Financial Accounting Test 1

The ledger is the company's book of accounts

True

If a company purchases equipment on credit, but does not record the transaction, then: a. the company's accounts will balance (i.e., debits=credits) in spite of the error, but both assets and liabilities will be too low

the company's accounts will balance (i.e., debits=credits) in spite of the error, but both assets and liabilities will be too low

Which of the following accounts could not be part of a closing entry?

Accounts Receivable

Property or a right that will benefit a company beyond the end of the current month is classified as an:

Asset

An account that is not part of any of the adjusting entries we have covered is:

Cash

As operating assets wear out or expire, the asset account should be reduced. Which of the following should also be recorded?

Expense

A credit (right) entry to an account will always increase the balance of the account, regardless of which account it is.

False

Adjusting entries must be recorded after the preparation of the company's financial statements

False

The Income Statement reports a company's assets and debts at the end of an accounting period.

False

The accounts payable account would be increased with a debit (left) entry, whereas the cash account would be decreased with a debit entry.

False

Transactions are first recorded (from source documents) in the company's:

Journal

Our company places an order for $4,000 of new office furniture; no payment is made at the time of the order. The related journal entry would be:

There wouldn't be a journal entry made at the time

According to the Matching Principle, expenses must be recorded in the accounting period in which they are used in the production of revenue.

True

Closing entries are made in order to prepare revenue, expense, and dividend accounts for the upcoming new accounting period by bringing these accounts to a zero balance.

True

Revenue should be recorded in the accounting period in which it was earned, rather than in the period in which the payment is received from the customer (if different).

True

The purpose of reversing entries is to simplify the accounting associated with accrual adjustments that were made in the prior period. (This question serves as extra credit if you get it right; it will not count against you if you get it wrong.)

True

When a company receives payment in advance for services to be performed in the future, the cash account should be increased with a debit (left) entry. Which account should be credited?

Unearned Revenue

Our company performs $500 in cleaning services for a customer and sends the customer a bill for the services. The related journal entry would be:

a debit to Accounts Receivable and a credit to cleaning revenue for $500

Johnson Co. paid $1,800 for a one-year insurance policy on the first day of the month. At the end of the month, what adjusting entry must be made relating to this policy?

a debit to Insurance Expense and a credit to Prepaid Insurance for $150

Interest of $300 has accrued on a note payable to the bank. The adjusting entry to record this debt would be:

a debit to Interest Expense and a credit to Interest Payable for $300

A company received $4, 000 cash from services to be performed in the future on Jan 1, at which time the company recorded the $4,000 as Unearned Revenue. As of Jan 31, the company had performed $1,500 of the services. The adjusting entry needed on Jan 31 would be:

a debit to Unearned Revenue and a credit to Revenue for $1,500

At the end of the month, Jones Co. received an electric bill for $200 for the month's services that Jones will not be paying until the following month. When the bill is received, Jones should record:

a debit to Utilities Expense for $200, and a credit to Accounts Payable for $200

The entry to record the payment of $1,000 to a supplier in settlement of an account would require:

a debit to accounts payable and a credit to cash for $1,000

At Williams Co., total employee salaries are $10,000 each Friday for a 5-day work week. Assuming the month ends on Thursday, what adjusting entry must be made at the end of the month to record the debt for unpaid employee salaries? (Assume the employees earn $2,000 on each of the 5 days.)

b. a debit to Salaries Expense and a credit to Salaries Payable for $8,000

The adjusting entry to record depreciation on the company truck of $1,000 would be:

c. a debit to Depreciation Expense and a credit to Accumulated Depreciation, Truck for $1,000

Which of the following pairs of accounts both have the plus on the debit (left) side?

cash and equipment

Samson Co. received $500 in payment from a customer who had been previously billed for Samson's services. Samson should record:

debit Cash for $500; credit Accounts Receivable for $500

Johnson Company purchased equipment for $4,000. The company paid $1,000 for the equipment at the time of purchase, and signed a note agreeing to pay the remainder in 60 days. Which of the following would be the correct entry to record on the purchase date?

debit Equipment for $4,000; credit Cash for $1,000 and credit Notes Payable for $3,000

A company began the year with $1,200 of supplies. $600 more supplies were bought during the year. At the end of the year, only $400 of supplies were left. The entry to adjust the supplies account would be:

debit Supplies Expense and credit Supplies for $1,400.

Which of the following is accurate regarding retained earnings for a company that is not in its first month of operation?

prior period retained earnings + current period net income - current period dividends = end of period retained earnings