Accounting 2101 Final Exam

True or False? A claim against a customer for sales made on credit is an account payable.

False. Account receivable, not account payable

True or False? The debts of a business are called its accounts receivable.

False. Accounts payable, not accounts receivable

True or False? A deferral is an expense that has not been paid or a revenue that has not been received.

False. Accrual not deferral

True or False? The amount of accrued revenue is recorded by debiting a liability account and crediting a revenue account.

False. Asset account, not liability account

True or False? The income statement accounts are listed first in the chart of accounts followed by the balance sheet accounts.

False. Balance sheet accounts, not income statement accounts

True or False? The balance of Accumulated Depreciation - Equipment in the end-of-period spreadsheet flows into the income statement.

False. Balance sheet, not income statement

True or False? Amounts entered on the left side of an account, regardless of the account title, are called credits or charges to the account

False. Debits, not credits

True or False? A type of work sheet frequently used by accountants prior to the preparation of financial statements is called a post closing trial balance

False. End of period spreadsheet, not post closing trial balance

True or False? If the seller is to absorb the cost of delivering the goods, the terms are stated FOB shipping point.

False. FOB destination, not shipping

True or False? The process of recording a transaction in a journal is called posting.

False. Journalizing, not posting

True or False? A group of accounts for a business entity is called a journal.

False. Ledger, not a journal

True or False? Solvency is the ability to convert assets into cash

False. Liquidity, not solvency

True or False? The concept that expenses incurred in generating revenue should be matched against the revenue in determining net income or net loss is called the cost concept

False. Matching concept, not cost concept

True or False? The accounting cycle for a merchandising business is significantly different from that of a service business

False. Merchandising business is similar to a service business

True or False? In a perpetual inventory system, purchases of merchandise are recorded in the purchases account

False. Merchandising inventory account, not purchases account

True or False? The financing activities section of the statement of cash flows includes cash transactions that enter into the determination of net income.

False. Operating activities section, not financing activities section

True or False? Accountants who render accounting services on a fee basis and staff accountants employed by them are said to be engaged in private accounting.

False. Public accounting, not private accounting

True or False? A discount offered the purchaser of goods as a means of encouraging payment before the end of the credit period is known as a bank discount

False. Purchases discount, not bank discount

True or False? The balances of the accounts reported in the balance sheet are carried from year to year and are called temporary accounts

False. Real or permanent accounts, not temporary account

True or False? The liability for the sales tax is incurred at the time the seller receives payment from the buyer

False. Receives payment from the buyer, not sells the merchandise

True or False? A summary of the changes in the retained earnings of a business entity that have occurred during a specific period of time, such as a month of a year, is called a statement of cash flows.

False. Retained earnings statement, not statement of cash flows

True or False? The balance of the dividends account is closed to income summary

False. Retained earnings, not income summary

True or False? The physical inventory taken at the end of the period is normally larger than the amount of the balance of the merchandise inventory account

False. Smaller, not larger

True or False? Any merchandise inventory shrinkage is normally debited to the merchandise inventory account

False. Sold account, not inventory account

True or False? If the adjusting entry to record accrued wages at the end of the year is omitted, net income, stockholders' equity (retained earnings), and total assets will be overstated

False. Stockholders' equity will be overstated and liabilities will be understated

True or False? A recording error caused by the erroneous rearrangement of digits, such as writing $627 as $672, is called a slide.

False. Transposition, not a slide

True or False? Every business transaction affects a minimum of one account.

False. Two accounts, not one

True or False? A partnership is owned by not less than four individuals.

False. Two or more individuals own a partnership

True or False? When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be overstated.

False. Understated not overstated

Which of the following errors would cause the adjusted trial balance totals to be unequal?

The adjustment for prepaid insurance was journalized as a debit to insurance expense for $1,750 and a credit to insurance expense for $1,750

True or False? A business transaction is the occurrence of an event or of a condition that must be recorded.

True

True or False? A listing of the accounts in a ledger is called a chart of accounts.

True

True or False? Accounting is often characterized as the "language of business."

True

True or False? Accrued expenses may be described on the balance sheet as accrued liabilities.

True

True or False? Accumulated depreciation accounts may be referred to as contra asset accounts.

True

True or False? An account titled Income Summary is normally used for transferring the revenue and expense account balances to the retained earnings account at the end of the period

True

True or False? At the end of the period, the balances are removed from the temporary accounts and the net effect is recorded in the permanent account by means of closing entries

True

True or False? Credit terms of "2/10, n/30" mean that the buyer may deduct 2% of the amount of the invoice if payment is made within 10 days of the invoice date

True

True or False? If the debit portion of an adjusting entry debits an expense, the credit portion must credit either a contra asset, an asset, or a liability account

True

True or False? In a periodic inventory system, no attempt is made to record the cost of merchandise sold at the date of the sale

True

True or False? Most large businesses use the accrual basis of accounting.

True

True or False? The accounting equation can be expressed as Assets - Liabilities = Stockholder's Equity.

True

True or False? The adjusting entry to record depreciation of fixed assets consists of a debit to a depreciation expense account and a credit to an accumulated depreciation account.

