VYC1 Principles of Accounting: Unit 4 - 5 Questions & Quizzes

Adjusting entries reflect unrecorded ----------- activity that has taken place but has not yet been ----------.

economic recorded

When working on the adjusted trial balance column in the ----------, the Trial Balance and Adjustments columns both balance but the Adjusted Trial Balance columns do not. The most probable cause is -----------.

worksheet an error in extension

True/False Accountants may perform the closing process monthly or annually.

True

True/False Deferred items consist of adjusting entries involving data previously recorded in accounts.

True

DBD Company paid Company A $15,000 for their outstanding receivable that had been outstanding for 40 days. Company A's credit terms with DBD were Net 30 days. To account for this $15,000 transaction, how should Company A record this event in the general journal?

Debit cash for $15,000 and credit accounts receivable for $15,000.

What is the last step of the accounting cycle?

Post-closing trial balance

Which step in the accounting cycle comes after journalizing transactions in the general journal?

Posting entries to the general ledger

Which asset is considered current on the asset side of the typical balance sheet?

Prepaid expenses

Of the eight steps or processes of the accounting cycle that an accountant follows in each closing, which procedure is last?

Prepare the post-closing trial balance.

A classified balance sheet contains the same three major categories and subdivides two of its three major categories. Which category is not subdivided?

Stockholders' equity

A company performs $5,000 of training services equally performed over the course of November to March, with payment received in April of the second year. Which entry is recorded for the financial year ending Dec. 31?

Debit Accounts Receivable $2,000 and credit Revenue $2,000 (You cannot record all five months of the training services in the financial year ending Dec. 31. Only two months can be recorded.)

A company purchases insurance on 20XX July 1 for $4,800 for a 24-month period. What adjusting entry would be recorded on December 31 of the same year?

Debit Insurance Expense $1,200, credit Prepaid Insurance $1,200

On November 30, 2014, Company A paid $6,000 rent for December and January. What would be the correct adjusting entry at the end of December to show the expiration of one month's rent?

Debit Rent Expense $3,000 Credit Prepaid Rent $3,000

When are worksheets prepared?

Each time financial statements are prepared

What is the first step of the accounting cycle?

Analyzing transactions

Company A paid $12,000 cash on January 1 for six months of rent. Which actions should be taken when closing the books for January?

Apply a debit of $2,000 to the rent expense account and a credit of $2,000 to the prepaid rent account

Accumulated depreciation and accumulated amortization are contra accounts to which type of accounts on basic financial statements?

Asset accounts

Which three categories does the unclassified balance sheet include?

Assets, liabilities, and stockholders' equity

Which method is used to control cash?

Keeping cash in a cash register with limited access

Which of the following is not a component of a computerized accounting information system? Manual ledgers Internal controls Computer software Security procedures

Manual ledgers

How are assets listed on the balance sheet?

Most liquid to least liquid

Which statement about the worksheet is not correct?

The worksheet can be used instead of the general journal.

What purpose do special journals serve in accounting?

They group together similar transactions, like sales and purchases.

Why are adjusting entries made at the end of an accounting period or whenever financial statement are to be prepared?

To bring about a proper matching of revenues and expenses

Each adjusting entry has two purposes. The first is to ensure the income statement reports the proper revenue or expense. What is the second purpose?

To make the balance sheet report the proper asset or liability

What is the role of accounting information systems?

To organize financial data

True/False A company usually maintains two cash accounts—Cash and Petty Cash—in its general ledger.

True

True/False A transaction must be journalized in the journal before it can be posted to the ledger accounts.

True

True/False Because the cash basis of accounting does not match expenses incurred and revenues earned, it is generally considered unacceptable under generally accepted accounting principles.

True

True/False Every adjusting entry affects at least one income statement account and one balance sheet account.

True

True/False If all the adjusting entries are not made, the financial statements are incorrect.

True

True/False It is important to remember that the adjusting entry transferring an amount from an asset account to an expense account should transfer only the asset amount that has expired.

True

True/False Requiring employees to take annual vacations is an example of an internal control.

True

Preparing adjusting entries for accrued items should first identify the proper ---------- accounts and then the related ------------ accounts.

assets and liabilities revenues and expenses

Deferred items consist of two types of adjusting entries: ---------- adjustments and ---------- adjustments.

assets to expense liability to revenue

The ----------- basis of accounting recognizes revenues when cash is received and recognizes expenses when cash is paid out. The ---------- basis of accounting recognizes revenues when sales are made, or services are performed, regardless of when cash is received.

cash accrual

Accumulated depreciation is considered a ---------- account.

contra asset

A company performed delivery services for a customer for cash. The correct debit and credit are __________.

debit Cash, credit Delivery Service Revenue

The ---------- principle requires that expenses incurred in producing revenues be ----------- the revenues they generated during the accounting period.

matching deducted from

Business transactions are --------- events that affect the --------- condition of a business.

measurable financial

Accrued liabilities are liabilities ---------- recorded at the end of an accounting period. They represent obligations to make payments ---------- at the balance sheet date, such as employee salaries.

not yet not legally due

Every check transaction involves three parties: the bank, the ----------, and the ----------.

payee drawer

With the accrual basis of accounting, accountants recognize revenues when ---------- regardless of when ----------.

the company makes a sale or performs a service the company receives the cash

Which situation is an improper use of petty cash? $7 postage for overnight mail delivery of legal documents $90 for presentation supplies for today's meeting $80 emergency repair call to regular vendor $10 pizza for the monthly staff appreciation lunch

$80 emergency repair call to regular vendor

When a truck is depreciated, what account is impacted on the balance sheet?

