Competency exam

An increase in a liability is recorded by a credit; an increase in owners' equity by a debit. True or False

False

At year-end, all equity accounts must be closed. True False

False

Dividends are an expense of a corporation and reduce both total assets and liabilities. TrueFalse

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 flows statement provides a link between two balance sheets by showing how net income (or loss) has changed owners' equity from one balance sheet date to the next. True or False

False

The collection of an account receivable will cause total assets to decrease. Group of answer choicesTrueFalse

False

The credit side of an account is the left side, while the debit side is the right side. TrueFalse

False

The need for adjusting entries results from timing differences between the receipt or disbursement of cash and the dates on the financial statements. True False

False

When making a general journal entry, there can only be one debit and one credit. Group of answer choicesTrueFalse

False

The accounting principle that assumes that a company will operate in the foreseeable future is: Going concern .Objectivity. Liquidity .Disclosure.

Going concern

The change in owners' equity from one balance sheet to the next is partially explained by the: Statement of cash flows. Statement of financial position. Income statement. Tax return.

Income statement

Revenues increase owners' equity and are, therefore, recorded by crediting the revenues account. True or False

True

The accounting equation may be stated as "assets minus liabilities equals owners' equity." True False

True

The adjusted trial balance contains income statement accounts and balance sheet accounts, while the after-closing trial balance will only have balance sheet accounts. True False

True

The going concern principle assumes that the business will continue indefinitely. Group of answer choicesTrueFalse

True

The matching principle refers to the relationship between revenues and expenses. True or 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 or False

True

Sally Smith had expenses of $800 in June which she paid in July. She declared these expenses on her June income statement. By doing this, she is following the accounting principle of: Revenue realization. Adequate disclosure. Matching. Conservatism.

matching

The payment of a liability causes an increase in owners' equity. Group of answer choicesTrueFalse

false

The realization principle states that the activities of an entity should be kept separate from those of its owner. True or false

false

Total assets plus total liabilities must equal total owners' equity. Group of answer choicesTrueFalse

false

A transaction is first recorded in which of the following accounting records? Trial balance. Ledger. General journal. Balance sheet.

general journal

At December 31, 2010, the accounting records of Hercules Manufacturing, Inc. contain the following items: If total assets of Hercules Manufacturing, Inc. are $556,000, Equipment is carried in Hercules Manufacturing accounting records at: Group of answer choices$377,000.$179,000.$150,000.$90,000. Accounts Payable 12 Land 90,000 Building 250,000 Notes Payable 135000 Retained Earnings ? Accounts Receivable 30,000 Cash 7000 Equipment ? Capital Stock 188000 ASSETS ARE CASH, EQUIPMENT, STOCK INVENTORY, MATERIALS, ACCOUNT RECEIVABLE, BUILDING EQUIPMENT

$179,000.

If total assets equal $270,000 and total liabilities equal $202,500, the total owners' equity must equal: Group of answer choices$472,500.$67,500.$270,000.Cannot be determined from the information given.

$67,500.

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.

A error has been made

Closing entries would be prepared before: Financial statements are prepared. A post-closing trial balance. An adjusted trial balance. Adjusting entries.

A post-closing trial balance.

A transaction caused an increase in both assets and owners' equity. This transaction could have been: A sale of service to a customer producing revenue. Sale of land for a price less than its cost. Borrowing money from a bank. Sale of land for cash at a price equal to its cost.

A sale of service to a customer producing revenue.

A trial balance consists of: A two-column schedule of all debit and credit entries posted to ledger accounts. A two-column financial statement intended for distribution to interested parties outside the business. A two-column schedule showing the totals of all debits and of all credits made in journal entries. A two-column schedule listing names and balances of all ledger accounts.

A two-column schedule listing names and balances of all ledger accounts.

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

The essential point of a double-entry system of accounting is that every transaction: Affects accounts on both sides of the balance sheet. Is recorded in both the journal and the ledger. Increases one ledger account and decreases another. Affects two or more ledger accounts and is recorded by an equal dollar amount of debits and credits.

Affects two or more ledger accounts and is recorded by an equal dollar amount of debits and credits.

Which of the following is correct when a corporation uses cash to pay for an expense? Total assets will decrease. Retained earnings will decrease. Owners' equity will decrease. All three of the above statements are correct.

All three of the above statements are correct.

Which of the following best defines an asset? Something with physical form that is valued at cost in the accounting records. An economic resource owned by a business and expected to benefit future operations. An economic resource representing cash or the right to receive cash in the near future. Something owned by a business that has a ready market value.

An economic resource owned by a business and expected to benefit future operation

A revenue transaction results in all of the following except: An increase in assets. An increase in owners' equity. A positive cash flow in either the past, present, or future. An increase in liabilities.

An increase in liabilities.

