ACCT T2

A

The assets section of a classified balance sheet usually includes: A. Current assets, long-term investments, plant assets, and intangible assets. B. Current assets, long-term assets, revenues, and intangible assets. C. Current assets, long-term investments, plant assets, and equity. D. Current liabilities, long-term investments, plant assets, and intangible assets. E. Current assets, liabilities, plant assets, and intangible assets.

Expense recognition (Matching) principle

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

Going-concern assumption

The business will stay open, not close

D

The closing process is necessary in order to: A. calculate net income or net loss for an accounting period. B. ensure that all permanent accounts are closed to zero at the end of each accounting period. C. ensure that the company complies with state laws. D. ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account. E. ensure that management is aware of how well the company is operating.

C

A classified balance sheet differs from an unclassified balance sheet in that A. a unclassified balance sheet is never used by large companies. B. a classified balance sheet normally includes only three subgroups. C. a classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio. D. a classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date. E. a classified balance sheet cannot be provided to outside parties.

B

A classified balance sheet: A. Measures a company's ability to pay its bills on time. B. Organizes assets and liabilities into important subgroups. C. Presents revenues, expenses, and net income. D. Reports operating, investing, and financing activities. E. Reports the effect of profit and withdrawals on owner's capital.

e. debit Income Summary $187,000; credit Revenues $187,000

A company had revenues of $187,000 and expenses of $109,000 for the accounting period. The owner withdrew $37,000 during the year. Which of the following entries could not be a closing entry? a. debit Income Summary $78,000; credit Owner's Capital $78,000 b. debit Capital $37,000; credit Withdrawals $37,000 c. debit Revenues $187,000; credit Income Summary $187,000 d. debit Income Summary $109,000; credit Expenses $109,000 e. debit Income Summary $187,000; credit Revenues $187,000

Debit income summary $75,000; credit revenues $75,000

A company had revenues of $75,000 and expenses of $62,000 for the accounting period. The owner withdrew $8,000 in cash during the same period. Which of the following entries could not be a closing entry?

Adjusting entries:

Affect both income statement and balance sheet accounts.

When closing entries are made

All temporary accounts are closed, but permanent accounts are not closed.

A trial balance prepared before any adjustments have been recorded is:

An unadjusted trial balance.

The accounting process begins with:

Analysis of business transactions and source documents.

E

Another name for temporary accounts is: A. Real accounts. B. Contra accounts. C. Accrued accounts. D. Balance column accounts. E. Nominal accounts.

If a company receives $12,000 from the owner to establish a proprietorship, the effect on the accounting equation would be:

Assets increase $12,000 and equity increases $12,000.

Prepaid expenses are generally:

Assets that represent prepayments of future expenses.

C

Assets, liabilities, and equity accounts are not closed; these accounts are called: A. Nominal accounts. B. Temporary accounts. C. Permanent accounts. D. Contra accounts. E. Accrued accounts.

e. 2.23

Based on the following information from Raptor Company's balance sheet, calculate the current ratio current assets $87,000 investments $50,000 plant assets $250,000 current liabilities $39,000 long-term liabilities $90,000 Raptor, Capital $258,000 a. .44 b. 3.51 c. 3.33 d. 1.06 e. 2.23

d. debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000

Dina Kader withdrew a total of $35,000 from her business during the current year. The entry needed to close the withdrawals account is: a. debit Income Summary and credit Cash for $35,000 b. debit Dina Kader, Withdrawals and credit Cash for $35,000 c. debit Income Summary and credit Dina Kader, Withdrawals for $35,000 d. debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000 e. debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000

Managerial Accounting // INTERNAL Users

Directly Involved. INTERNAL. A manager, officer, internal auditor, sales staff, budget officer, controller

c. Office Equipment, overstated $130; Fees Earned, overstated $130

A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under or overstated as a result of this error? a. Office Equipment, unstated $130; Fees Earned, overstated $130 b. Office Equipment, understated $260; Fees Earned, overstated $130 c. Office Equipment, overstated $130; Fees Earned, overstated $130 d. Office Equipment, overstated $130; Fees Earned, understated $130 e. Office Equipment, overstated $260; Fees Earned, understated $130

Assets, net income, and equity overstated.

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

Debit Unearned Legal Fees and credit Legal Fees Earned.