Accumulated Depreciation

In accrual accounting, which type of entries are needed to bring accounts up to date for unrecorded economic activity that has taken place?

Adjusting

How do computerized accounting systems benefit accounting firms?

By organizing financial accounting data

A post-closing trial balance is a trial balance taken after the closing entries have been posted. Some accounts stay open. They are assets, liabilities, Retained Earnings, and which other account?

Capital stock

After the bank reconciliation is prepared, the entry to record bank service charges would require a credit to which account?

Cash (For example, the entry to record bank service charges on the books could be: Bank Service Charge Expense 13.80 Cash 13.80)

A company has not yet received the July utility bill, so it decides to estimate an accrued amount of $1,900. How should the company record this transaction?

Credit to Utilities Payable

Adjustments to record revenues are normally associated with which type of balance sheet account?

Customer Deposits

Which of the following is not typically included on a bank statement? Checks paid out Deposits in transit Service charges Deposits

Deposits in transit

The revenue, expense, and which other accounts are reduced to zero during the closing step?

Dividends

Which account is a temporary, or nominal, account closed directly to the retained earnings account at the end of the accounting period?

Dividends

Company A purchased a new machine for $1,500 cash. The machine has an estimated useful life of 10 years and an estimated salvage value of $500. How will this be posted into the general ledger at the time of purchase?

Equipment $1,500 debit and Cash $1,500 credit

True/False A deposit in transit requires an entry in the depositor's books after the bank reconciliation is prepared.

False (A deposit in transit does not require an entry in the depositor's books after the bank reconciliation is prepared.)

True/False Accrued items consist of adjusting entries relating to activity on which data has been previously recorded in the accounts.

False (Accrued items consist of adjusting entries relating to activity on which no data have been previously recorded in the accounts.)

True/False Cash includes coin, currency, postdated checks, money orders, and money on deposit with banks.

False (Coin, currency, money orders, and money on deposit with banks are included in cash. Postdated checks are not.)

True/False For control purposes, a company should issue checks for every payment, regardless of its amount.

False (Companies do not need to issue checks for every payment. Petty cash can be used for small purchases if petty cash vouchers are used for control.)

True/False Posting aids the tracing of any recorded transaction, either from general journal to general ledger or from general ledger to general journal.

False (Cross-indexing is the placing of (1) the account number of the ledger account in the general journal and (2) the general journal page number in the ledger account. Cross-indexing aids the tracing of any recorded transaction, either from general journal to general ledger or from general ledger to general journal. Normally, they place cross-reference numbers in the Posting Reference column of the general journal when the entry is posted.)

True/False Inventory is a depreciable asset.

False (Inventory is not a depreciable asset. It is a current asset not a long-term asset like buildings or trucks that must be depreciated.)

True/False Posting is the process of entering the effects of a transaction in a journal. Then, the information is transferred to the proper accounts in the ledger.

False (Journalizing is the process of entering the effects of a transaction in a journal. Then, the information is transferred, or posted, to the proper accounts in the ledger.)

True/False The price of computers and accounting software packages have decreased to the point where all businesses have converted from manual to computerized systems.

False (Not all businesses utilize a computerized system. Some small business owners still use manual systems because their bookkeeping needs are relatively simple or they are not comfortable or familiar with a computerized system.)

True/False Postage, office supplies, payroll, and transportation expenses are proper uses of a petty cash fund.

False (Postage, office supplies, and transportation are proper uses of petty cash, but payroll is not.)

True/False Postings must always be made at the end of each month.

False (Postings can be made at any of these times: 1. The time the transaction is journalized 2. The end of the day, week, or month 3. As each journal page is filled)

True/False The Unearned Service Fees account is a revenue account. True

False (The Unearned Service Fees account is not a revenue account. It is a liability. As the fees are earned, the amount in that account is transferred to a revenue account.)

True/False The preparation of an unadjusted trial balance serves as a check on the accuracy of the closing process and ensures that the books are in balance at the start of the new accounting period.

False (The preparation of a post-closing trial balance serves as a check on the accuracy of the closing process and ensures that the books are in balance at the start of the new accounting period.)

True/False The preparation of a worksheet eliminates the need to prepare and post adjusting entries.

False (The preparation of a worksheet does not eliminate the need to prepare and post adjusting entries because the worksheet is only an informal accounting tool and is not part of the formal accounting records.)

True/False The statement of stockholders' equity is sometimes called the statement of retained income.

