Accounting Final - Analyzing Accounting Principles

When $1,500 cash is received on account, ...

A/R is decreased with a credit and Cash is increased with a debit.

Preparing financial statements at the end of each monthly fiscal period is an application of ...

Accounting Period Cycle.

Assuring that financial statements contain all information necessary to understand a business' financial condition is an application of the accounting concept ...

Adequate Disclosure

Information needed to prepare a B/S Assets section is obtained from a work sheet's Account Title column and ...

B/S Debit column.

The accounting concept Consistent Reporting is being applied when a word processing service business reports revenue per page one year and revenue per hour the next year.

False

The accounting equation is most often stated as A + L = E.

False; A = L + E

If the payment of cash for rent was journalized and posted in error as a debit to Miscellaneous Expense instead of Rent Expense, the correcting entry will include a credit to Cash.

False; Correcting Entry is debit to Rent and credit to Misc.

The only use for the Post. Ref. column of a journal and general ledger is to indicate which entries in the journal still need to be posted if posting is interrupted.

False; Post. Ref. column also shows the account to which an amount is posted.

A negative amount for net worth would reflect more debt than assets, something a creditor would favor.

False; a creditor would not favor this/they want you to be able to pay them back.

An amount written in parenthesis on a financial statement indicates an estimate.

False; a negative number.

Only accounts with a balance are listed in the trial Balance column s of a work sheet.

False; all accounts are.

Payments for advertising, equipment repairs, utilities, and rent are liabilities.

False; are expenses.

When cash is paid for supplies, the Supplies account is increased by a credit.

False; by a debit.

The accounting concept Unit of Measurement is being applied when a source document is prepared for each transaction.

False; concept Objective Evidence ...

An amount recorded on the right side of a T account is a debit.

False; credit

A/P accounts are increased with a debit.

False; credit.

Decreases to liability accounts are recorded on the credit side.

False; debit side.

The formula for calculating the total expenses ratio is total expenses divided by net income.

False; divide by total sales.

The steps for posting are to write the date, the journal page number, the amount, and the balance.

False; do all of these steps and then write the account number in the General Journal.

Common accounting practice is to record withdrawals as debits directly in the owner's capital account.

False; in an owner's drawing account.

A transaction for the sale of goods or services results fun a decrease in owner's equity.

False; increase

The left side of an asset account is the credit side because asset accounts are on the left side of the accounting equation.

False; is the debit side because ...

A transaction recorded in a journal is not considered a permanent record.

False; it is.

A withdrawal is an expense.

False; it just isn't.

The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.

False; must always be the same.

To correct an error in a journal, one can simply erase the incorrect item and write the correct item.

False; must use a single line.

When the I/S Debit column total > the I/S Debit Credit column total on a work sheet, the business has a net income.

False; net loss. (I/S Credit - Debit = Income or Loss)

Each liability account has a normal debit balance.

False; normal credit balance.

Each asset account has a normal credit balance.

False; normal debit balance.

The source document for all cash payments is a check.

False; not *all* cash payments. See next question.

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.

False; only one is prepared.

An I/S reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss.

False; over a period of time.

Many businesses choose a one-year fiscal period the tends during a period of high business activity.

False; period of low business activity.

The posting reference should always be recorded in the journals's Post. Ref. column before amounts are recorded in the ledger.

False; read the last question.

To summarize withdrawal information separately from the other records, owner withdrawal transactions are recorded in the owner's capital account.

False; recorded in the owner's drawing account.

If a business has a net loss for the period, expenses should be reported before revenues on the I/S.

False; revenues always come first.

When petty cash is replenished, Petty Cash is debited and Cash is credited.

False; the expense counts are debited/Petty Cash is only debited when a Petty Cash account is being established.

Every business uses the same journal to record transactions.

False; they don't.

The two steps for opening an account are writing the account title and recording the balance.

False; writing the account title and the account number.

The date on a monthly I/S ...

For Month Ended April 30, 2017

Information needed to prepare an I/S Expense section is obtained form a work sheet's Account Title column and ...

I/S Debit column.

A B/S reports financial information for a specific date.

True

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

True

A calculator tape is the source document for daily cash sales.

True

A complete journal entry consists of the date, the debit amount, the credit amount, and a source document.

True

A financial ratio is a comparison btw. two components of financial information.

True

A general journal page is complete when there is insufficient space to record any more entries.

True

A group of accounts is called a ledger.

True

A list of accounts used by a business is a chart of accounts.

True

A receipt is the source document for cash received from transactions other than sales.

True

Account numbers may be assigned by 10s so that new accounts can be added easily.

True

Adjusting entries must be posted to the general ledger accounts.

True

After each transaction, the accounting equation must remain in balance.

True

All corrections for posting errors should be made in a way that leaves no question as to the correct amount.

True

An accounting device used to analyze transactions is a T account.

True

An expense is a decrease in owner's equity resulting from the operation of a business.

True

An outstanding check is one that has been issued but not yet reported on a bank statement.

True

Asset accounts decrease on the credit side.

True

Business ethics are the principles of right and wrong that guide an individual in making decisions.

True

Cash is increased with a debit.

True

Detailed information about changes in owner's equity is needed by owners and managers to make sound business decisions.

True

Each transaction changes the balances in at least two accounts.

True

Errors discovered after a journal entry is posted may be corrected by ruling through them (and then by posting a Correcting Entry).

True

For a service business, the revenue reported on an I/S is often compared to: total expenses and net income.

True

If the Trial balance columns are not equal and the difference can be evenly divided by 9, then the error most likely is a transpose number (45 --> 54).

