Small Business Accounting Review Questions

A limited liability company may choose to be taxed as a partnership or corporation.

True?

If a journal entry that contains an error has been posted, erase the entry and change the posting in the ledger accounts.

True?

Which of the following is not a current asset?

a note receivable due in 13 months

Which financial statement would indicate whether there is enough cash to purchase new equipment and how much money is owed to suppliers?

balance sheet

Who pays the social security tax?

both employee and employer

In a compound journal entry:

both if two accounts are debited at least one account must be credited and total debits must equal total credits are correct.

Posting references are made in ledger accounts and in the journal to:

both indicate the entry has been posted and ensure against posting the same information twice are correct.

Checks and invoice numbers are included in the journal entry description to:

both provide an audit trail and trace information through the accounting system are correct.

On the bank reconciliation statement, you would not find a list of:

canceled checks.

The general journal organizes accounting information in:

chronological order.

The purpose of the second closing entry is to

close expense accounts and cost of goods sold accounts with debit balances.

Accumulated Depreciation—Equipment is a(n):

contra asset account.

Which of the following is not an example of good internal control over cash payments?

make all payments from petty cash instead of using checks

Which items are considered cash?

money orders currency funds on deposit in the bank

The Income Summary account is a temporary

owner's Equity account.

An organization that has two or more owners who are legally responsible for the debts and taxes of the business is a:

partnership.

Details related to all employees' gross earnings, deductions, and net pay for a period are found in the

payroll register.

Which of the following would not be classified as Plant and Equipment on a balance sheet?

prepaid insurance

The fourth step in the accounting cycle is to

prepare a worksheet.

The journal is referred to as the:

record of original entry.

After closing, which accounts have zero balances?

revenue, drawing, and expense accounts

What information is contained in the income statement?

revenues and expenses for a period.

All of the following are users of accounting information except: banks and suppliers. owners and managers. search engines on a website. tax authorities and regulatory agencies.

search engines on a website.

An error in which the decimal point is misplaced, for example when 317 is written as 3.17 is an example of a:

slide.

A nonprofit organization such as a public school is a(n):

social entity.

Which tax is paid equally by the employee and employer?

social security tax

Which factor(s) does not determine the amount of federal income tax to be withheld from an employee's earnings?

state where employee lives

Which of the reasons reflected below is the most accurate for including descriptions when making journal entries? the audit trail will be more difficult to follow. the audit trail will be easier to follow. to eliminate the need for recording the transaction. to substitute for recording the transaction.

the audit trail will be easier to follow.

Once an incorrect journal entry has been posted, the incorrect amounts remain in the general ledger accounts.

False

The worksheet is a tool that aids in the preparation of the financial statements. Any changes in account balances recorded on the worksheet are not shown in the general journal and the general ledger until the adjusting entries have been journalized and posted.

True

Kelley Company has beginning inventory of $125,000, purchases of $950,000, purchases returns and allowances of $25,000, freight-in of $10,000, and ending inventory of $118,000. What is the amount of the cost of goods sold?

$942,000

Roberto Company has sales of $1,000,000, sales returns and allowances of $10,000, sales discounts of $2,000, and salary expense—sales of $120,000. What is the amount of net sales?

$988,000

Pauline Palmer began a new business by depositing $100,000 in the business bank account. She wrote two checks from the business account: $20,000 for office furniture and $5,000 for office supplies. What is her financial interest in the company?

$100,000

Zena Brown has the following balances in its assets, liability, and owner's equity accounts. Cash ????Office Equipment$26,500Accounts Payable$30,300Zena Brown, Capital$115,700 What is the balance of Cash?

$119,500

Chen Company has net sales of $500,000, cost of goods sold of $300,000, and interest expense of $10,000. What is the amount of gross profit on sales?

$200,000

Precision Drilling has the following balances in its assets and liability accounts. Cash$175,000Office Equipment$53,500Accounts Payable$27,900Avion Canada, Capital ???? What is the balance of Avion Canada, Capital?

$200,600

Oriental Rugs has no liabilities. The assets and owner's equity balances are as follows. Cash$150,000Office Equipment$50,000Supplies ????Johnny Johnson, Capital$230,000 What is the balance of Supplies?