False (The statement of stockholders' equity is sometimes called the statement of retained earnings. The statement of stockholders' equity helps to relate income statement information to balance sheet information.)

True/False The cash balance on the bank statement is usually equal to the cash balance in the depositor's books.

False (The two balances are not usually equal.)

True/False A university pays a professor on January 15 of Year 2 for work performed in December of Year 1. At the end of Year 1, the university would record an asset for the unpaid salary.

False (The university would not record an asset. They would record a liability and an expense in Year 1.)

True/False When assets are prepaid, it immediately results in an expense on the income statement.

False (When assets are prepaid, it does not immediately create an expense on the income statement. The entry to record a prepaid asset is debit to Prepaid Asset and credit to Cash or Accounts Payable.)

Why is the matching of expenses and revenues necessary?

For the income statement to present an accurate picture of the profitability of a business

Which step in the accounting cycle includes beginning the worksheet?

Fourth (The first step of the accounting cycle is analyzing business transactions. The second step of the accounting cycle is journalizing transactions in the general journal. The third step of the accounting cycle is posting journal entries to the accounts in the general ledger. The fourth step in the accounting cycle is preparing a trial balance of the unadjusted accounts and beginning the worksheet.)

What is an example of segregation of duties?

Having a separate individual approve and execute payments

Lynn Martin started a law firm with $50,000 cash. She took out a $20,000 loan to purchase an office. How will the accounting equation be affected by these two transactions?

Increase assets by $70,000, increase liabilities by $20,000, increase owner's equity by $50,000

Which of the following controls is not used to control and manage cash? Cash flow management Theft/fraud detection Increase holding idle cash Accurate cash accounting process

Increase holding idle cash

--------- and ---------- are income statement accounts that can be impacted by checking accounts.

Interest Revenue Service Expense

Which statement best describes a classified balance sheet?

It breaks down assets and liabilities into current and long-term accounts.

How does failing to recognize earning of previously unearned revenues impact the balance sheet?

It overstates liabilities and understates retained earnings.

The post-closing trial balance differs from the adjusted trial balance in only two important respects. First, it excludes all temporary accounts since they have been closed. What is the second difference?

It updates the Retained Earnings account to its proper ending balance.

---------- involve one debit and one credit. ------------ journal entries involve more than one debit or credit.

Simple Compound

Which step in the accounting cycle includes preparing financial statements?

Sixth (The fifth step in the accounting cycle is journalizing and posting adjusting journal entries, preparing an adjusted trial balance, and completing the worksheet. The sixth step of the accounting cycle is preparing financial statements.)

An accountant is preparing financial statements for a firm and realizes that adjustments need to be made to the financial statements based on supplies used for the quarter. How will the financial statements be affected by this type of adjustment?

Supplies Expense is increased on the income statement, and Supplies is decreased on the balance sheet.

Which step in the accounting cycle is journalizing and posting adjusting entries?

The fifth

True/False The computer automatically performs some of the steps in the accounting cycle, such as posting journal entries to the ledger accounts, closing the books, and preparing the financial statements.

True

True/False The evidence that a business event has occurred is a source document.

True

True/False The four types of financial statements are balance sheet, statement of cash flows, statement of owner's equity, and income statement.

True

True/False The main purpose of a bank reconciliation is to explain the differences between the cash balance on the bank statement and the cash balance in the general ledger.

True

True/False The three elements of an internal control structure are control procedures, control environment, and the accounting system.

True

True/False The worksheet is not part of the formal accounting records.

True

True/False To effectively manage its cash, a company should make certain that enough cash is available to pay bills as they come due.

True

True/False When trying to discover which adjusting entries should be made, reviewing adjusting entries made at the end of the previous period is a good strategy to use.

True

When are expenses recorded using the accrual basis method of accounting?

When the expense is incurred

The entry to replenish the petty cash fund for disbursements made for stamps includes __________.

a credit to Cash

The ----------- is a series of steps performed during the accounting period to analyze, record, classify, summarize, and report useful financial information for the purpose of ----------- financial statements.

accounting cycle preparing

Failure to recognize __________ would understate net income and understate assets/retained earnings.

accrual of assets

In a bank reconciliation, deposits in transit should be __________.

added to the balance on the bank statement

Accrued assets are assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period. These assets represent rights to receive ---------- payments that are ---------- due at the balance sheet date.

future not

Step five of the accounting cycle is journalizing and posting adjusting entries. To do this, you should enter the adjusting entries in the --------- and post them to the appropriate ------------.

general journal ledger accounts

The ---------- show(s) the total amount of accounts receivable and accounts payable, but the details in the ---------- allow(s) companies to send bills to customers and pay bills to suppliers.

general ledger subsidiary ledgers

The objectives of the internal control structure of a company include all the following except __________. guarantee of a certain level of profit compliance with company policies and federal law protection of its assets increase in accuracy and reliability of accounting data

guarantee of a certain level of profit

The end-of-year closing process transfers (1) the balances in the ------------ to a clearing account called Income Summary and then to Retained Earnings, and (2) the balance in the ---------- to the Retained Earnings account.

revenue and expense accounts Dividends account