A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger. True or False

False

If a transaction causes an asset account to decrease, which of the following related effects may occur? Group of answer choices An increase of equal amount in an owners' equity account. An increase in a liability account. An increase of equal amount in another asset account. An increase in the combined total of liabilities and owners' equity.

An increase of equal amount in another asset account.

The principle of adequate disclosure means that a company should disclose: Only the important monetary information. All confidential information regarding the company. Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements. Only subsequent events.

Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements.

The way in which financial statements relate is known as: Group of answer choices Solvency. Objectivity .Articulation .Entity.

Articulation

What type of account will normally contain a debit balance? Asset. Liability. Owners' equity. Revenue.

Asset.

A cash flows statement reports all revenue and expense activities for a specific time period such as one month or one year. True or False

False

Which of the following accounts normally does not have a debit balance? Group of answer choicesDividends.Wage Expense.Building.Capital Stock.

Capital Stock

Converting Liabilities to Revenue such as unearned revenue

Debit the liability (unearned revenue) and credit the related liability (Revenue earned) ensure liabilities on the balance sheet are not overstated

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.

converting assets to expenses such as supplies, prepaid expenses or depreciable fixed assets

Debit to expense and credit to asset ensure assets on the balance sheet are not overstated

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.

Decreases in owners' equity are caused by: Purchases of assets and payment of liabilities. Purchases of assets and incurrence of liabilities. Payment of liabilities and unprofitable operations. Distributions of assets to the owner and unprofitable operations.

Distributions of assets to the owner and unprofitable operations.

Collection of an accounts receivable: Increases the total assets of a company. Decreases the total assets of a company. Does not change the total assets of a company. Reduces a company's total liabilities.

Does not change the total assets of a company.

Owners' equity in a business increases as a result of which of the following? Payments of cash to the owners. Losses from unprofitable operation of the business. Earnings from profitable operation of the business. Borrowing from a commercial bank.

Earnings from profitable operation of the business.

The normal order in which the financial statements are prepared is: Balance sheet, income statement, statement of retained earnings. Income statement, statement of retained earnings, balance sheet. Income tax return, income statement, balance sheet. Income statement, statement of cash flows, balance sheet.

Income statement, statement of retained earnings, balance sheet.

In accounting, the terms debit and credit indicate, respectively: Increase and decrease. Left and right. Decrease and increase. Right and left.

Left and right

Owners' equity in a business decreases as a result of which of the following? Investments of cash by the owners. Profits from operating the business .Losses from unprofitable operation of the business. Repaying a loan to a commercial bank.

Losses from unprofitable operation of the business.

Which of the following activities is not a category into which cash flows are classified? Marketing activities. Operating activities. Financing activities. Investing activities.

Marketing activities.

After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end? a. Net income is overstated and the balance in the Retained Earnings account is correct. b. Net income is correct and the balance in the Retained Earnings account is overstated. c. Net income is understated and the balance in the Retained Earnings account is understated. d. Net income is understated and the balance in the Retained Earnings account is overstated.

Net income is correct and the balance in the Retained Earnings account is overstated.

The income summary account has debits of $85,000 and credits of $75,000. The company had which of the following: Net income of $10,000. Net income of $160,000. Net loss of $10,000. Net loss of $160,000.

Net loss of $10,000.

A strong statement of cash flows indicates that significant cash is being generated by: Operating activities. Financing activities. Investing activities. Effective tax planning.

Operating activities

Deerpark Corporation recently borrowed $70,000 cash from its bank. Which of the following was unaffected by this transaction? Group of answer choicesAssets.Liabilities.Owners' equity.Cash.

Owners' equity.

An expense is best defined as: Any payment of cash for the benefit of the company. Past, present, or future payments of cash required to generate revenues. Past payments of cash required to generate revenues. Future payments of cash required to generate revenues.

Past, present, or future payments of cash required to generate revenues.

Which account will appear on an after-closing trial balance? Dividends. Prepaid Expenses. Retained Earnings, at the beginning of the period. Sales.

Prepaid Expenses.

Which of the following is the primary objective of financial statements? Group of answer choicesProviding managers with detailed information tailored to the managers' specific information needs.Providing users outside the business organization with information about the company's financial position and operating results.Reporting to the Internal Revenue Service the company's taxable income.Indicating to investors in a particular company the current market values of their investments.

Providing users outside the business organization with information about the company's financial position and operating results.

Dividends declared: Reduce retained earnings. Increase retained earnings. Reduce net income. Increase net income.

Reduce retained earnings.

The Retained Earnings statement is based upon which of the following relationships? Retained Earnings - Net Income - Dividends. Retained Earnings - Net Income + Dividends. Retained Earnings + Net Income + Dividends. Retained Earnings + Net Income - Dividends.

Retained Earnings + Net Income - Dividends.

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is: Accounts receivable. Cash. Capital stock. Retained earnings.