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

B

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as: A. Adjusting entries. B. Closing entries. C. Final entries. D. Work sheet entries. E. Updating entries.

Debit K. Canopy, Capital $5,700; credit K. Canopy, Withdrawals $5,700

K. Canopy, the proprietor of Canopy Services, withdrew $5,700 from the business during the current year. The entry to close the withdrawals account at the end of the year is:

Time Period Assumption

Life of the company can be divided into time periods such as months and years.

External users of accounting information include all of the following except: (Shareholders, customers, managers, regulators, creditors)

Purchasing Managers

B

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional tool in the accounting process is a(n) : A. Adjusted trial balance. B. Work sheet. C. Post-closing trial balance. D. Unadjusted trial balance. E. General ledger.

Debit Income Summary $81,300, credit T. Westmont, Capital $81,300.

Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of $185,000, expenses of $103,700, and withdrew $18,000 from the business during the current year. The owner's capital account before closing had a balance of $297,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

c. natural business year

The 12-month period that ends when a company's sales activities are at their lowest levels is called the: a. fiscal year b. calendar year c. natural business year d. accounting period e. interim period

$360,300

The F. Mercury, Capital account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are $9,000. What is the correct closing entry for the expense accounts?

Credit expense accounts $39,800; debit F. Mercury, Capital $39,800

The F. Mercury, Capital account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are $9,000. What is the correct closing entry for the expense accounts?

A

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is: A. $325 debit. B. $325 credit. C. $425 debit. D. $750 debit. E. $750 credit.

Business entity assumption

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Revenue Recognition Principle

The accounting principle that requires revenue to be recorded when earned is the:

b. increase an asset; increase revenue

The adjusting entry to record an accrued revenue is: a. increase an expense; increase a liability b. increase an asset; increase revenue c. decrease a liability; increase revenue d. increase an expense; decrease an asset e. increase an expense; decrease a liability

Accrual basis accounting

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

C

The usual order for the asset section of a classified balance sheet is: A. Current assets, prepaid expenses, long-term investments, intangible assets. B. Long-term investments, current assets, plant assets, intangible assets. C. Current assets, long-term investments, plant assets, intangible assets. D. Intangible assets, current assets, long-term investments, plant assets. E. Plant assets, intangible assets, long-term investments, current assets.

Debt Ratio

Total Liabilities / Total Assets

T/F: Adjusting entries result in a better matching of revenues and expenses for the period.

True

T/F: Prior to recording adjusting entries at the end of an accounting period, some accounts may not show correct balances even though all transactions were properly recorded.

True

True

True or False: Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

True

True or False: External users include lenders, shareholders, customers, and regulators.

True

True or False: Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements.

True

True or False: The accounting equation can be restated as: Assets - Equity = Liabilities.

True

True or False: The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

e. revenue recognition and matching

Two accounting principles that are relied on in the adjusting process are: a. revenue recognition and monetary unit b. revenue recognition and going-concern c. matching and cost d. matching and business entity e. revenue recognition and matching

E

Two common subgroups for liabilities on a classified balance sheet are: A. current liabilities and intangible liabilities. B. present liabilities and operating liabilities. C. general liabilities and specific liabilities. D. intangible liabilities and long-term liabilities. E. current liabilities and long-term liabilities

b. a liability on the balance sheet

Unearned revenue is reported in the financial statements as: a. a revenue on the balance sheet b. a liability on the balance sheet c. an unearned revenue on the income statement d. an asset on the balance sheet e. an operating activity on the statement of cash flows

c. liabilities created when a customer pays in advance for products or services before the revenue is earned

Unearned revenues are: a. revenues that have been earned and received in cash b. revenues that have been earned but not yet collected in cash c. liabilities created when a customer pays in advance for products or services before the revenue is earned d. recorded as an asset in the accounting records e. increases to owner's capital

B

When closing entries are made: A. All ledger accounts are closed to start the new accounting period. B. All temporary accounts are closed but not the permanent accounts. C. All real accounts are closed but not the nominal accounts. D. All permanent accounts are closed but not the nominal accounts. E. All balance sheet accounts are closed

Accounts Payable

Which is a permanent (real) account: Fees earned, office supplies expense, interest revenue, accounts payable, salaries expense

