Accounting Final Exam

Income Summary is a(n)

Temporary Account

A balance sheet 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 corporation can own property, incur liabilities, and enter into contracts in its own name.

True

A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted.

True

Adjusting entries must be posted to the general ledger accounts

True

Businesses use payroll records to inform employees of their annual earnings and to prepare payroll reports for the government.

True

For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.

True

Journal entries used to prepare temporary accounts for a new fiscal period are closing entries.

True

Net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total.

True

Social security tax is paid by both employees and employers.

True

Temporary accounts are also called nominal accounts.

True

Temporary accounts must start each fiscal period with a zero balance.

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 internal users is called managerial accounting.

True

The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period.

True

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

True

The periodic inventory method does not require records of the quantity and cost of individual goods.

True

The petty cash account Cash Short and Over is a temporary account.

True

The series of accounting activities included in recording financial information for a fiscal period is called an accounting cycle.

True

The statement of owner's equity reports information for a period of time.

True

The total of accounts in the accounts payable subsidiary ledger equals the balance of the controlling account, Accounts Payable.

True

To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance.

True

Two financial statements are prepared from the information on the work sheet

True

Temporary accounts begin each new fiscal period with a

Zero Balance

Wholesale Merchandising Business

a business that buys and resells merchandise primarily to other merchandising businesses

Worksheet

a columnar accounting form used to summarize the general ledger information needed to prepare financial statements

Withholding allowance

a deduction from total earnings for each person legally supported by a taxpayer, including the employee

Cash Discount

a deduction that a vendor allows on an invoice amount to encourage prompt payment

Medicare tax

a federal tax paid for hospital insurance

Social Security Tax

a federal tax paid for old-age, survivors, and disability insurance

Income Statement

a financial statement that reports the value of a business' assets, liabilities, and owner's equity on a specific date

Fiscal Year

a fiscal period consisting of 12 consecutive months

Special Journal

a journal used to record only one kind of transaction

Articles of Incorporation

a legal document that identifies the basic characteristics of a corporation

Schedule of Accounts Payable:

a listing of vendor accounts, accounts balances, and the total amount due to all vendors.

Periodic Inventory

a merchandise inventory evaluated at the end of a fiscal period

Retail Merchandising Business

a merchandising business that sells to those who use or consume the goods

Trial Balance

a proof of the equality of debits and credits in a general ledger

Individual Retirement Account

a qualified retirement plan that provides most individuals with a deferred federal income tax benefit

When preparing a statement of owner's equity, the amount of current owner's capital is calculated using amounts obtained from

the worksheet

Temporary accounts include assets, expenses, and the owner's drawing account.

False

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

False

The balances of the liability accounts must be reduced to zero to prepare the accounts for the next period.

False

The contra account Purchases Discount has a normal debit balance.

False

The drawing account is a permanent account.

False

The first task in preparing a payroll is to determine the number of days worked by each employee.

False

The larger the number of withholding allowances claimed, the larger the amount of income tax withheld.

False

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

False

The total of a schedule of accounts payable less purchases discounts taken during the month will equal the total of Accounts Payable.

False

Total earnings are sometimes referred to as net pay

False

When the Income Statement Debit column total is greater than the Income Statement Credit column total on a work sheet, the business has a net income.

False

The Purchases account is classified as a(n)

cost of goods sold account

The journal entry to close Income Summary when there is a net income is

debit Income Summary; credit owner's capital

To replenish a $300.00 petty cash fund, if the petty cash custodian had receipts totaling $224.00 and cash of $74.00 in the petty cash box, one part of the journal entry is a

debit to Cash Short and Over for $2.00.

Net Pay

the total earnings paid to an employee after payroll taxes and other deductions

The amount on the employee earnings record used to determine if certain payroll taxes apply to an employee's earnings is

Accumulated Earnings

Prepaid Expense

Cash paid for an expense in one fiscal period that is not used until a later period

Share of Stock

Each unit of ownership in a corporation

A transaction to record merchandise purchased with a trade discount would include a debit to Merchandise Discount

False

An amount written in parentheses on a financial statement indicates an estimate

False

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

False

At the end of a fiscal period, the balances of permanent accounts are summarized and transferred to the owner's capital account.

False

Many businesses choose a one-year fiscal period that ends during a period of high business activity.

False

Only accounts with a balance are listed in the Trial Balance columns of a work sheet.

False

Permanent accounts are used to accumulate information until it is transferred to the owner's capital account.

False

Information needed to prepare an income statement's Expense section is obtained from a work sheet's Account Title column and

Income Statement debit column

Adjusting Entries

Journal entries recorded to update general ledger accounts at the end of a fiscal period

The total earnings paid to an employee after payroll taxes and other deductions is recorded in the payroll register's

Net Pay Column

A periodic inventory conducted by counting, weighing, or measuring items of merchandise on hand is called a(n)

Physical Inventory

An employee working with an account can trace a transaction back to the correct journal by using information in the

Post Ref. Column

Supplies bought for use in a business are recorded in the

Supplies Account

Controlling Account

an account in a general ledger that summarizes all accounts in a subsidiary ledger

Terms of Sale

an agreement between a buyer and a seller about payment for merchandise

Perpetual Inventory

an inventory determined by keeping a continuous records of increases and decreases, and the balance on hand of each item of merchandise

Corporation

an organization with the legal rights of a person which many persons or other corporations may own

The accounts that appear on the post-closing trial balance are

assets, liabilities, and owner's capital

Adjustments

changes recorded on a worksheet to update general ledger accounts at the end of a fiscal period

A purchase of merchandise for cash would be posted

individually to Purchases

The amount of net income calculated on an income statement is correct if

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

The formula for calculating the net income ratio is

net income divided by total sales

The last step in the accounting cycle is to

prepare a post-closing trial balance

Employee regular earnings are calculated as

regular hours times regular rate

Net Income

the difference between total revenue and total expenses when total revenue is greater

Fiscal Period

the length of time for which business summarizes financial information and reports its financial performance

Tax Base

the maximum amount of gross earnings on which a tax is calculated