Accounting Exam 1 Friedlan

Which of the following statements about an account is true? In its simplest form, an account consists of two parts. An account is an individual accounting record of increases and decreases in specific asset, liability, or owner's equity items. There are separate accounts for specific assets and liabilities but only one account for owner's equity. The left side of an account is the credit or decrease side.

An account is an individual accounting record of increases and decreases in specific asset, liability, or owner's equity items.

Accounts that normally have debit balances are assets, expenses, and revenues. assets, expenses, and common stock. assets, liabilities, and dividends. assets, dividends, and expenses.

Assets, dividends, and expenses

The second step in the recording process is preparing a trial balance. analyzing a transaction. posting to the general ledger. journalizing a transaction.

Journalizing a transaction.

Which of the following depicts the proper sequence of steps in the accounting cycle? Journalize the transactions, analyze business transactions, prepare a trial balance. Prepare a trial balance, prepare financial statements, prepare adjusting entries. Prepare a trial balance, prepare adjusting entries, prepare financial statements. Prepare a trial balance, post to ledger accounts, post adjusting entries.

Prepare a trial balance, prepare adjusting entries, prepare financial statements.

Net income results when Assets > Liabilities. Revenues = Expenses. Revenues > Expenses. Revenues < Expenses.

Revenues > Expenses

An accounting time period that is one year in length, but does not begin on January 1, is referred to as a fiscal year. an interim period. the time period assumption. a reporting period.

a fiscal year

Revenues for which services are performed but not yet received in cash or recorded are called unearned revenues. prepaid revenues. interim revenues. accrued revenues.

accrued revenues

A current asset is the last asset purchased by a business. an asset which is currently being used to produce a product or service. usually found as a separate classification in the income statement. an asset that a company expects to convert to cash or use up within one year.

an asset that a company expects to convert to cash or use up within one year.

An adjusting entry always affects an expense account and a revenue account. an asset account and a liability account. an income statement account and a balance sheet account. an asset account and a revenue account.

an income statement account and a balance sheet account.

The first step in the recording process is to prepare the financial statements. analyze each transaction for its effect on the accounts. enter the transaction information in a journal. prepare a trial balance.

analyze each transaction for its effect on the accounts.

The first required step in the accounting cycle is reversing entries. journalizing transactions in the book of original entry. analyzing transactions. posting transactions.

analyzing transactions

The order in which the accounts are arranged in the ledger is assets, revenues, expenses, liabilities, common stock, dividends. assets, liabilities, common stock, dividends, revenues, expenses. common stock, assets, revenues, expenses, liabilities, dividends. revenues, assets, expenses, liabilities, common stock, dividends

assets, liabilities, common stock, dividends, revenues, expenses.

A balance sheet shows revenues, liabilities, and stockholders' equity. expenses, dividends, and stockholders' equity. revenues, expenses, and dividends. assets, liabilities, and stockholders' equity.

assets, liabilities, stockholders equity

Under cash-basis accounting, companies record revenue only when services are performed. the performance obligation is satisfied. cash is received. it is incurred.

cash is receivable

Liabilities are generally classified on a balance sheet as small liabilities and large liabilities. present liabilities and future liabilities. tangible liabilities and intangible liabilities. current liabilities and long-term liabilities.

current liabilities and long-term liabilities.

Which of the following is not a common time period chosen by businesses as their accounting period? Daily Monthly Quarterly Annually

daily

What are liabilities? future economic benefits. existing debts and obligations. they possess service potential. things of value used by the business in its operation.

existing debts and obligations

The principle or assumption dictating that expenses be matched with revenues is the expense recognition principle. historical cost assumption. periodicity principle. revenue recognition principle.

expense recognition principle

Adjusting entries are made to ensure that expenses are recognized in the period in which they are incurred. revenues are recorded in the period in which services are performed. balance sheet and income statement accounts have correct balances at the end of an accounting period. all of these answer choices are correct.

expenses are recognized in the period in which they are incurred, revenues are recorded in the period in which the performance obligation is satisfied, balance sheet and income statement accounts have correct balances at the end of an accounting period

The common characteristic possessed by all assets is long life. great monetary value. tangible nature. future economic benefit.

future economic benefit

The starting point of the accounting process is communicating information to users. identifying economic events. recording economic events. none of these answers are correct.

identifying economic events.

Closing entries are made in order to terminate the business as an operating entity. so that all assets, liabilities, and stockholders' equity accounts will have zero balances when the next accounting period starts. in order to transfer net income (or loss) and dividends to the retained earnings account. so that financial statements can be prepared.

in order to transfer net income (or loss) and dividends to the retained earnings account

A credit to a liability account indicates a(n) a debit to an asset account will also be required. decrease in the liability. increase in the liability. error.

increase in liability

The primary purpose of the statement of cash flows is to report a company's investing transactions. a company's financing transactions. information about cash receipts and cash payments of a company. the net increase or decrease in cash.

information about cash receipts and cash payments of a company.

Monthly and quarterly time periods are called calendar periods. fiscal periods. interim periods. quarterly periods.

interim periods

The income summary account is a permanent account. appears on the balance sheet. appears on the income statement. is a temporary account.

is a temporary account

The left side of an account is always the balance side. may represent the debit side or the credit side. is always the debit side. is always the credit side.

is always the debit side.

Entering transaction data in the journal is known as posting. journalizing. balancing. recording.

journalizing

Stockholders' Equity can be described as creditorship claim on total assets. ownership claim on total assets. benefactor's claim on total assets. debtor claim on total assets.

ownership claim on total assets

Which of the following steps in the accounting cycle may be performed most frequently? Prepare a post-closing trial balance Journalize closing entries Post closing entries Prepare a trial balance

prepare a trial balance

An income statement summarizes the changes in retained earnings for a specific period of time. reports the changes in assets, liabilities, and stockholders' equity over a period of time. reports the assets, liabilities, and stockholders' equity at a specific date. presents the revenues and expenses for a specific period of time.

presents the revenues and expenses for a specific period of time.

Equipment is classified in the balance sheet as a current asset. property, plant, and equipment. an intangible asset. a long-term investment.

property, plant, and equipment

Pressures placed by Wall Street on companies to meet expected earnings targets, and compensation methods of sales executives result in possible attempts at reporting revenues in the wrong period to achieve the desired earnings or sales in period under question. result in truthful reporting of revenue in the period it was earned. result in truthful reporting of earnings but offsetting revenue and expense recognition in the wrong period. are no longer a factor in earnings and revenue manipulation due to the passage of the Sorbanes-Oxley Act.

result in possible attempts at reporting revenues in the wrong period to achieve the desired earnings or sales in period under question.

Stockholders' equity is increased by dividends. revenues. expenses. liabilities.

revenues

The use of reversing entries is a required step in the accounting cycle. changes the amounts reported in the financial statements. simplifies the recording of subsequent transactions. is required for all adjusting entries.

simplifies the recording of subsequent transactions

Closing entries are necessary for permanent accounts only. temporary accounts only. both permanent and temporary accounts. permanent or real accounts only.

temporary accounts only

Accountants refer to an economic event as a purchase. sale. transaction. change in ownership.

transaction

T/F The entire group of accounts maintained by a company is the ledger. True False

true

T/F When a company earns revenues, stockholders' equity increases. True False

true

The revenue recognition principle dictates that revenue should be recognized in the accounting records when cash is received. when services are performed. at the end of the month. in the period that income taxes are paid.

when services are performed