$30,000

Three years ago, Overnight Delivery bought a delivery truck for $80,000. The truck has no salvage value and a five-year useful life. What is the book value of the truck at the end of three years?

$32,000

Based on the accounts reflected below, the missing value for Equipment for the fundamental accounting equation to be in balance is what amount? Assume that all accounts have normal balances. Cash—$30,800Accounts Payable—$20,000Jack Carter, Capital—$60,000Equipment—$XX,XXXSupplies—$9,200

$40,000

the firm's name (who); title of the statement (what); time period covered (when).

$45,000 increase

Stacy Carter worked 48 hours during the week ending November 17. Her regular rate is $9 per hour. Calculate her gross earnings for the week.

$468

The balance of James Wilson, Capital at the beginning of the period was $50,000. During the period, his company had net income of $40,000, and he withdrew $35,000 from the business for personal use. What is the amount of the James Wilson, Capital account at the end of the accounting period?

$55,000

Find the balance of the Cash account: Cash + − 72,000 24,000 44,000 10,000 10,400 4,700

$66,900

Sara's Beauty Salon keeps a $100 change fund. At the end of the day, sales per the register tape were $885, and the cash count was $992. What is the amount of the cash shortage or overage?

$7 over

The following data were taken from a firm's bank reconciliation statement: book balance, $7,910; deposit in transit, $150; NSF check from a customer, $200; outstanding checks, $5,000; bank service charge, $10. Its adjusted book balance is:

$7,700.

Home Interiors has assets of $120,000 and liabilities of $45,000. What is the owner's equity?

$75,000

Paxton Office Supply Company purchased equipment for $80,000. Depreciation Expense for the month is $1,600. What is the balance of the Equipment account after posting the depreciation entry?

$80,000

What is "time and a half"?

150% times employee base rate of pay

Which of the following are features of online banking? A business can receive electronic funds transfers from customers. A business can deposit checks using a dedicated scanner. A business can receive alerts from the bank via text for unusual account activity. All of these are features of online banking.

All of these are features of online banking.

Which of the following accounts will not appear on the postclosing trial balance? B. J. Hall, Drawing B. J. Hall, Capital Accounts Payable Cash

B. J. Hall, Drawing

On a worksheet, the adjusted balance of the Supplies account is extended to the:

Balance Sheet Debit column.

Prepaid Expenses are adjusted at the end of the accounting period in order to:

Both properly reflect the remaining cost of the asset available for use by the business and properly reflect the portion of the cost of the asset used by the business are correct.

The Certified Bookkeeper exam includes all the parts below except: Adjustments and Error Corrections. Inventory. Payroll and Depreciation. Business Law.

Business Law.

After the closing entries are posted, which account normally has a balance other than zero?

Capital

Which of the following is true for the Cash Short or Over account? Cash Short or Over is debited when there is a cash overage. The Cash Short or Over account has a normal credit balance. The Cash Short or Over account has a normal debit balance. Cash Short or Over is debited when there is a cash shortage.

Cash Short or Over is debited when there is a cash shortage.

What accounts are affected when payroll checks are written?

Cash is credited for net earnings.

The CPA designation stands for:

Certified Public Accountant.

The company owner took $5,000 cash for personal use. What is the entry for this transaction?

Debit Caleb Parker, Drawing and Credit Cash

What is (are) a good reason(s) for using a payroll bank account for payroll that is separated from your operating bank account?

Easier to find an individual's payroll transaction if check is lost. Easier to audit payroll transactions. Quicker bank reconciliation of payroll checking account.

How are social security benefits financed?

Employees and employers both fund social security.

How are unemployment insurance benefits financed?

Employers pay the entire tax based on an amount determined by state and federal governments.

Elizabeth Tolliver purchased a computer for $6,700 on account for her business. What is the effect of this transaction?

Equipment increase of $6,700 and Accounts Payable increase of $6,700.

The Richey Company purchased new equipment for $40,400 from Office Supplies, Inc., to be paid in 30 days. Which of the following is correct?

Equipment is increased by $40,400; Accounts payable is increased by $40,400.

Which one of the following is not a required deduction from payroll required by federal law? Social security tax Medicare tax Federal income tax FUTA tax

FUTA tax

Generally accepted accounting principles are not needed to ensure that financial information is fairly presented in the operating results and financial positions of firms.

False

Which of the following is recorded on an individual earnings record?