Profit Margin

net income/ net sales

A

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in: A. $200 decrease in net income. B. $200 increase in net income. C. $200 difference between the debit and credit columns of the Unadjusted Trial Balance. D. $200 of prepaid insurance. E. An error in the financial statements.

e. a record containing all accounts and their balances used by a company

A ledger is: a. a record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item b. a journal in which transactions are first recorded c. a collection of documents that describe transactions and events entering the accounting process d. a list of all accounts with their debit balances at a point in time e. a record containing all accounts and their balances used by a company

d. chart of accounts

A list of all accounts and the identification number assigned to each account used by a company is called a: a. source document b. journal c. trial balance d. chart of accounts e. general journal

b. adjusted trial balance

A trial balance prepared after adjustments have been recorded is called a(n): a. balance sheet b. adjusted trial balance c. unadjusted trial balance d. classified balance sheet e. unclassified balance sheet

Measurement Principle/Cost Principle

Accounting information is based on ACTUAL cost. Measured in cash.

Accrued

Accrued Expenses/Revenues

a. at the end of one accounting period often result in cash receipts from customers in the next period

Accrued revenues: a. at the end of one accounting period often result in cash receipts from customers in the next period b. at the end of one accounting period often result in cash payments in the next period c. are also called unearned revenues d. are listed on the balance sheet as liabilities e. are recorded at the end of an accounting period because cash has already been received for revenues earned

A

Accumulated Depreciation, Accounts Receivable, and Service Fees Earned would be sorted to which respective columns in completing a work sheet? A. Balance Sheet or Statement of Owner's Equity-Credit; Balance Sheet or Statement of Owner's Equity Debit; and Income Statement-Credit. B. Balance Sheet or Statement of Owner's Equity-Debit; Balance Sheet or Statement of Owner's Equity-Credit; and Income Statement-Credit. C. Income Statement-Debit; Balance Sheet or Statement of Owner's Equity-Debit; and Income Statement-Credit. D. Income Statement-Debit; Income Statement-Debit; and Balance Sheet or Statement of Owner's Equity-Credit. E. Balance Sheet or Statement of Owner's Equity-Credit; Income Statement-Debit; and Income Statement-Credit.

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

b. debit Salaries expense $30,000; credit Cash $30,000

Bentley records adjusting entries at its December 31 year end. At December 31, employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be paid. Prepare the journal on January 3 to record payment assuming the correct adjusting and reversing entries were made on December 31 and January 1. a. debit Salaries expense $12,000; debit Salaries Payable $18,000; credit Cash $30,000 b. debit Salaries expense $30,000; credit Cash $30,000 c. debit Salaries Payable $30,000; credit Cash $30,000 d. debit Salaries expense $18,999; debit Salaries Payable $12,000; credit Cash $30,000 e. debit Salaries expense $18,000; credit Cash $18,000

D

Closing entries are required: A. if management has decided to cease operating the business. B. only if the company adheres to the accrual method of accounting. C. if a company's bookkeeper forgets to prepare reversing entries. D. if the temporary accounts are to reflect correct amounts for each accounting period. E. in order to satisfy the Internal Revenue Service.

E

Closing the temporary accounts at the end of each accounting period: A. Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet. B. Prepares the withdrawals account for use in the next period. C. Gives the revenue and expense accounts zero balances. D. Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals. E. All of these.

Current Ratio

Current assets / Current Liabilities

The assets section of a classified balance sheet usually includes the subgroups:

Current assets, long-term investments, plant assets, and intangible assets.

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

Debit Office Supplies Expense $254 and credit Office Supplies $254.

Monetary Unit Assumption

Express transaction and events in monetary units. $$, Europ, etc

d. credit to Unearned Management Fees for $60,000

Management Services, Inc. provides services to clients. On May 1, a client prepaid Management Services $60,000 for 6 months services in advance. Management Services' general journal entry to record this transaction will include a: a. debit to Unearned Management Fees for $60,000 b. credit to Management Fees Earned for $60,000 c. credit to Cash for $60,000 d. credit to Unearned Management Fees for $60,000 e. debit to Management Fees Earned for $60,000

The area of accounting aimed at serving the decision making needs of internal users is:

Managerial Accounting

Return on Assets Formula:

Net Income / Average Total Assets

Financial Accounting // External Users

Not directly involved. EXTERNAL. A customer. An auditor. Lender. Shareholder, etc

$31,000

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of owner's equity as of May 31 of the current year?

d. assets that represent prepayments of future expenses

Prepaid expenses are: a. payments made for products and services that do not ever expire b. classified as liabilities on the balance sheet c. decreases in equity d. assets that represent prepayments of future expenses e. promises of payments by customers

Deferred

Prepair/Unearned expense/revenue

Which of the following is the usual final step in the accounting cycle?

