accounting chapter 1-4

A gift card purchased in December for $100 and used in January of the following year for purchase of goods, should be recognized as (assume December 31st as end of accounting year)

an unearned revenue liability in December, which should be reversed into Sales Revenue in January.

The first step in the recording process is to

analyze each transaction for its effect on the accounts.

Credits

decrease assets and increase liabilities

If an adjusting entry for depreciation is not made

expenses will be understated

On June 1, Diane Leno purchases a copier machine for her business by paying half of the cost in cash and the balance is on account. When journalizing this transaction, she will

prepare a compound entry

All of the following are required steps in the accounting cycle except

prepare a worksheet

If cash received for future services is initially recorded in revenue accounts and the company has not yet performed all of the required services at the end of the accounting period, then failure to make an adjusting entry will cause

revenues to be overstated.

Which of the following is an optional step in the accounting cycle?

reversing entries

An account that will have a zero balance after closing entries have been journalized and posted is

service revenue

All of the following are property, plant, and equipment except

supplies

If a company records a transaction with wrong amounts but properly debits and credits affected accounts, or posts correct numbers to wrong accounts

the accounting equation will be satisfied but the financial statements will be incorrect

Before posting a payment of $5,000, the Accounts Payable of Senator Company has a normal balance of $16,000. The balance after posting this transaction was

11,000

Milo has the following year-end account balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. Given the account balances listed, the balance in the Cash account should be

25,000

clark Real Estate signed a four-month note payable in the amount of $8,000 on September 1. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is

80

Which of the following errors will not cause a trial balance to be out of balance?

A credit to Accounts Receivable was posted as a credit to Cash.

What is the impact on the financial statements if the adjusting entries for prepaid expenses are omitted?

Balance sheet accounts are overstated and income statement accounts are understated.

When Alexander Company purchased supplies for $500, it incorrectly recorded a credit to Supplies for $5,000 and a debit to Cash for $5,000. Before correcting this error

Cash is overstated and Supplies is understated.

Which of the following is not a long-term liability?

Current maturities of long-term debt

The left side of an account

Debit

The investment of cash by the stockholder

Increases stockholders' equity.

Which of the following statements is false?

Revenues are increased by debits.

The time period assumption states that

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

What is the primary criterion by which accounting information can be judged?

Usefulness for decision making

A trial balance will not balance if

a $100 cash drawing by the owner is debited to Dividends for $1,000 and credited to Cash for $100

A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as

a long-term investment.

Liabilities of a company would not include

accounts receivable

The adjusted trial balance is prepared

after the adjusting entries are prepared and posted to the ledger.

If a resource has been consumed but a bill has not been received at the end of the accounting period,

an adjusting entry should be made recognizing the expense.

Current liabilities

are obligations that a company is to pay within the coming year or its operating cycle, whichever is longer are listed in the balance sheet in order of their expected maturity.

The historical cost principle states that

assets should be recorded at their cost.

All of the financial statements are for a period of time except the

balance sheet

The ending retained earnings amount is shown on the

balance sheet and the retained earnings statement.

under cash-basis accounting, companies record revenue only when

cash is received.

The correct order of presentation in a classified balance sheet for the following current assets is

cash, accounts receivable, inventories, prepaid insurance.

Fayette Company includes in its accounting records only transaction data that can be expressed in terms of money.

correct, monetary unit assumption

When a net loss has occurred, Income Summary is

credited and Retained Earnings is debited.

In a classified balance sheet, assets are usually classified using the following categories:

current assets; long-term investments; property, plant, and equipment; and intangible assets.

Correcting entries are only made at the end of an accounting period.

false

The Dividends account decreases stockholders' equity and is an income statement account like expenses.

false

The ledger accounts should be arranged in

financial statement order

Revenues and expenses are reported on the

income statement

Tina Company owns buildings that are worth substantially more than they originally cost. In an effort to provide more relevant information, Tina reports the buildings at fair value in its accounting reports.

incorrect, cost principle

Omar Shariff, president of Omar's Oasis, records his personal living costs as expenses of Oasis.

incorrect, economic entity assumption

Debits

increase assets and decrease liabilities

A credit to a revenue account

indicates an increase in revenues earned.

A credit to a liability account

indicates an increase in the account.

A ledger

is a collection of the entire group of accounts maintained by a company

The Accumulated Depreciation account

is a contra asset account with a credit balance.

A reversing entry

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

On June 30, a printing shop provides $1,000 of services to a customer to custom print restaurant menus. The customer is sent a bill on July 5 for the amount due. A check in the amount of $1,000 is received from the customer on July 25. The printing shop follows GAAP and applies the revenue recognition principle. When is the $1,000 sale recognized?

june 30

If the adjusting entry for unearned revenues is not made

liabilities are overstated

An item is ________ if it is likely to influence the decision of an investor or creditor.

material

Expenses paid in cash and recorded as assets before they are used are called

prepaid expenses

A list of accounts and their balances at a given point in time is called a

trial balance

The revenue recognition principle dictates that revenue should be recognized in the accounting records

when service was performed