ACE- Quiz Module 3-4
The following transactions occurred during March, the first month of operations for Quality Galleries, Inc. * Capital stock was issued in exchange for $360,000 cash. * Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance. * Made a $35,000 cash payment on the note payable from the purchase of equipment. * Sold a piece of equipment for cash of $18,000. The equipment was sold at cost, so there is no gain or loss on the sale. What is the total owners' equity at the end of March?
$360,000.
Accumulated Depreciation is: An asset account. A revenue account. A contra-asset account. An expense account.
A contra-asset account.
Which of the following accounts normally has a debit balance? Accounts payable. Retained earnings. Accounts receivable. Service revenue.
Accounts receivable.
Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called: Revenue recognition. Accrual accounting. Conservatism. Matching.
Accrual accounting.
Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called: Revenue recognition. Accrual accounting. Conservatism. Matching.
Accrual accounting.
Accounts affected by adjusting journal entry
Accumulated Revenue, Accumulated expense, unearned revenue, prepaid expense, depreciation
contra asset
An account with a credit balance that is deducted from the related asset account on the balance sheet. ex: Accumulated Depreciation- Equipment
If the trial balance has a higher debit balance than credit balance, it signifies: Assets are more than liabilities. A profit. A loss. An error has been made.
An error has been made.
What type of account will normally contain a debit balance? Asset. Liability. Owners' equity. Revenue.
Asset
Normal balance accounts
Asset ↑ D = Liability ↓ C = Equity ↓L
What type of account will normally contain a debit balance? Asset. Liability. Owners' equity. Revenue.
Asset.
Which accounts have normal debit balances?
Assets Expenses losses owner's drawing account
Adjusting entries are prepared: Before financial statements and after a trial balance has been prepared. After a trial balance has been prepared and after financial statements are prepared. After posting but before a trial balance is prepared. Anytime an accountant sees fit to prepare the entries.
Before financial statements and after a trial balance has been prepared.
Adjusting entries are prepared: Before financial statements and after a trial balance has been prepared. After a trial balance has been prepared and after financial statements are prepared. After posting but before a trial balance is prepared. Anytime an accountant sees fit to prepare the entries.
Before financial statements and after a trial balance has been prepared.
Statement of cash flows consist of:
Cash flows from operating activities + Cash flows from investing activities + Cash flows from financing activities = Net change in cash + Beginning change in cash = Ending cash balance
Journal
Chronological list of events Includes: date, account name, amount debited, amount credited, description of transaction
Shop supplies are expensed when: Consumed. Purchased. Paid for. Ordered.
Consumed
Accounts that increase with Debits
DEA Dividend Expense Asset
The purchase of equipment on credit is recorded by a: Debit to Equipment and a credit to Accounts Payable. Debit to Accounts Payable and a credit to Equipment. Debit to Equipment and a debit to Accounts Payable. Credit to Equipment and a credit to Accounts Payable.
Debit to Equipment and a credit to Accounts Payable.
How to record liability
Debit to liability credit to asset
In a ledger, debit entries cause:
Decreases in liabilities, increase in assets, and decreases in owners equity
In a ledger, debit entries cause: Increases in owners' equity, decreases in liabilities, and increases in assets. Decreases in liabilities, increases in assets, and decreases in owners' equity. Decreases in assets, decreases in liabilities, and increases in owners' equity. Decreases in assets, increases in liabilities, and increases in owners' equity.
Decreases in liabilities, increases in assets, and decreases in owners' equity.
Unearned revenue may also be called: Net income. Deferred revenue. Unexpired revenue. Services rendered.
Deferred revenue.
Adjusting entries are only required when errors are made. True False
False
Adjusting entries are only required when errors are made. True False
False
An increase in a liability is recorded by a credit; an increase in owners' equity by a debit. True False
False
An increase in a liability is recorded by a credit; an increase in owners' equity by a debit. True false
False
At year end all equity accounts must be closed: True False
False
EVERY transaction WHICH AFFECTS an income statement account ALSO affects a balance sheet account. True False
False
Earning revenue increases owners' equity and expenses reduce owners' equity, therefore, revenues are recorded with debit entries and expenses are recorded with credit entries. True False
False
Earning revenue increases owners' equity and expenses reduce owners' equity, therefore, revenues are recorded with debit entries and expenses are recorded with credit entries. True False
False
The Cash account is usually affected by adjusting entries. True False
False
The Cash account is usually affected by adjusting entries. True False
False
The credit side of an account is the left side, while the debit side is the right side. True False
False
The failure to record an adjusting entry for depreciation would cause assets to be overstated and net income to be understated. True False
False
Unearned revenue is a liability and should be reported on the income statement. True False
False
Ledger
Groups all transactions of a particular account Reports account balances, T-Account (only if cash affected)
Internal control: policies and procedures
Helps make decisions Includes people and processes Captures, summarizes, and reports info about a business
Under accrual accounting, salaries earned by employees but not yet paid should be expensed: In the period in which they are earned. In the period in which they are paid. In the period with the higher earnings. In the period with the lower earnings.
In the period in which they are earned.
Under accrual accounting, salaries earned by employees but not yet paid should be expensed: In the period in which they are earned. In the period in which they are paid. In the period with the higher earnings. In the period with the lower earnings.
In the period in which they are earned.
DEA LER?
Increase with debits: Dividends Expenses Assets Increase with credits: Liabilities Equity Revenues
The concept of materiality: Treats as material only those items that are greater than 2% or 3% of net income. Justifies ignoring the matching principle or the realization principle in certain circumstances. Affects only items reported in the income statement. Results in financial statements that are less useful to decision makers because many details have been omitted.
Justifies ignoring the matching principle or the realization principle in certain circumstances.