Preparing a post-closing trial balance.

Cash basis accounting.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Expense Recognition / Matching Principle

Record expenses incurred to generate the revenue reported.

Full disclosure Principle

Report the details behind everything

Revenue Recognition Principle

Revenue is recognized when earned. The proceeds don't need to be in cash.

B

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are: A. Real accounts. B. Temporary accounts. C. Closing accounts. D. Permanent accounts. E. Balance sheet accounts.

a. are optional

Reversing entries: a. are optional b. are mandatory c. correct errors in journal entries d. are required by GAAP e. are prepared on the worksheet

8.5%

Speedy has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets

d. ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital

The closing process is necessary in order to: a. calculate net income or net loss for an accounting period b. ensure that all permanent accounts are closed to zero at the end of each accounting period c. ensure that the company complies with state laws d. ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital e. ensure that management is aware of how well the company is operating

E

The current ratio: A. Is calculated by dividing current assets by current liabilities. B. Helps to assess a company's ability to pay its debts in the near future. C. Can reveal problems in a company if it is less than 1. D. Can affect a creditor's decision about whether to lend money to a company. E. All of these.

D

The current ratio: A. Is used to measure a company's profitability. B. Is used to measure the relation between assets and long-term debt. C. Measures the effect of operating income on profit. D. Is used to help evaluate a company's ability to pay its debts in the near future. E. Is calculated by dividing current assets by equity.

b. to assess the risk associated with a company's use of liabilities

The debt ratio is used: a. to measure the ratio of equity to expenses b. to assess the risk associated with a company's use of liabilities c. only by banks when a business applies for a loan d. to determine how much debt a firm should pay off e. to determine how much debt a company should borrow

e. book value

The difference between the cost of an asset and the accumulated depreciation for that asset is called: a. depreciation expense b. unearned depreciation c. prepaid depreciation d. depreciation value e. book value

IASB

The independent group that is attempting to harmonize accounting practices of different countries is the

b. record internal transactions and events

The main purpose of adjusting entries is to: a. record external transactions and events b. record internal transactions and events c. recognize assets purchased during the period d. recognize debts paid during the period e. correct errors

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:

The owner's withdrawals account.

Accounting Cycle

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

C

The recurring steps performed each reporting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the: A. Accounting period. B. Operating cycle. C. Accounting cycle. D. Closing cycle. E. Natural business year.

Revenue Recognition Principle

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

Going- concern assumption

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

d. entering a revenue amount in the Balance Sheet and Statement of Owner's Equity Debit column

Which of the following errors would cause the Balance Sheet and Statement of Owner's Equity columns of a worksheet to be out of balance? a. entering an asset amount in the Income Statement Debit column b. entering a liability amount in the Income Statement Credit column c. entering an expense amount in the Balance Sheet and Statement of Owner's Equity Debit column d. entering a revenue amount in the Balance Sheet and Statement of Owner's Equity Debit column e. entering a liability amount in the Balance Sheet and Statement of Owner's Equity Credit column

C

Which of the following is the usual final step in the accounting cycle? A. Journalizing transactions. B. Preparing an adjusted trial balance. C. Preparing a post-closing trial balance. D. Preparing the financial statements. E. Preparing a work sheet.

A

Which of the following statements is incorrect? A. Permanent accounts is another name for nominal accounts. B. Temporary accounts carry a zero balance at the beginning of each accounting period. C. The Income Summary account is a temporary account. D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence. E. The closing process applies only to temporary accounts.

d. on the worksheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance

Which of the following statements is incorrect? a. working papers are useful aids in the accounting process b. on the worksheet, the effects of the accounting adjustments are shown on the account balances c. after the worksheet is completed, it can be used to help prepare the financial statements d. on the worksheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance e. a worksheet is not a substitute for financial statements

Business entity Assumption

You need to have this business separate from other entities, including the owner.