Accounting Test #2 Stallings

add bank collections of depositors' accounts receivable to the unadjusted book balance, subtract bank service charges from the unadjusted book balance, add interest earned from bank to the unadjusted book balance are used to calculate

Adjusted book balance

Paying cash to purchase inventory is a (blank) transaction

Asset exchange transaction

t/f: Accountants record information directly into financial statements

False

t/f: McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses

False

t/f: Recognizing a sales discount will cause the amount of net sales to increase

False

t/f: The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement

False

t/f: The amounts of debits and credits are shown in the same column

False

t/f: The implementation of an effective internal control system eliminates the possibility of fraud. This statement is

False

t/f: GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value

False, GAAP requires that inventory be shown in the balance sheet at the lower of cost or market

t/f: A bank statement is presented from the customer's point of view

False, it is from the banks point of view

t/f: Ledger is known as the point of original entry

False, journals are known as the point of original entry

t/f: Product costs are expensed when they are incurred

False, product costs are expensed when inventory is sold to customers

t/f: Transaction data is first posted in the ledger and then moved to the journal

False, vice versa

What is gross margin

Gross margin is the difference between sales revenue and the cost of goods sold expense

What is the formula for the amount of net sales

Gross sales - Sales Returns and Allowances - Sales discounts

What is a procedure designed to safeguard cash

Keep cash in locations that are accessible by multiple employees

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment

LIFO

Gains are benefits generated from (blank) activities

Nonoperating

1. reliable financial reporting 2. effective and efficient operations 3. compliance with applicable laws and regulations are used in

The internal control process

t/f: Cash is difficult to protect because it is easy to transfer and its ownership difficult to prove. These statements are

True

t/f: Debits may be used to describe either an increase or decrease in an account balance

True

t/f: Ledger accounts show beginning and ending balances

True

t/f: The framework that is used to assess the effectiveness of a company's internal control was established by the Committee of Sponsoring Organizations of the Treadway Commission

True

t/f: The gross margin appears on the multistep income statement

True

t/f: The ledger contains both permanent and temporary accounts

True

t/f: Transaction data is recorded first in a journal

True

t/f: The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method

True, It is independent from when expenses are recognized

t/f: The accounting records may contain errors even if the total amount of debit and credit balances are equal

True, numbers could be wrong but still add up

t/f: When a merchandising company sells inventory it will recognize revenue and expense

True, sales revenue and cost of goods sold

To determine the true cash balance

add deposits in transit to and subtract outstanding checks from the unadjusted bank balance

Risk management, information and communication, and monitoring are

are components of the COSO framework (committee of sponsoring organizations)

Instead of using cash to pay bills, many companies pay with checks because

checks facilitate the separation of duties associated with cash payments

The journal entry to recognize the write down of inventory based on the lower of cost or market rule will

increase the amount of expenses.

Separation of duties, required employee absences, using renumbered documents are all examples of

internal control activities

What is inventory

inventory is an asset account that appears on the balance sheet

What is The Sarbanes Oxley Act

it is legislation that was established to deter practices that lead to major frauds such as those perpetuated by Enron and WorldCom

Record cash collections immediately, provide customers with receipts, and deposit cash collections immediately are designed to

protect cash reciepts