Accounts that increase with Credits
LER Liabilities Equity Revenue
Which statement is true about land? Land should be depreciated over the same period as the building located on it. Land cannot be depreciated for greater than a 40-year period. Land should not be depreciated. The straight line method should be used to depreciate land.
Land should not be depreciated.
In accounting, the terms debit and credit indicate, respectively: Increase and decrease. Left and right. Decrease and increase. Right and left.
Left and Right
Which account have normal credit balances?
Liabilities revenues sales, gains owner equity stockholders' equity
Depreciation is: An exact calculation of the decline in value of an asset. Only an estimate of the decline in value of an asset. Only recorded at the end of a year and never over a shorter time period. Management must know the exact life of an asset in order to calculate an acceptable depreciation expense.
Only an estimate of the decline in value of an asset.
Depreciation is: An exact calculation of the decline in value of an asset. Only an estimate of the decline in value of an asset. Only recorded at the end of a year and never over a shorter time period. Management must know the exact life of an asset in order to calculate an acceptable depreciation expense.
Only an estimate of the decline in value of an asset.
Depreciation expense is: Only an estimate. An exact calculation prepared by an appraiser. Not to be calculated unless the exact life of an asset can be determined. To be determined for all assets owned by a company.
Only an estimate.
The purpose of making closing entries is to:
Prepare revenue and expense accounts for the recording of the next periods revenues and expenses
Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles: Business entity concept and realization principle. Cost principle and the accounting equation. Realization principle and matching principle. Matching principle and safety principle.
Realization principle and matching principle.
Which of the following is the accounting principle that governs the timing of revenue recognition? Realization principle. Materiality. Matching. Depreciation.
Realization principle.
Appear on an after closing trial balance:
Retained Earnings (permanent account)
close income summary and dividend accounts to:
Retained earnings
The principle that states revenue should be recognized at the time goods are sold or services rendered is called: Adequate disclosure. Conservatism. Matching. Revenue realization.
Revenue Realization
Temporary accounts
Revenue and gains, expense and losses, dividends, income summary
Balance sheet Covers
Specific date
Statement of returned earnings
Statement of RE= Beginning RE + NI - dividends = Ending RE
Which of the following errors would not be disclosed by preparation of a trial balance? An error was made in computing the balance of the Cash account. A journal entry included a debit to the Equipment account for $3,200, but this amount was erroneously posted as $2,300. During the posting process, a $1,700 debit to Cash was accidentally entered in the credit side of the Cash account. The journal entries recorded on the last day of the year have never been posted to the ledger.
The journal entries recorded on the last day of the year have never been posted to the ledger.
During the last month of its fiscal year, Echo Lake Resort accepted numerous deposits from customers. By the end of the month many, but not all, of these guests had completed their stays. The entry to record this event is an example of an adjusting entry: To apportion a recorded cost. To apportion unearned revenue. To record unrecorded expenses. To record unearned revenue.
To apportion unearned revenue.
A credit to a ledger account refers to the entry of an amount on the right side of an account. True False
True
A credit to a ledger account refers to the entry of an amount on the right side of an account. True False
True
A trial balance proves that equal amounts of debits and credits were posted to the ledger. True False
True
An expenditure that benefits the year in which it is made should be deducted from revenue in the same year. True False
True
The matching principle refers to the relationship between revenues and expenses. True False
True
The matching principle refers to the relationship between revenues and expenses. True False
True
The period of time over which the cost of an asset is allocated to depreciation expense is called its useful life. True False
True
The period of time over which the cost of an asset is allocated to depreciation expense is called its useful life. True False
True
When a company uses the double-entry method, the total dollar amount of debits recorded must equal the total dollar amount of credits recorded, but the number of debit and credit entries may differ. True False
True
When a company uses the double-entry method, the total dollar amount of debits recorded must equal the total dollar amount of credits recorded, but the number of debit and credit entries may differ. True False
True
Different trial balances
Unadjusted, adjusted & post-closing trial
The realization principle indicates that revenue usually should be recognized and recorded in the accounting records: When goods are sold or services are rendered to customers. When cash is collected from customers. At the end of the accounting period. Only when the revenue can be matched by an equal dollar amount of expenses.
When goods are sold or services are rendered to customers.
Under accrual accounting, fees received in advance from customers should be shown as being earned: When cash is collected. When services are performed or goods delivered. When tax rates are low. When tax rates are high.
When services are performed or goods delivered.
industry practices convention
accepted industry practices should be followed even if they differ from GAAP
Every transaction that affects the income statement affects the
balance sheet account
what are the 5 components of internal control system
control environment, risk assessment, control activities, info and communication, and monitor
Liabilities, Equity, and Revenues always have which type of balance
credit balance
close to expenses
credit it
Asset & Expense accounts always have which type of balance:
debit balance
Contra Equity has what kind of balance
debit balance
Contra Liabilities what kind of balances
debit balance
To close imcome summary
debit income summary credit retained earnings
close to revenue
debit it
How to record asset
debit to asset credit to liability or cash depending on how purchased
Deferrals
delay recognizing certain revenues and expenses on income statement until later
which account do you close last
divdends
what 4 principals are underlying financial reports
historical cost matching revenue recognition/ realization full disclosure
Adjusting entries
journal entries recorded to update general ledger at the end of a fiscal period
what are the three modifying conventions
materiality cost-benefit industry practices
cost-benefit convention
relaxes GAAP if cost exceeds benefitsindustry practices conventionindustry practices convention
materiality convention
relaxes GAAP requirements if impact is not large enough to influence decision
Revenue Realization
revenue recognized at the time of goods sold or services rendered.
what accounts are closed to income summary
revs and gains expense and losses
closing entries temporary accounts
revs and gains expenses and losses dividends income summery
what are the 4 accounting assumptions
separate economic entity going concern stable monetary unit periodicity
