Financial Accounting Practice Exam #1

Which financial statement answers the following question: How well did the company perform during the year? statement of cash flows statement of retained earnings income statement balance sheet

income statement

The CORRECT data flow from one financial statement to the next is: statement of retained earnings, income statement, statement of cash flows, balance sheet. balance sheet, statement of retained earnings, income statement, statement of cash flows. statement of retained earnings, income statement, balance sheet, statement of cash flows. income statement, statement of retained earnings, balance sheet, statement of cash flows.

income statement, statement of retained earnings, balance sheet, statement of cash flows.

a company received cash in exchange for issuing stock. This transaction increased assets &:

increases revenues

In order to see a complete transaction in one place, you would need to look at the: trial balance. ledger. financial statements. journal.

journal

A chart of accounts: a.must be the same for all organizations. b.lists all of the accounts of an organization in alphabetical order. c.lists all of an organization's accounts and account numbers. d.is used by an organization to determine the balance in all of their accounts.

lists all of an organization's accounts and account numbers.

All of the following accounts would be considered assets EXCEPT for: Prepaid Expenses. Cash. Retained Earnings. Notes Receivable.

retained earnings

The first step in recording a transaction in the journal is: copying the information from the journal to the ledger. specifying each account affected by the transaction and classifying the account by type. determining whether each account is increased or decreased by the transaction. entering the debit side of the journal entry on the left margin and the credit side, which is indented to the right.

specifying each account affected by the transaction and classifying the account by type.

An investor, wishing to assess the reasons for a change in retained earnings over a period of a year, would probably examine the: balance sheet. income statement only. statement of cash flows and the income statement. statement of retained earnings.

statement of retained earnings

The beginning retained earnings balance is found on the: balance sheet. income statement. statement of retained earnings. both the statement of retained earnings and the balance sheet.

statement of retained earnings

Which of the following transactions will increase one asset and decrease another asset? the performance of services on account the performance of services for cash the purchase of equipment for cash the purchase of office supplies on account

the purchase of equipment for cash

The trial balance is used to determine if: total debits of the balance sheet accounts equal the total credits of the balance sheet accounts. total assets equal total liabilities. total debits of all the accounts equal total credits of all the accounts. total debits of the income statement accounts equal the total credits of the income statement accounts.

total debits of all the accounts equal total credits of all the accounts.

A trial balance has which of the following features? totals for all accounts listed in the ledger totals for income statement accounts only totals for balance sheet accounts only Accounts are listed in alphabetical order.

totals for all accounts listed in the ledger

Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements, such as creditors. This qualitative characteristic of information is called: relevant. verifiability. faithful representative. understandability

understandibilty

Under accrual accounting, revenue is recorded: when the cash is received, regardless of when the services are performed. only if the cash is received at the same time the services are performed. when the services are performed, regardless of when the cash is received. at the end of every month.

when the services are performed, regardless of when the cash is received.

The revenue principle deals with the following: where to record revenue and the amount of revenue to record. when to record revenue and the amount of revenue to record. when to record revenue and when to record related expenses. when to record revenue and where to record this revenue.

when to record revenue and the amount of revenue to record.

The accounting equation can be stated as: Assets - Stockholders' Equity + Liabilities = Zero. Assets + Stockholders' Equity = Liabilities. Assets = Liabilities - Stockholders' Equity. Assets -Liabilities = Stockholders' Equity.

Assets -Liabilities = Stockholders' Equity

All of the following are expenses EXCEPT for: Cost of products and services. Dividends. Depreciation Expense. Salary Expense.

Dividends.

Which of the following is a CORRECT statement about the two bases of accounting? Cash-basis accounting records expenses only at the end of the month. Cash-basis accounting records revenues when they are earned. Only the largest companies in the United States use accrual accounting. GAAP requires accrual accounting.

GAAP requires accrual accounting.

When preparing the financial statements, why is the income statement prepared first? he income statement is the most important statement to investors and creditors. Net income or net loss from the income statement is used for the statement of retained earnings. The income statement is used to prepare the balance sheet. The income statement is the easiest statement to prepare.

Net income or net loss from the income statement is used for the statement of retained earnings.

On a classified balance sheet: Notes Payable due in one year is a current liability. Accounts Receivable is a current liability. Salaries Payable is a long-term liability. Dividends is a current asset.

Notes Payable due in one year is a current liability.

What is the last step in the journalizing process? Record the transaction in the journal. Specify each account affected by the transaction and classify each account by type. Post the journal entry to the ledger. Determine whether each account is increased or decreased by the transaction.

Record the transaction in the journal

Which of the following statements, regarding the rules of debits and credits, is CORRECT? An asset is increased by a credit. Revenue is increased by a credit. Common stock is increased by a debit. A liability is increased by a debit.

Revenue is increased by a credit

Which of the following is a TRUE statement regarding expenses? The expense recognition principle recognizes expenses in the same period in which the related revenues are earned. Expenses represent future benefit to the company. Expenses will never result in the creation of a liability account. The critical event for recording salary expense is the payment of cash.

The expense recognition principle recognizes expenses in the same period in which the related revenues are earned.

A record of all the changes in a particular asset during a period of time is found in a(n): account. transaction. trial balance. prior period's balance sheet.

account

When services are performed on account: accounts receivable is increased. revenue will not be recorded until the cash is received from the customer. accounts payable is increased. cash is increased.

accounts receivable is increased.

Accounting: is often called the language of business. measures business activities. processes data into reports and communicates the data to decision makers. is all of the above.

all of the above

The balance sheet reports: revenues and expenses. assets, liabilities and stockholders' equity. assets, liabilities, revenues and expenses. the changes in retained earnings.

assets, liabilities and stockholders' equity

Which financial statement answers the following question: What is the company's financial position at fiscal year end? statement of cash flows balance sheet statement of retained earnings income statement

balance sheet

When a business purchases land with a note payable: both assets and stockholders' equity are increased. assets are increased and liabilities are decreased. assets are decreased and stockholder's equity is increased. both assets and liabilities are increased.

both assets and liabilities are increased

Entries are listed in the journal: chronologically. in order of importance. with income statement accounts first and then balance sheet accounts. alphabetically.

chronologically

The normal balance of a revenue account is a ________ because revenues increase ________. credit; assets credit; retained earnings debit; retained earnings debit; expenses

credit; retained earnings

An important rule of debits and credits is: debits decrease asset accounts. debits increase liability accounts. credits increase asset accounts. credits increase revenue accounts.

credits increase revenue accounts

When preparing the financial statements of a company: liabilities are not classified on the balance sheet. the income statement can be prepared using the multi step or report format. current assets are the most liquid assets. the balance sheet must be prepared using the account format.

current assets are the most liquid assets.

The left side of a T-account is always the: decrease side. credit side. increase side. debit side.

debit side

The normal balance of an expense account is a ________ because expenses decrease ________. debit; assets debit; expenses debit; retained earnings credit; retained earnings

debit; retained earnings

Liabilities are: a form of paid-in capital. debts payable to outsiders called creditors. future economic benefits to which a company is entitled. the outflow of resources that decrease common stock.

debts payable to outsiders called creditors.

The conceptual foundation of accounting does NOT include: decision making. accounting objectives. fundamental qualitative characteristics. enhancing qualitative characteristics.

decision making

The two types of accounting are: internal and external. bookkeeping and decision-oriented. profit and nonprofit. financial and managerial.

financial and managerial

A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual accounting, the doctor recognizes revenue:

in March