Accounting Principles 241 Final Exam Study Guide

A worksheet is...? A. A device used in preparing financial statements. B. Part of the General Ledger C. Required part of the Accounting Cycle D. Permanent Accounting Record

A. A device used in preparing financial statements.

An adjusting entry for accrued expenses affects...? A. Expenses and Liabilities B. Assets and Revenues C. Liabilities and Revenues D. Assets and Expenses

A. Expenses and Liabilities

Which of the following should NOT be included in the physical inventory of a company? A. Goods held on consignment from another company B. Goods shipped on consignment to another company C. Goods in transit from another company shipped FOB shipping point. D. None of the above

A. Goods held on consignment from another company

One difference between IFRS and GAAP is...? A. IFRS uses more fair value measurements than GAAP. B. GAAP uses accrual-based accounting while IFRS uses cash-basis accounting. C. The limitations of trial balance are different between the two. D. IFRS uses a different posting process than GAAP.

A. IFRS uses more fair value measurements than GAAP.

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting...? A. Inventory B. Purchase Discounts C. Purchase Returns and Allowances D. Purchases

A. Inventory

What is a reversing entry? A. Is the exact opposite of an adjusting entry made in a previous period. B. Reverses entries that were made in error. C. Is made when a business disposes of an asset it previously purchased. D. Is made when a company sustains a loss in one period and reverses the effect with a profit in the next period.

A. Is the exact opposite of an adjusting entry made in a previous period.

The first costs assigned to the ending inventory are the costs of the beginning inventory according to the...? A. LIFO Method B. FIFO Method C. Gross Profit Method D. Average-Cost Method

A. LIFO Method

Which of the following is NOT a part of the recording process? A. Preparing a trial balance. B. Entering transactions into a journal. C. Posting transactions. D. Analyzing transactions.

A. Preparing a trial balance.

IFRS is considered to be more...? A. Principles-based and less rules-based than GAAP. B. Rules-based and less principles-based than GAAP. C. More detailed than GAAP. D. Less detailed than GAAP.

A. Principles-based and less-rules based than GAAP.

What is the purpose of the Post-Closing Trail Balance? A. Prove the equality of the balance sheet account balances that are carried forward into the next step of the accounting cycle. B. Prove the equality of the income statement account balances that are carried forward into the next step of the accounting cycle. C. Prove that no mistakes were made. D. List all the balance sheet accounts in order of liquidity.

A. Prove the equality of the balance sheet account balances that are carried forward into the next step of the accounting cycle.

What is the first step in solving an ethical dilemma? A. Recognizing the ethical situation and issues involved. B. Weigh the impact of the alternatives. C. Identify and Analyze the principle elements involved. D. Identify alternatives first.

A. Recognizing the ethical situation and issues involved.

What is the purpose of GAAP? A.Standards that indicate how to report economic events. B. Income tax regulations of the Internal Revenue Service. C. Theories that are based on the physical laws of the universe. D. Principles that have been proved by academic researches.

A. Standards that indicate how to report economic events.

Which of the following is NOT true? A. Under the IFRS, companies don't engage in the adjusting process. B. Under the IFRS, the term expenses includes losses. C. Under the IFRS, revenue recognition fraud is an issue. D. Under the IFRS, the term income defines both revenues and gains.

A. Under the IFRS, companies don't engage in the adjusting process.

What kind of errors are detected during a trial balance? A. Offsetting errors made in recording the transaction. B. A journal entry that is posted twice. C. A transaction that isn't journalized. D. A transposition error.

B. A journal entry that is posted twice.

What is the different in the steps in the accounting cycle for a merchandising company and service company? A. Closing journal entries aren't required in a merchandising company. B. An additional adjusting journal entry for inventory may be needed in a merchandising company. C. A Post-Closing Trial Balance is not required for a merchandising company. D. A multiple-step income statement is required for a merchandising company.

B. An additional adjusting journal entry for inventory may be needed in a merchandising company.

A balance sheet shows...? A. Revenues and Expenses at a certain point in time. B. Assets, Liabilities, and Owner's Equity at a certain point in time. C. Assets, Liabilities, and Owner's Equity in a period of time. D. Revenues and Expenses in a period of time.