Gross earnings each pay period. Federal income tax withheld each pay period. Social security tax withheld each pay period.

Why does a payee endorse a check before depositing it?

It is the legal process by which the payee transfers ownership of the check to the bank.

Which account has a normal debit balance? Accounts Payable Fees Income Jeffery Wells, Capital Jeffery Wells, Drawing

Jeffery Wells, Drawing

Adjusting Entries are:

Journal Entries made to update accounts for previously unrecorded items.

Which of these bank reconciliation items require journal entries?

NSF check from a customer

After the revenue and expense accounts are closed, Income Summary has a credit balance of $80,000. What does this figure represent?

Net profit of $80,000

The business owner removes supplies that are worth $1,200 from the company stockroom. She intends to take them home for personal use. What effect will this have on the company's net income?

No effect on net income.

To become a Certified Bookkeeper, one must meet all requirements below except: Pass the national certified bookkeeper exam. Sign a code of ethics. Pass a criminal background check. Submit evidence that you satisfy the experience requirements for the designation.

Pass a criminal background check.

On January 1, a firm paid $42,000 for six months' rent, January through June. What is the adjustment for rent expense at the end of January?

Rent Expense is debited for $7,000 and Prepaid Rent is credited for $7,000.

The organization that has the final say on financial accounting issues faced by publicly owned corporations is the:

Securities and Exchange Commission.

Which of the following accounts would not appear on the postclosing trial balance?

Supplies Expense

A firm paid $9,000 for supplies during the accounting period. At the end of the accounting period, the firm had $5,800 of supplies on hand. What adjustment is entered on the worksheet?

Supplies Expense is debited for $3,200 and Supplies is credited for $3,200.

How does a business deposit federal payroll taxes?

The deposit is made at a national bank by the company.

Which of the following is not an example of good internal control over cash receipts?

The same individual who handles and records cash receipts should prepare the bank reconciliation.

If an owner gives personal tools to the business, how is the transaction recorded?

This is an additional investment by the owner recorded at the fair market value of the tools.

Fraud is intentional or reckless acts that result in the confiscation of a firm's assets or the misrepresentation of the firm's accounting data.

True

Generally accepted accounting principles are accounting standards that are changed and refined in response to changes in the environment in which businesses operate.

True

Generally accepted accounting principles are developed by the Financial Accounting Standards Board (FASB) through proposed statements and solicitation of feedback from interested individuals, groups, and companies. Subsequently, the FASB evaluates the opinions received and votes on the statements.

True

One requirement for becoming a CPA is to pass the:

Uniform CPA Examination

Which of the following would be considered a cash equivalent? a note receivable from a customer with a maturity of six months a note receivable from a customer with a maturity of three months a certificate of deposit with a maturity of three months a certificate of deposit with a maturity of six months

a certificate of deposit with a maturity of three months

Which transaction below increases an asset and the owner's equity? a purchase of equipment on credit. payment of rent with cash. a purchase of equipment with cash. a sale of merchandise on credit.

a sale of merchandise on credit.

The general ledger organizes accounting information in:

account order.

Amounts that a business must pay in the future are known as:

accounts payable.

Financial statements are:

accumulated financial data summarized in periodic reports.

Which of these is not a general and administrative expense?

advertising expense

A reversing entry is made for an end-of-period adjustment that recorded:

an accrued expense that involves future cash payments.

A business transaction is:

any financial event that changes the resources of the firm.

How should purchases returns and allowances be shown on the income statement?

as a deduction from the delivered cost of purchases

Petty Cash is categorized as a(n):

asset

What accounts appear on the postclosing trial balance?

asset, liability, and the owner's capital accounts

What information is contained on the balance sheet?

assets, liabilities, and owner's equity on a specific date.

Which financial statement would indicate how much customers owe to the business?

balance sheet

How would the receipt of a $62 refund for supplies returned be recorded in a general journal? The supplies were paid for with cash.

debit Cash, credit Supplies

Which of the following records the receipt of a promissory note from a customer with an overdue accounts receivable balance? debit Accounts Receivable, credit Notes Receivable debit Cash, credit Accounts Receivable debit Notes Receivable, credit Accounts Receivable debit Cash, credit Notes Receivable

debit Notes Receivable, credit Accounts Receivable

Which of the following is the journal entry to record the establishment of a petty cash fund? debit Petty Cash, credit Cash Correct debit Cash, credit Petty Cash debit Petty Cash, credit Accounts Payable debit Accounts Payable, credit Petty Cash

debit Petty Cash, credit Cash

Which journal entry could be used to record the replenishment of the petty cash fund?

debit Supplies, debit Delivery Expense, credit Cash

What is the journal entry to close the drawing account?

debit the Capital account and Credit the Drawing account.

