ACCOUNTING MIDTERM 6-9

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True

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt.

False

The basic principles of an accounting information system are cost awareness, usefulness, and fixed structure.

True

The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.

False

Accounts receivable are the result of cash and credit sales.

True

Allowance for Doubtful Accounts is a contra asset account.

True

Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale

True

Companies use a petty cash fund to pay relatively small amounts.

True

Goods out on consignment should be included in the inventory of the consignor.

True

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

True

Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets and to enhance the accuracy and reliability of its accounting records.

True

A one-column purchases journal is used to record purchases of merchandise on account.

True

A subsidiary ledger provides up-to-date information on specific account balances.

True

An accounting information system involves data collection, data processing, and information dissemination.

True

An accounting information system should be cost effective; that is, the benefits of the information must outweigh the cost of providing it.

False

An accounts receivable subsidiary ledger has all the detailed information about the cash sales to individual customers.

True

Control accounts are always located in the general ledger.

False

Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

True

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records.

False

Inventory turnover is calculated as cost of goods sold divided by ending inventory.

False

Only large companies need to be concerned with a system of internal control.

False

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

True

Receivables may be sold because they may be the only reasonable source of cash.

False

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

True

The accounts payable subsidiary ledger provides detailed information about amounts owed to creditors.

True

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

True

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

True

The safeguarding of assets is an objective of a company's system of internal control.

True

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

True

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.

True

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

True

Each general ledger control account balance must equal the composite balance of the individual accounts in the related subsidiary ledger at the end of an accounting period.

True

Enterprise resource planning systems integrate all aspects of the organization, including accounting, sales, human resource management, and manufacturing.

True

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

True

In general, documents should be prenumbered and all documents should be accounted for.

True

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

True

The lack of agreement between the bank balance and the book balance is due to time lags and errors.

True

The maturity date of a 1-month note receivable dated June 30 is July 30.

False

The more inventory a company has in stock, the greater the company's profit.

True

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

False

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days.


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