Accounting Definitions
Which of the following is an asset? A. Investments B. Common stock C. Mortgage payable D. Retained earnings
A. Investments
Which of the following accounts is classified as a contra revenue account? A. Sales Returns and Allowances B. Cost of Goods Sold C. Sales Revenue D. Purchase Discounts
A. Sales Returns and Allowances
From an internal control standpoint, the asset most susceptible to improper diversion and use is:
Cash
Which of the following is not a liability? A. Accounts Payable B. Unearned Service Revenue C. Interest Payable D. Accounts Receivable
D. Accounts Receivable
Which of the following is not considered an asset? A. Inventory B. Accounts receivable C. Equipment D. Accounts payable
D. Accounts payable
Free cash flow represents A. cash provided by operations less adjustments for capital expenditures and dividends. B. a measurement of a company's cash generating ability. C. a measure of solvency. D. All of these answer choices are correct.
D. All of these answer choices are correct.
Which of the following is not one of the three forms of business organization? A. Corporations B. Partnerships C. Proprietorships D. Investors
D. Investors
Which of the following external groups uses accounting information to determine whether the company can pay its obligations? A. Chief Financial Officer B. Creditors C. Marketing managers D. Investors in common stock
B. Creditors
Which of the following is not a principal type of business activity? A. Financing B. Delivering C. Operating D. Investing
B. Delivering
Each of the following companies is a merchandising company except a: A. candy store. B. moving company. C. furniture store. D. wholesale parts company.
B. moving company.
Which of the following would be deducted from the balance per books on a bank reconciliation?
Bank service.
Which one of the following is not an objective of a system of internal controls?
Ensure the overall fairness of the financial statements.
Which of the following is not classified properly as a current asset?
Equipment
Sam's Grocery Store has the following policy. 'Only one cashier can have access to a cash drawer.' Which internal control principle supports this policy?
Establishment of responsibilities.
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
FIFO method
In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the
FIFO method
In a classified balance sheet, assets are usually classified as A. current assets; long-term investments; tangible assets; and intangible assets. B. current assets; long-term investments; property, plant, and equipment; and common stocks. C. current assets; long-term assets; property, plant, and equipment; and intangible assets. D. current assets; long-term investments; property, plant, and equipment; and intangible assets.
D. current assets; long-term investments; property, plant, and equipment; and intangible assets.
All of the following are examples of internal control procedures except: A. reconciling the bank statement. B. using prenumbered documents. C. insistence that employees take vacations. D. customer satisfaction surveys.
D. customer satisfaction surveys.
Which of the following methods will result in the highest depreciation in the first year?
Declining-balance
A very small company would have the most difficulty in implementing which of the following internal control activities?
Separation of duties
Accounts receivable are valued and reported on the balance sheet
at cash realizable value.
Which of the following is not an intangible asset?
Truck
Closing entries:
cause the revenue and expense accounts to have zero balances.
Selling the bonds at a premium has the effect of
causing the total cost of borrowing to be lower than the bond interest paid.
The account Allowance for Doubtful Accounts is classified as a(n)
contra account to Accounts Receivable.
The Sales Returns and Allowances account is classified as a(n)
contra revenue account
Treasury Stock is a(n)
contra stockholders' equity account
When a company performs a service but has not yet received payment, it
debits Accounts Receivable and credits Service Revenue.
A useful measure of solvency is the
debt to assets ratio.
In preparing a bank reconciliation, outstanding checks are
deducted from the balance per bank.
A current asset is
expected to be converted to cash within one year.
One of the accounting concepts upon which adjustments for prepayments and accruals are based is:
expense recognition
The expense recognition principle matches:
expenses with revenues.
The common characteristic possessed by all assets is
future economic benefit.
If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount
greater than face value.
Sales revenue less cost of goods sold is called
gross profit
Deposits in transit
have been recorded on the company's books but not yet by the bank.
The gross profit rate is computed by dividing gross profit by
net sales
The receivable that is usually evidenced by a formal instrument of credit is a(n)
note receivable.
Adjusting entries affect at least:
one income statement account and one balance sheet account.
