ILRHR 6910 Finance Exam
A company using the accrual method of accounting performed services on account in August. The services were for $2,000 and the company gave the customer credit terms that state the amount is to be paid to the company in September. Assuming that the company prepares monthly income statements, what will be the account debited for $2,000 in August?
Accounts Receivable
A company using the accrual method of accounting performed services on account in August. The services were for $2,000 and the company gave the customer credit terms that state the amount is to be paid to the company in September. In September, when the company receives the $2,000 from the customer, which account should the company credit?
Accounts Receivable
Under the accrual basis of accounting, expenses are reported in the accounting period when which of the following occurs?
An Expense matches the revenues or is used up
Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to as __________
Assets
Which financial statement reports the assets, liabilities, and stockholders' (owner's) equity at a specific date?
Balance Sheet
Which financial statement's structure is closest to that of the basic accounting equation?
Balance Sheet
A company using the accrual method of accounting performed services on account in August. The services were for $2,000 and the company gave the customer credit terms that state the amount is to be paid to the company in September. In September, when the company receives the $2,000 from the customer, which account should the company debit?
Cash
The listing of accounts that are available for posting transactions is the __________ of accounts
Chart
When the accountant has to choose between two acceptable alternatives, the accountant should select the alternative that will report less profit, less asset amount, or a greater liability amount. This is based upon which principle/guideline?
Conservatism
Accountants might recognize losses but not gains in certain situations. For example, the company might write-down the cost of inventory, but will not write-up the cost of inventory. Which principle/guideline is associated with this action?
Conservatism Conservatism involves choosing between acceptable alternatives. In other words, conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations.
Assets are usually reported on the balance sheet at which amount?
Cost
Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount?
Cost The cost principle requires the accountant to show assets at cost and expenses at cost rather than at higher amounts. Accountants are not allowed to recognize gains from merely holding the land. To be able to recognize a gain on the land, the company would have to sell the land.
A contra-asset account such as Accumulated Depreciation will likely have which balance?
Credit
What will usually cause the liability account Accounts Payable to increase?
Credit
Which term is associated with "right" or "right side"?
Credit
Generally, when revenues are involved in a transaction, a revenue account will be __________.
Credited
When a check is written, a cash account should be __________.
Credited
When a company pays a bill, the account Cash will be __________.
Credited
Entries to revenues accounts such as Service Revenues are usually __________.
Credits
A corporation's working capital is calculated using which amounts?
Current assets and current liabilities
A __________ amount will appear on the left side of a T-account.
Debit
A contra-liability account such as Discount on Notes Payable will likely have which balance?
Debit
The accountant's word to indicate that an entry will be recorded on the left side of an account is __________.
Debit
What will usually cause an asset account to increase?
Debit
Which term is associated with "left" or "left side"?
Debit
To increase an account, what accounts are debited and what accounts are credited?
Debit to increase assets, draws, and expenses. Credit to increase liabilities, equity, revenue.
Generally, when an expense is involved in a transaction, an expense account will be __________.
Debited
When cash is received, the account Cash will be __________.
Debited
Entries to expenses such as Rent Expense are usually __________.
Debits
__________ -entry bookkeeping means that every transaction will affect two or more accounts.
Double
The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline?
Economic Entity
The non-government organization that researches and develops new accounting standards is the __________.
FASB
Financial statements report the fair market value of a company.
False
Is it true or false that the total amount of stockholders' equity reported on the balance sheet is intended to show the fair market value of the corporation?
False
The chart of accounts is a listing of the accounts presently having balances in the general ledger. (t/f)
False. The list will include accounts that are available for amounts.
Which is the annual report to the SEC that contains the financial statements of a publicly-traded corporation?
Form 10-k
Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements?
Full disclosure
The acronym for the common rules and standards that companies must follow when preparing its external financial statements is __________ .
GAAP
Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments?
Going Concern
Which financial statement reports the revenues and expenses for a period of time such as a year or a month?
Income Statement
Which financial statement will allow you to determine the gross margin for a retailer or manufacturer?
Income statement
Public utilities' balance sheets list the plant assets before the current assets. This is acceptable under which accounting principle/guideline?
Industry Practices
Asset, __________ , and stockholders' equity accounts are known as balance sheet accounts.
Liabilities
Obligations (amounts owed) are reported on the balance sheet and are referred to as __________
Liabilities
Which of the following is a category, classification, or element of the balance sheet?
Liabilities
Unearned Revenues is what type of account?
Liability
Accrual accounting is based on this principle/guideline.
Matching
Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period?
Matching
A very large corporation's financial statements have the dollar amounts rounded to the nearest $1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny?
Materiality
Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial?
Materiality
Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time?
Monetary Unit The monetary unit assumption is that the dollar is stable over time—no inflation.