True

If the previous account balance and the current entry posted to an account are both debits the new account balance is a debit.

True

In double-entry accounting, each transaction affects at least two accounts.

True

Increases in expense accounts are recorded as debits because they decrease the owner's capital account.

True

Keeping separate the financial records fro a business and for its owner's personal belongings is an application of the Business Entity accounting concept.

True

Net income on a work sheet is calculated by subtraction the I/S Debit column total from the Income Statement column total.

True

PP Insurance is decreased with a credit.

True

Return on Sales (ROS) is the ration of net income to total sales.

True

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business' financial condition.

True

The Cash account is the first asset account and is numbered 110.

True

The Matching Expenses and Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

True

The Objective Evidence concept require proof that a transaction did occur.

True

The Owner's Equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.

True

The account number is placed in the Post. Ref. column of the journal as the last step in the posting procedure.

True

The amount of the supplies used during a fiscal period is an expense.

True

The area of accounting that focuses on reporting information to external users is called financial accounting.

True

The area of accounting that focuses on reporting information to internal users is called managerial accounting.

True

The balance of an account increases on the same side as the normal balance side.

True

The calculation and interpretation of a financial ratio is called ratio analysis.

True

The formula for calculating the net income ration is net income divided by total sales.

True

The most common type of withdrawal by an owner from a business is the withdrawal of cash.

True

The normal balance side of an A/R account is a debit.

True

The owner's capital amount reported on a balance sheet is calculated as capital amount balance - drawing account balance + net income.

True

The procedure of arranging accounts in a general ledger, assigning account numbers, and keeping records current is known as file maintenance.

True

The source document fro an electronic funds transfer is a memorandum.

True

The source document used when supplies are bought on account is a memorandum.

True

Transactions are recorded in a journal in chronological order.

True

Utilities Expense is increased with a debit.

True

Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.

True

Voided checks should be recorded in the journal.

True

When adding a new expense account between accounts numbered 510 and 520, the new account is assigned the account number 515.

True

When an entry in an amount column is an even dollar amount, either 00 or -- should be entered in the cents column.

True

When an owner withdraws cash from the business, the transaction can affect both assets and owner's equity.

True

When items are bought and paid for at a future date, another way to state this is to say these items are bought on account.

True

When position is complete, the Post. Ref. column of a journal is completely filled in with account numbers.

True

When two asset accounts are changed in a transaction, there must be an increase and a decrease.

True

Withdrawals are assets taken out of a business for the owner's personal use.

True

A drawing account is increased by debits and decreased by credits.

True - Drawing is a Contra-equity account.

Two financial statements are prepared from the information on the worksheet.

True - I/S and B/S

If an amount is written in an incorrect column of a work sheet, the error should be erased and the amount should be written in the correct column.

True - not a permanent record; can erase.

The petty cash fund is a liability with a normal debit balance.

True; is an asset.

The last step in the posting procedure is to write the ...

account number in the Post. Ref. column of the journal.

Posting references in a journal are ...

always placed in an account's Post. Ref. column.

A lost check with a blank endorsement on it can be cashed by ....

anyone who has the check.

A petty cash fund is always replenished ...

at the end of the month.

An endorsement on the back of a check consisting only of a signature is a ...

bank endorsement.

Increases in a revenue account are shown on a T account's ...

credit side.

The normal balance side of a liability account is the ...

credit side.

The normal balance side of any revenue account is the ...

credit side.

The entry to establish a $200.00 petty cash fund is ...

debit Petty Cash, $200.00; credit Cash $200.00

The left side of a T account is the ...

debit side.

When cash is short, the entry to replenish cash includes a ...

debit to Cash Short and Over.

When a business pays cash on account, a liability account (A/P) is ...

decreased by a debit.

If an amount is recorded on the side of a T account opposite e the normal balance side, the account balance is ...

decreased.

Each time cash or checks are placed in a bank account, the customer prepares a ...

deposit slip.

When accounts are arranged in the general ledger, account numbers are assigned, and the chart of accounts is kept up to date, the accounting personnel are ...

doing file maintenance.

The first digit in the account number 520 means that the account is in the

expense division of the general ledger. "Revenues are better than expenses - they come first." -KL

Cash Short and Over is classified as an ...

expense.

When cash is received from sales, the change in the owner's equity is usually recorded ...

in a separate revenue account - "Sales".

When an owner invests cash in a business the owner's capital account is ...

increased by credit.

If an error requires a correcting entry, the source document describing the correction to be made ...

is a memorandum.

Determining that the amount of cash agrees with the accounting records ...

is proving cash.

The amount of net income calculated on an I/S is correct if ...

it is the same as the net income shown on the work sheet.

The second step in the posting procedure is to write the ...

journal page number in the Post. Reg. column of the account in the General Ledger.

The formula for calculating the net income ratio is ...

net income/total sales.

When preparing a B/S, the amount of owner's capital is calculated using amounts obtained from ...

none of these; the worksheet.

If posting is interrupted, the accounting personnel know to resume posting ...

on the line with a blank Post. ref. column in the journal.

The procedure for transferring information form a journal entry to a ledger account is ...

posting.

An I/S reports a business' financial ...

progress over a specific period of time.

An endorsement on the back of a check consisting of the words "Pay to the order of: and a new check owner's name is a ...

special endorsement.

An account number in the journal's Post. Ref. column shows ...

the account to which an amount is posted.

If any kind of error is made in preparing a check, ...

- VOID should be written on the check. - VOID should be written on the check stub. - a new check should be prepared.