Ratios that measure the income or operating success of a company for a given period of time are
profitability ratios.
Equipment is classified on the balance sheet as
property, plant, and equipment.
Regular dividends are declared out of
retained earnings
Retained earnings at the end of the period is equal to
retained earnings at the beginning of the period plus net income minus dividends.
Net income will result during a time period when
revenues exceed expenses.
When an asset is sold, a gain occurs when the
sale price exceeds the book value of the asset sold
Gross profit equals the difference between
sales revenue and cost of goods sold.
Colonial Co. purchased a machine. It paid for the machine with cash and did not obtain any financing. What it the effect on its balance sheet?
total assets remain unchanged.
The payout ratio is computed by dividing
total cash dividends paid to common stockholders by net income.
In a service-type business, revenue is recognized:
when the service is performed.
The receipt of cash in advance from a customer
increases assets and liabilities.
The reconciliation of the cash register tape with the cash in the register is an example of
independent internal verification.
A trial balance
is a list of accounts with their balances at a given point in time.
The right side of an account
is the credit side.
Par value
is the value assigned per share in the corporate charter
The factor which determines whether or not goods should be included in a physical count of inventory is
legal title
Debts and obligations of a business are referred to as
liabilities
Liabilities are classified on the balance sheet as current or
long-term
Which of the following statements is not true about a 2-for-1 split?
Total paid-in capital increases
The accounting equation may be expressed as
Assets = Liabilities + Stockholders' Equity
Which of the following correctly identifies normal balances of accounts? A. Assets----------------Debit Liabilities-------------Credit Common Stock------Credit Revenues------------Credit Expenses------------Credit B. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Debit Expenses------------Credit C. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Credit Expenses------------Debit D. Assets---------------Credit Liabilities------------Debit Common Stock-----Debit Revenues------------Credit Expenses------------Debit
C. Assets---------------Debit Liabilities------------Credit Common Stock-----Credit Revenues------------Credit Expenses------------Debit
Which one of the following represents the expanded basic accounting equation? A. Assets - Liabilities - Dividends = Common Stock + Revenues - Expenses B. Assets = Revenues + Expenses - Liabilities C. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues D. Assets = Liabilities + Common Stock + Dividends - Revenue - Expenses
C. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues
Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase? A. Marketing managers B. Creditors C. Investors in common stock D. Chief Financial Officer
C. Investors in common stock
Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
Cash needed to replace the plant asset
Assets purchased for resale are recorded in which of the following accounts? A. Inventory B. Equipment C. Supplies D. Patents
Inventory
In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?
LIFO
Which of the following is not an internal control procedure for cash?
Payments should be made with cash.
Which depreciation method is most frequently used in businesses today?
Straight-line
Bad Debt Expense is considered
a necessary risk of doing business on a credit basis.
As an incentive for customers to pay their accounts promptly, a business may offer its customers
a sales discount
The term "receivables" refers to
amounts due from individuals or companies.
The right to receive money in the future is called a(n)
account receivable
An adjusting entry:
affects a balance sheet account and an income statement account.
The closing entry process consists of closing:
all temporary accounts.
The usual sequence of steps in the transaction recording process is
analyze, journalize, post to the ledger.
Current liabilities are due
and payable within one year.
If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck,
assets will be increased by $40,000.
The amount of stock that may be issued according to the corporation's charter is referred to as the
authorized stock.
The current portion of long-term debt should
be reclassified as a current liability
The amount of cost of good available for sale during the year depends on the amounts of
beginning merchandise inventory and net costs of purchases
Working capital is calculated by taking
current assets minus current liabilities.
Liabilities are generally classified on a balance sheet as
current liabilities and long-term liabilities.
Current assets divided by current liabilities is known as the
current ratio.
A bank statement
shows the activities that increased or decreased the depositor's account balance.
The normal balance of any account is the
side which increases that account.
Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
systematic and rational manner
The left side of an account is
the debit side.
The LIFO inventory method assumes that the cost of the latest units purchased are:
the first to be allocated to cost of goods sold.