Comprehensive income is defined as _______________ plus other comprehensive income.
Net Income
Revenues minus expenses equals __________
Net income
A company receives $500 of cash as an additional investment in the company by its owner, Mary Smith. The company's Cash account is increased and Mary Smith, Capital is increased. Should the $500 entry to Mary Smith Capital be a debit?
No
Important disclosures regarding likely losses that could not be estimated are found where?
Notes to the financial statements
Liabilities often have the word __________ in their account title.
Payable
Does the heading of a balance sheet indicate a period of time or a point in time?
Point in Time
The balance sheet heading will specify a
Point in time
A corporation's net income will cause a change in which component of stockholders' equity?
Retained Earnings
A corporation's net income is eventually recorded in the following stockholders' equity account: __________.
Retained earnings
A company sold merchandise of $8,000 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December. This is proper under which accounting principle/guideline?
Revenue Recognition
The U.S. government agency with authority over the financial reporting requirements of publicly traded corporations is the __________.
SEC
SEC is the acronym for __________.
Securities and Exchange Commission
A company using the accrual method of accounting performed services on account in August. The services were for $2,000 and the company gave the customer credit terms that state the amount is to be paid to the company in September. Which account should the company credit for $2,000 in August?
Service Revenue
Under the accrual basis of accounting, revenues are reported in the accounting period when which of the following occurs?
Services or goods have been delivered
What is usually presented first in the notes to the financial statements?
Significant Accounting Policies
Which financial statement reports the adjustments for foreign currency translation?
Statement of Comprehensive Income
The changes that occurred during a recent year in the accounts Retained Earnings and Treasury Stock will be found in which financial statement?
Statement of Stockholders' Equity
Some accounting software will classify some accounts as "income" accounts, while accountants might refer to these accounts as "revenue" accounts. (t/f)
True
The digits of the account numbers assigned to general ledger accounts often have significance. For example, an account number beginning with a "1" might signify that the account is an asset account, a "6" might signify an operating expense, etc. (t/f)
True
Every transaction will affect how many accounts?
Two or more
A supplier of goods or services is known as a __________.
Vendor
A company receives $500 of cash as an additional investment in the company by its owner, Mary Smith. The company's Cash account is increased and Mary Smith, Capital is increased. Should the $500 entry to the Cash account be a debit?
Yes
Large corporations must follow the __________ basis of accounting.
accrual
The two main methods of bookkeeping and accounting are 1) the cash method, and 2) the __________ method.
accrual
Deferred revenues likely involve cash amounts that have __________ been received.
already
Corporations whose stock is publicly traded must have their financial statements __________ by independent certified public accountants.
audited
The financial statement with a structure that is similar to the accounting equation is the _________
balance sheet
The listing of all of the accounts available for use in a company's accounting system is known as the __________ .
chart of accounts
The separation of duties is part of the internal __________ for safeguarding assets.
controls
Cash and Accounts Receivable are two examples of accounts that are reported on the classified balance sheet under the heading __________ assets.
current
A corporation's quarterly __________ will cause a reduction in the corporation's retained earnings, which in turn reduces the corporation's stockholders' equity. However, this will not reduce the corporation's net income.
dividends
The bookkeeping or accounting equation is Assets = Liabilities + Owner's __________ .
equity
Financial accounting is focused on the __________ financial statements of a company.
external
GAAP is the acronym for
generally accepted accounting principles
The accounts shown in the chart of accounts can be broadly classified into two categories: balance sheet accounts and _________ accounts.
income statement
The financial statement that reports the portion of change in owner's equity resulting from revenues and expenses during a specified time interval is the _________
income statement
The book of original entry is the definition of a __________.
journal
Accrued expenses are likely to pertain to transactions that have __________ been paid.
not yet
The first section of the statement of cash flows is the __________ activities.
operating
In addition to the standard chart of accounts for a specific industry, you will likely want to expand and/or modify the chart of accounts to fit your business. One tool that would be helpful in determining the accounts for your company would be your company's __________ chart.
organization
When a sale is made on credit, the seller will debit the asset account Accounts __________ .
receivable
The difference between the balance in a company's cash account and its bank statement is documented in the __________ of the bank statement.
reconciliation
Large corporations should report revenues on their income statements when the __________.
revenues are earned
A __________ entry typically removes an accrual-type adjusting entry that had been recorded in the preceding accounting period.
reversing
Another name for the balance sheet is
statement of financial position
Assets minus liabilities equals __________
stockholders' equity or owner's equity (net assets if a nonprofit)
A listing of the balances in the accounts in order to determine whether debits are equal to credits is a __________ balance.
trial
Accounting entries involve a minimum of how many accounts?
two
FASB is the accounting acronym for
Financial accounting standards board