Increases are recorded on which side of asset, liability, and owner's equity accounts?

debit, credit, credit respectively

The part of the journal entry to be recorded first is the:

debit.

What affect do withdrawals have on the basic accounting equation?

decrease the owner's equity in the business.

On the bank reconciliation, outstanding checks should be:

deducted from the balance on bank statement.

Which of the following does not require an adjustment to the financial records? bank service charge deposits in transit check that was incorrectly recorded by the firm at $115 but was paid by the bank at its correct amount of $1,115 NSF check from a customer

deposits in transit

A general journal is like a(n):

diary.

What is the term for the person or firm issuing a check?

drawer

Employers usually record social security taxes in the accounting records at the end of:

each payroll period.

The purpose of FUTA is to provide benefits for

employees who become unemployed.

All of the following are goals of internal control except: fraud prevention. encourage noncompliance with management policies and applicable laws. policies and procedures to safeguard assets. ensure reliability of accounting data.

encourage noncompliance with management policies and applicable laws.

On the report form balance sheet, the liabilities and owner's equity are listed to the right of the assets. On the account form, the liabilities and owner's equity are listed under the assets.

false

The sum of several entries on either side of an account that is entered in small pencil figures is a:

footing.

What does being classified an "exempt" employee mean?

generally speaking, not eligible for any overtime pay

A worksheet:

has five sections: trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. is a form to facilitate the efficient preparation of the financial statements. is a form used to gather all data needed at the end of the account period to prepare the financial statements.

Which of the following affects the amount of Medicare tax to be withheld from an hourly rate employee's pay?

hours worked resulting in higher gross pay

The trial balance includes all the following except: balances of all accounts. list of all accounts. income or loss for the period. equality of debits and credits.

income or loss for the period.

Which financial statement would indicate total revenues, total expenses, and whether the business had a net income or net loss?

income statement

The normal balance of an account is the:

increase side of the account.

What are the last three steps (7th, 8th, and 9th) in the accounting cycle?

journalize and post closing entries, prepare a postclosing trial balance, interpret the financial statements.

The second step in the accounting cycle is to:

journalize the transaction.

Equipment is increased by $40,400; Accounts payable is increased by $40,400.

left, right, right respectively

The normal balance side for asset, liability, and owner's equity accounts is:

left, right, right respectively.

All the following information is contained on the statement of owner's equity except? owner's equity at the beginning and end of the period. liabilities at the beginning and end of the period. withdrawals and additional investments for the period. net income or net loss for the period.

liabilities at the beginning and end of the period.

Payroll deductions are recorded in a separate

liability account.

The names of three accounting jobs include all but: accountant. bookkeeper. accounts payable clerk. logistics manager.

logistics manager.

As the owner of a small business, you have decided to apply for a loan to expand your locations. Information that you most likely will need to provide to the lender include all but: the cost of the expansion. current sales and expense figures. projected sales and expense figures. the average value of homes in your neighborhood.

the average value of homes in your neighborhood.

You plan to open a business with two of your friends. You would like to form a corporation, but your friends prefer the partnership form of business. All of the following are advantages of the corporation except:

the corporation's earnings are only taxed once.

All of the following amounts appear on the statement of owner's equity except: the beginning and ending balance of owner's equity. the fair market value of the net assets of the business. net income or net loss for the period. additional investments by the owner for the period.

the fair market value of the net assets of the business.

What information is included in the financial statement headings?

the firm's name (who); title of the statement (what); time period covered (when).

Accounting is called:

the language of business

What is entered in the Posting Reference column of the general journal?

the ledger account number.

Why is a postclosing trial balance prepared?

to ensure the general ledger is in balance after the adjusting and closing entries are posted

An error in which the digits of a number are switched, for example 571 is recorded as 517 is an example of a:

transposition.