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

The following entry appears in Martin Supply's general journal on March 10, 2010:Accounts Receivable...................... 35,000Cash............................................... 21,000Equipment.......................... 56,000This transaction involves: Martin's collection of $35,000 on an account receivable. Payment of $21,000 cash by Martin. A $21,000 overall increase in Martin's assets. Sale of equipment by Martin for $56,000.

Sale of equipment by Martin for $56,000.

Which of the following accounts normally has a credit balance? Cash. Service revenue. Accounts receivable. Utilities expense.

Service Revenue

At the end of October, Flagship Marina received a bill for fuel used in October. Payment is not due until November 30. This transaction: Should not be recorded in the accounting records until November. Causes a decrease in assets and in owners' equity in November, when the bill is paid. Should be recorded as an expense of October, regardless of the payment date. Is recorded as a liability in October, but is not considered an expense until paid.

Should be recorded as an expense of October, regardless of the payment date.

Which one of the following is not considered one of the three primary financial statements? Balance sheet. Income statement. Statement of cash flows. Statement of budgeting activities.

Statement of budgeting activities

A balance sheet is designed to show: Group of answer choices How much a business is worth. The profitability of the business during the current year. The assets, liabilities, and owners' equity of a business as of a particular date. The cost of replacing the assets and of paying off the liabilities at December 31.

The assets, liabilities, and owners' equity of a business as of a particular date.

Retained earnings appears on: The income statement. The balance sheet. The statement of cash flows. All three of the financial statements.

The balance sheet.

Each year, the accountant for Southern Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates: Group of answer choices The accounting equation. The stable-dollar assumption. The business entity concept. The cost principle.

The cost principle

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.

The amount of owners' equity in a business is not affected by: The percentage of total assets held in cash. Investments made in the business by the owner. The profitability of the business. The amount of dividends paid to stockholders.

The percentage of total assets held in cash.

A trial balance that is out of balance indicates that: The number of ledger accounts with debit balances is not equal to the number of accounts with credit balances. A debit has been posted to the wrong account. There is not an equality of debit and credit amounts in the ledger. A journal entry has been completely omitted from the posting process.

There is not an equality of debit and credit amounts in the ledger.

If a company purchases equipment for cash: Assets will increase and owners' equity will also increase. Assets will increase and owners' equity will decrease. Assets will increase and owners' equity will remain unchanged. Total assets and owners' equity will remain unchanged.

Total assets and owners' equity will remain unchanged.

If a company purchases equipment for $65,000 by issuing a note payable: Group of answer choices Total assets will increase by $65,000. Total assets will decrease by $65,000. Total assets will remain the same. The company's total owners' equity will decrease.

Total assets will increase by $65,000.

Which of the following is correct if a company purchases equipment for $70,000 cash? Group of answer choices Total assets will increase by $70,000. Total assets will decrease by $70,000. Total assets will remain the same. The company's total owners' equity will decrease.

Total assets will remain the same.

The collection of an account receivable is recorded by a debit to Cash and a credit to Accounts Payable. If this error is not corrected Total liabilities are understated. Total assets are understated. Total liabilities are overstated. Owners' equity is overstated.

Total liabilities are overstated.

Posting is the process of: Transferring debit and credit entries from the journal into the appropriate ledger accounts. Determining that the dollar amount of debit entries recorded in the ledger is equal to the dollar amount of credit entries. Entering information into a computerized data base. Preparing journal entries to describe each business transaction.

Transferring debit and credit entries from the journal into the appropriate ledger accounts.

A credit to a ledger account refers to the entry of an amount on the right side of an account. True or False

True

A transaction that causes an increase in an asset may also cause a decrease in another asset, an increase in a liability, or an increase in owners' equity. True or False

True

A trial balance proves that equal amounts of debits and credits were posted to the ledger. True or False

True

Articulation between the financial statements means that they relate closely to each other. True or false

True

Every transaction which affects an income statement account also affects a balance sheet account. True or False

True

Financial statements are usually prepared before the closing entries are made. True False

True

Financial statements are usually prepared before the closing entries are made. true or false

True

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.

Adjusting entries are needed: Whenever revenue is not received in cash. Whenever expenses are not paid in cash. Only to correct errors in the initial recording of business transactions. Whenever transactions affect the revenue or expenses of more than one accounting period.

Whenever transactions affect the revenue or expenses of more than one accounting period.

Accuring Uncollected Revenue

debit to asset and credit to a revenue account helps ensure that revenue on income statement are not understated

Accuring Unpaid Expenses

debit to expense account and credit to liability or equity account helps ensure that expenses on the income statement are not understated

A business entity is regarded as separate from the personal activities of its owners whether it is a sole proprietorship, a partnership, or a corporation. Group of answer choicesTrueFalse

true

The entity principle states that the affairs of the owners are not part of the financial operations of a business entity and should be separated. Group of answer choicesTrueFalse

true