed user

When a business repeats the methods used previously to collect the data and transform it into accounting information, this information can be identified as: Select one: a. relevant b. reliable c. redundant d. consistent

d. consistent

Which of the following pieces of information is NOT included in a Form 10-K? Select one: a. subsidiaries b. equity c. company history d. employee compensation

d. employee compensation

In a principle based framework the different interpretations of a similar transaction could result in: Select one: a. multiple financial statements b. a financial statement audit c. more exceptions than a rules-based system d. extensive disclosures in the financial statements

d. extensive disclosures in the financial statements

The two methods used to calculate the expense associated with stock options are: Select one: a. the intrinsic value and the strike-price method b. the fair-value and the market-value method c. the strike-price method and the fair-value method d. the intrinsic value and fair-value method

d. the intrinsic value and fair-value method

The purpose of closing entries is to transfer the balances of temporary accounts to: Select one: a. the accounts receivable account b. the general ledger c. the allowance for bad debt account d. the retained earnings account

d. the retained earnings account

Which one of these is NOT a basic objective of financial reporting? Select one: a. to provide information that helps investors/creditors make lending decisions about the company b. to provide information to investors regarding a company's liquidity/solvency c. to provide information that helps the company make long-term decisions d. to provide a comprehensive account of all company activity

d. to provide a comprehensive account of all company activity