B. Assets, Liabilities, and Owner's Equity at a certain point in time.

Which of the following accounts may be found in the adjustment columns of a worksheet for a merchandiser but NOT a service company? A. Prepaid Insurance B. Costs of Goods Sold C. Salaries and Wages Expense D. Accumulated Depreciation-Equipment

B. Costs of Goods Sold

Which of the following is NOT a long-term liability? A. Bonds Payable B. Current maturities of long-term debt C. Long-term notes payable D. Mortgage Payable

B. Current maturities of long-term debt

Ledger accounts are arranged in...? A. Chronological order. B. Financial Statement order. C. Order of Appearance in the journal. D. Alphabetical order.

B. Financial Statement Order

Current Assets under IFRS are generally listed...? A. In order of importance B. In reverse order of their expected conversion to cash C. In order of longevity D. Chronologically

B. In reverse order of their expected conversion to cash.

In periods of rising prices, LIFO will produce...? A. The same Net Income as FIFO B. Lower Net Income than FIFO C. Higher Net Income than FIFO D. Will not produce a Net Income

B. Lower Net Income than FIFO

When the current replacement cost of inventory is less than its cost, it is written down to...? A. LIFO value B. Market value C. Average-Cost value D. FIFO value

B. Market value

A Post-Closing Trial Balance will only contain...? A. Temporary Accounts B. Permanent Accounts C. Income Statement Accounts D. Nominal Accounts

B. Permanent Accounts

Which of the following statements is incorrect concerning the adjusted trial balance? A. The ATB provides the primary basis for the preparation of financial statements. B. The ATB lists the account balances segregated by assets and liabilities. C. The ATB proves the equality of the total debit balances and total credit balances in the ledger after all adjustments are made. D. The ATB is prepared after the adjusting entries have been journalized and posted.

B. The ATB lists the account balances segregated by assets and liabilities.

Which of the following statements is correct in regards to inventory? A. The FIFO method assumes that costs of the earliest goods acquired are the first to be sold. B. Under FIFO, the ending inventory is based on the latest goods purchased. C. FIFO seldom coincides with the actual physical flow of inventory. D. It's generally good business management to sell the most recently acquired goods first.

B. Under FIFO, the ending inventory is based on the latest goods purchased.

Which of the following is not a step in the Accounting Process? A. Identification B. Verification C. Communication D. Recording

B. Verification

Companies using a periodic inventory system take a physical inventory for each of the following except to the determine the...? A. Costs of Goods Sold for the period. B. Inventory on-hand at the balance sheet date C. Amount of inventory lost due to theft D. All of the above

C. Amount of inventory lost due to theft

What is stated in the Historical Cost Principle? A. Assets should be recorded at initial cost and adjusted when the fair value changes. B. Activities of an entity should be kept separate and distinct from the owner. C. Assets should be recorded at their cost. D. Only transaction data capable of being expressed in terms of money are included in accounting records.

C. Assets should be recorded at their cost.

What is the order of accounts in a ledger? A. Assets, Revenues, Expenses, Liabilities, Owner's Capital, Owner's Drawings. B. Owner's Capital, Assets, Revenues, Expenses, Liabilities, Owner's Drawings. C. Assets, Liabilities, Owner's Capital, Owner's Drawings, Revenues, Expenses. D. Revenues, Assets, Expenses, Liabilities, Owner's Capital, Owner's Drawings.

C. Assets, Liabilities, Owner's Capital, Owner's Drawings, Revenues, Expenses.

The lower-of-cost-or-market basis of valuing inventories is an example of...? A. Comparability B. The Historical Cost Principle C. Conservatism D. Consistency

C. Conservatism

Which of the following statements is NOT true? A. IFRS employs the time-period assumption. B. IFRS employs accural-based accounting. C. IFRS uses cash-basis accounting. D. IFRS requires that revenues and costs must be capable of being measured reliably.

C. IFRS uses cash-basis accounting.

Which of the following accounts will appear in the trial balance of a merchandising company but NOT a service company? A. Owner's Drawings B. Accumulated Depreciation-Equipment C. Inventory D. Salaries and Wages Expense

C. Inventory

Which of the following is NOT true about a journal? A. It helps prevent and locate errors made. B. It provides a chronological order of transactions. C. It keeps all changes made about accounts in one place. D. It discloses in one place the complete effects of a transaction.

