Accounting Modules 1-6

If a business borrows money from a bank, how is this transaction reflected in the accounting equation?

Increase an asset and increase a liability

Which of the following is a non-operating expense?

Interest expense

Which method uses the most relevant cost for the income statement?

LIFO

Which of the following is a noncash item that would be included on the income statement?

Unrealized losses from investments Write down of inventory. Depreciation and Amortization

If an item has little to no risk of losing its value than it can be classified as:

a cash equivelant

An asset account is increased by making what type of entry?

a debit entry

Which of these is an example of a other receivable?

a loan to an employee interest revenue from notes a salary advance to an employee

What does the income statement represent?

a period of time

Banks are an excellent internal cash control because they offer:

a physical barrier to the cash

Money owed to the company from delivery of a good or service on credit represents?

a receivable

Under the specific identification inventory must be assigned?

a serial number or identification tag

In accounting, the conceptual framework provides:

a standard framework for setting accounting principles a way to resolve disputes fundamental accounting principles

Which of these is an example of an intangible asset?

accounts receivable goodwil patents

Which of the following occurs at the end of an accounting period in order to allocate income and expenditure to the appropriate year?

adjusting entry

The result after all revenue and expenses are accounted for is known as:

net profit or net loss

Which of these is a characteristic of the the specific identification method?

often impossible perfect matching of costs of goods to goods sold keeps track of the cost of each, specific good sold

When is interest cost is added to the asset's cost?

only during the construction phase

An overstatement of ending inventory, ultimately, results in an:

overstatement of income

Which inventory system only adjusts the inventory and cost of goods sold at the time of a physical inventory?

periodic inventory system

The International Financial Reporting Standards were developed to:

provide a common global language for business affairs

In order to be considered a long-term asset, the item must:

provide economic benefit beyond the current year or operating period

Financial reporting should:

provide information that is useful in making business and economic decisions

The term historical cost refers to the asset's:

purchase price

The journal entry to record the sale of goods on account includes a debit to what account?

receivable

A company that bases the value of their asset on observing the market price of similar assets is using which valuation method?

relative value

A company's equity represents what items?

retained earnings and shareholder funds

Which of the following is not reported on the balance sheet?

sales revenue

Which of these is NOT a document associated with a voucher transaction?

shipping notice

What are the two methods that can be used to prepare the income statement?

single-step and multi-step

Which cost accounting method is best for companies that engage in the purchase and sale of large items such as cars?

specific identification

What statement would you read if you wanted to know the changes in a company's equity throughout the reporting period?

statement of shareholder's equity

A building is classified as what type of asset?

tangible

What are the two major asset classes?

tangible and intangible

What does a company's income statement help investors and creditors determine?

the ability to generate future revenue the past financial performance of the company the future financial performance of the company

The revenue recognition principle and the matching principle are used in what accounting method?

the accrual accounting method

If the improvement costs are capitalized what will be affected?

the asset's periodic depreciation expense

The income statement is also known as:

the profit and loss statement

In order to be included in the cash account on the financial statement, the currency must be:

held at other branches of the business held on premisis held at the bank

Which of these is an example of a capital cost for a recognized asset?

installation costs the cost of the item transportation

Which of these is NOT an expensed cost for a recognized asset?

installation of the asset

Which of these is not a common internal cash control?

petty cash log

On December 31, 2011, Rex's Used Tires and More Store have assets that include: Cash, $6,050; Accounts receivables, $22,000; and Supplies, $31,050. The liabilities on December 31, 2011, total $11,000. What is the owners' equity on December 31, 2011?

48100

A signature card serves what purpose?

it tells the bank who is authorized to withdraw money from the business account

Receiving payment for goods or services increases the cash account and decreases this account:

Accounts receivable

Which of the following is NOT a step in constructing a multi-step income statement?

Add all revenues, then subtract all expenses.

What is the definition of an asset?

Anything capable of being owned or controlled to produce value

How are sales recorded in the general journal.

As a credit to the sales account and a debit to the cash account/accounts receivable

Which of the following is the correct definition of the accounting equation?

Assets = Liabilities + Owner's Equity

Which of these is a rationale for keeping inventory?

lead time uncertainty economies of scale

A business transaction can be:

Paying salaries Exchanging goods for cash Issuing a credit

Which of these is NOT one of the eight steps in the accounting cycle?

Prepare a pre-closing trial balance

Which of the following best summarizes why there may be a difference between a company's pretax income and taxable income?

Pretax income is based on revenue recognition; taxable income is based on the company's cashflow.

A source document is best described as

Proof that a business transaction has taken place

Which of the following is NOT one of the four basic GAAP principles?

Revenue should be recorded when realized or realizable and when cash is received.

Which of the following accounts has a normal debit balance?

Sales returns and allowances

What role does the Financial Accounting Standards Board play?

They set accounting standards for public companies in the United States

How is a formal promissory note in acknowledgment of a customer's debt classifed?

as a note receivable

How would a company record the invoice for routine maintenance performed on a piece of existing equipment?

as an expense for the current period

If a company sells a piece of land for a gain, how is that reported on the income statement?

as an increase to net income

Items that a business can use or exchange to produce products of the business are known as:

assets

Receivables are shown on what financial statement?

balance sheet

Which one of these is an example of when employees would use a company's financial statements?

before making a collective bargaining agreement before deciding whether to work for a company or not before discussing a raise

Which of these is NOT part of the balance sheet equation?

cash flow

What does the voucher system monitor and document?

cash payments to a third party

Which of the following is a matter of ensuring that transactions that take place after the business's financial period are not included in the financial statements?

closing the books

If a journal entry is "unbalanced", what does it mean?

debits do NOT equal credits

Financial reporting should provide information that investors and creditors can use to:

decide whether to invest in a company determine a company's net cash flow identify a company's economic resources

The periodic reduction of an asset's value is known as:

depreciation

Where are authorized, but unpaid vouchers kept?

in the unpaid voucher file

Under specific identification companies do a detailed physical count, which helps them determine?

how many of each good bought on a specific date remain

Revenue is recorded when the sale is made in what method of accounting?

accrual basis method

If total liabilities decrease by $25,000 and owners' equity increases by $10,000 during a specific accounting period, then assets must have:

decreased by $15,000

Long-lived assets are accounted for:

differently-according to each assets useful life

Wages paid to an employee who works directly on the product being manufactured is an example of a:

direct labor cost

In a perpetual inventory system, the book inventory and the physical count are:

exactly the same (with a small error margin)

During which phase does the team count a specific inventory?

execution

The most common way to communicate financial information about business entities is with:

financial statements

What type of asset is purchased for the continued and long-term use of the business?

fixed assets

If a company is assumed to continue trading normally for the foreseeable future it is a:

going concern

What value is used to report land on the balance sheet?

historical cost

What happens if a legitimate transaction is found on the bank statement, but doesn't appear on the books?

it must be added to the books via a journal entry

The biggest reason companies chose to use the LIFO method to value their inventory was because:

it reduced their income taxes

Debts owed by the business to others are classified as:

liabilities

In order for a government bond to be considered a cash equivalent it must:

mature within 3 months of the financial statements

An company would classify an item returned unused/unopened as:

returned goods that are salable

Which one of these is NOT an organization that would review the financial reports of a business?

rival companies

What are the results of the physical count are compared to?

the computer (or book) count

A measurement error in inventory will result in a company calculating what incorrectly?

the cost of goods sold

Statement of financial position and statement of income are derived from:

the general ledger

In the revenue recognition principle revenue is recognized when:

when goods and services are rendered