True

True or False? The annual accounting period adopted by a business is known as its fiscal year

True

True or False? The balance that is transferred from the income summary account to the retained earnings account is the net income or net loss for the period

True

True or False? The chart of accounts for a merchandising business will differ from that of a service business

True

True or False? The first item normally presented in the retained earnings statement is the balance of the retained earnings account at the beginning of the period

True

True or False? The purchases returns and allowances are credited to Merchandise Inventory.

True

True or False? The two main systems for accounting for merchandise held for sale are called periodic and perpetual

True

True or False? When expenses, such as employee wages, are not paid for until after they have been performed, the accrued expense is recorded in the accounts by an adjusting entry at the end of the accounting period.

True

True or False? The difference between the total debits and the total credits posted to an account yields a figure called the balance of the account

True

True or False? The residual claim against the assets of a corporation, after the total liabilities are deducted is called stockholders' equity.

True

A business paid $6,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was:

a decrease in an asset and a decrease in liability

Credits to cash results in:

a decrease in assets

When a payment is made to a supplier for goods previously purchased on account, the debit is to:

a liability account

When an asset is purchased on account, the credit is to:

a liability account

When the seller prepays the transposition costs and the terms of sale are FOB shipping point, the seller records the payment of the freight costs by debiting:

accounts receivable

Entries required at the end of an accounting period to bring the accounts up to date and to assure the proper matching of revenues and expenses are called:

adjusting entries

When rent is prepaid for several months in advance, the debit is to:

an asset account

The difference between the fixed asset account and the related accumulated depreciation account is called the:

book value of the asset

Which of the following is NOT one of the major sections of the statement of cash flows?

cash flows from marketing activities

The amounts for recording properties and services purchased by a business are determined using the:

cost concept

When a seller of merchandise allows a customer a reduction from the original price for defective goods, the seller usually issues to the customer a:

credit memorandum

Notes receivable are written claims against:

customers

The balance in the prepaid rent account before adjustment at the end of the year is $12,000 which represents three months' rent paid on December 1. The adjusting entry required on December 31 is:

debit rent expense for $4,000 and credit prepaid rent for $4,000

The receipt of cash from customers in payment of their accounts would be recorded by a:

debit to cash and a credit to accounts receivable

Debits to expense accounts signify:

decreases in stockholders' equity (retained earnings)

If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?

decreases the balance of an asset account

The decrease in usefulness of fixed assets as time passes is called:

depreciation

Which of the following accounts will be closed at the end of the fiscal year by debiting Retained Earnings?

dividends

The dividends account of a corporation is debited when:

earnings are distributed to stockholders

In an end-of-period spreadsheet, the

fees earned account flows into the income statement

The excess of net revenue from sales over the cost of merchandise sold is called:

gross profit

The basic difference between the financial statements of a merchandising business and a service business include reporting cost of merchandise sold on the income statement and the:

inclusion of merchandise inventory on the balance sheet as a current asset

Of the following errors, the one that will cause an inequality in the trail balance totals is:

incorrectly computing an account balance

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

increases the balance of an expense account

In a multi-step income statement of a merchandising business, which of the following would appear as "other income"?

interest revenue

The amount of accrued but unpaid expenses at the end of the fiscal period is both an expense and a

liability

The ability to convert assets into cash is called:

liquidity

The first step in recording a transaction in a two-column journal is to:

list the account to be debited

A type of business that changes basic inputs into products that are sold to individual customers.

manufacturing business

The account that appears in the chart of accounts for a merchandising business but not for a service business is:

merchandise inventory

If revenue was $70,000, expenses were $59,000, and dividends were $25,000, the amount of net income or net loss was:

net income of $11,000

Accountants employed by a particular business firm of not-for-profit organization, perhaps as chiefs accountant, controller, or financial vice-president, are said to be engaged in:

private accounting

Which of the following accounts will ordinarily appear in the post-closing trial balance?

retained earnings

What item appears on the balance sheet and the retained earnings statement?

retained earnings as of the end of the period

At the end of the preceding fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. The error was not corrected, but the accrued salaries were included in the first salary payment in the current fiscal year. Which of the following statements is true?

salary expense was overstated and net income was understated for the current year

If the seller collects sales tax at the time of sale, the seller credits the tax to:

sales tax payable

If a $250 adjustment for depreciation is not recorded, which of the following financial statement errors will occur?

stockholders' equity (retained earnings) will be overstated

Income from operations is computed by subtracting from gross profit the:

total operating expenses

The equality of debits and credits in the ledger should be verified at the end of each accounting period by preparing a:

trial balance

The accounting concept that requires economic data be recorded in dollars.

unit of measure concept

True or False? A credit balance in the supplies account could result only from an error

True

The complete sequence of accounting procedures for a fiscal period is frequently called the:

accounting cycle

Which of the following is an example of vertical analysis?

expressing net income as a percent of fees earned

Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

sales

A buyer receives an invoice for $60 dated June 10. If the terms are 2/10, n/30, and the buyer pays the invoice within the discount period, what amount will the seller receive?

$58.80

The maximum length of an accounting period is normally:

1 year

Another way of writing the accounting equation is

Assets - Liabilities = Stockholder's Equity

Which of the following is an example of horizontal analysis?

Computing the amount and percent increase in cash from the prior year