C. It keeps all changes made about accounts in one place.

Entering transaction data into a journal is known as...? A. Recording B. Posting C. Journalizing D. Balancing

C. Journalizing

What is the purpose of Correcting Entries? A. Affect Income Statement accounts only B. Affect Balance Sheet accounts only C. May involve any accounts in need of correction. D. Always affect at least one Balance Sheet account and Income Statement Account.

C. May involve any accounts in need of correction.

Understating beginning inventory will understate...? A. Assets B. Owner's Equity C. Net Income D. Costs of Goods Sold

C. Net Income

An account that will have a zero balance after closing entries have been journalized and posted is...? A. Service Revenue B. Supplies C. Prepaid Insurance D. Accumulated Depreciation

C. Prepaid Insurance

The contra revenue account that normally has a debit balance is...? A. Freight Out B. Purchase Discounts C. Sales Returns and Allowances D. Purchase Returns and Allowances

C. Sales Returns and Allowances

Which of the following would NOT be included in the definition of Inventory under the IFRS? A. Photocopy paper held for sale by an office-supply store. B. Stereo equipment held for sale by an electronics store. C. Used office equipment held for sale by a HR Department of a plastics company. D. All of the above.

C. Used office equipment held for sale by a HR Department of a plastics company.

The Revenue-Recognition Principle dictates that revenue should be recognized in the accounting records...? A. Only when cash is received. B. At the end of a month. C. When services are performed. D. In the period the income taxes are paid.

C. When services are performed.

What does the Monetary Unit Assumption state?

Companies include in Accounting records only transaction data that can be expressed in monetary terms.

All of the following are true about accounts except for which one? A. An account may be a part of a manual accounting system. B. An account has a title. C. An account has a debit and credit side. D. An account is a source document.

D. An account is a source document.

An adjusting entry always affects...? A. An expense and revenue account. B. An asset and revenue account. C. An asset and liability account. D. An income statement and balance sheet account.

D. An income statement and balance sheet account.

Which is of the following is NOT a major type of adjusting entry? A. Prepaid Expenses B. Accrued Revenues C. Accrued Expenses D. Earned Revenues

D. Earned Revenues

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is the closest to the current cost is the...? A. LIFO Method B. Average-Cost Method C. Gross-Profit Method D. FIFO Method

D. FIFO Method

Which of the following statements is true? A. The primary standard setting body in the U.S. is the IASB B. U.S. GAAP is very "principles based" C. Non-U.S. companies are required to comply with GAAP D. IFRS tends to be similar in its accounting and disclosure requirements.

D. IFRS tends to be similar in its accounting and disclosure requirements.

Performing services on account will...? A. Increase both assets and liabilities B. Increase both liabilities and owner's equity C. Increase assets and decrease owner's equity D. Increase both assets and owner's equity

D. Increase both assets and owner's equity

Where does Income from Operations appear on? A. Neither the single-step or multi-step income statement B. Both the single-step and multi-step income statement C. Only the single-step income statement D. Only the multi-step income instatement

D. Only the multi-step income statement

What is reported on a single-income statement? A. Gross Profit B. Does not report Costs of Goods Sold C. Income from Operations separately D. Sales revenue and other revenues & gains

D. Sales Revenues and Other Revenues & Gains

Which of these is NOT true for the statement... "Ethics are the standards of conduct by which one's actions are judged as..." A. Honest or Dishonest B. Right or Wrong C. Fair or Unfair D. True or False

D. True or False

Which of the following is NOT a characteristic of relevance? A. Confirmatory Value B. Predictive Value C. Materiality D. Verifiability

D. Verifiability

Are Regulatory Authorities external or internal Accounting users?

External Accounting users

Are Taxing Authorities external or internal Accounting users?

External Accounting users

Are present Creditors external or internal Accounting users?

External Accounting users

Where is the ending Owner's Equity amount shown?

In both the balance sheet and owner's equity statement.

When are revenues recorded?

In the period of which the service was performed.

When are expenses recognized?

In the period of which they occur.

Is Management an external or internal Accounting user?

Internal Accounting user

What is the formula for Gross Profit?

Net Income + Operating Expenses

What is the order of entries during the closing process?

Revenue, Expenses, Income Summary, Drawings

What is the formula for calculating Net Income?

Sales Revenue - Costs of Goods Sold - Operating Expenses OR Gross Profit - Operating Expenses

Who pays the Freight in FOB Shipping-Point?

The buyer pays the freight.

What does the Time-Period Assumption state?

The economic life of a business can be separated into artificial time periods.