ACE- Quiz Module 3-4

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The following transactions occurred during March, the first month of operations for Quality Galleries, Inc. * Capital stock was issued in exchange for $360,000 cash. * Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance. * Made a $35,000 cash payment on the note payable from the purchase of equipment. * Sold a piece of equipment for cash of $18,000. The equipment was sold at cost, so there is no gain or loss on the sale. What is the total owners' equity at the end of March?

$360,000.

Accumulated Depreciation is: An asset account. A revenue account. A contra-asset account. An expense account.

A contra-asset account.

Which of the following accounts normally has a debit balance? Accounts payable. Retained earnings. Accounts receivable. Service revenue.

Accounts receivable.

Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called: Revenue recognition. Accrual accounting. Conservatism. Matching.

Accrual accounting.

Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called: Revenue recognition. Accrual accounting. Conservatism. Matching.

Accrual accounting.

Accounts affected by adjusting journal entry

Accumulated Revenue, Accumulated expense, unearned revenue, prepaid expense, depreciation

contra asset

An account with a credit balance that is deducted from the related asset account on the balance sheet. ex: Accumulated Depreciation- Equipment

If the trial balance has a higher debit balance than credit balance, it signifies: Assets are more than liabilities. A profit. A loss. An error has been made.

An error has been made.

What type of account will normally contain a debit balance? Asset. Liability. Owners' equity. Revenue.

Asset

Normal balance accounts

Asset ↑ D = Liability ↓ C = Equity ↓L

What type of account will normally contain a debit balance? Asset. Liability. Owners' equity. Revenue.

Asset.

Which accounts have normal debit balances?

Assets Expenses losses owner's drawing account

Adjusting entries are prepared: Before financial statements and after a trial balance has been prepared. After a trial balance has been prepared and after financial statements are prepared. After posting but before a trial balance is prepared. Anytime an accountant sees fit to prepare the entries.

Before financial statements and after a trial balance has been prepared.

Adjusting entries are prepared: Before financial statements and after a trial balance has been prepared. After a trial balance has been prepared and after financial statements are prepared. After posting but before a trial balance is prepared. Anytime an accountant sees fit to prepare the entries.

Before financial statements and after a trial balance has been prepared.

Statement of cash flows consist of:

Cash flows from operating activities + Cash flows from investing activities + Cash flows from financing activities = Net change in cash + Beginning change in cash = Ending cash balance

Journal

Chronological list of events Includes: date, account name, amount debited, amount credited, description of transaction

Shop supplies are expensed when: Consumed. Purchased. Paid for. Ordered.

Consumed

Accounts that increase with Debits

DEA Dividend Expense Asset

The purchase of equipment on credit is recorded by a: Debit to Equipment and a credit to Accounts Payable. Debit to Accounts Payable and a credit to Equipment. Debit to Equipment and a debit to Accounts Payable. Credit to Equipment and a credit to Accounts Payable.

Debit to Equipment and a credit to Accounts Payable.

How to record liability

Debit to liability credit to asset

In a ledger, debit entries cause:

Decreases in liabilities, increase in assets, and decreases in owners equity

In a ledger, debit entries cause: Increases in owners' equity, decreases in liabilities, and increases in assets. Decreases in liabilities, increases in assets, and decreases in owners' equity. Decreases in assets, decreases in liabilities, and increases in owners' equity. Decreases in assets, increases in liabilities, and increases in owners' equity.

Decreases in liabilities, increases in assets, and decreases in owners' equity.

Unearned revenue may also be called: Net income. Deferred revenue. Unexpired revenue. Services rendered.

Deferred revenue.

Adjusting entries are only required when errors are made. True False

False

Adjusting entries are only required when errors are made. True False

False

An increase in a liability is recorded by a credit; an increase in owners' equity by a debit. True False

False

An increase in a liability is recorded by a credit; an increase in owners' equity by a debit. True false

False

At year end all equity accounts must be closed: True False

False

EVERY transaction WHICH AFFECTS an income statement account ALSO affects a balance sheet account. True False

False

Earning revenue increases owners' equity and expenses reduce owners' equity, therefore, revenues are recorded with debit entries and expenses are recorded with credit entries. True False

False

Earning revenue increases owners' equity and expenses reduce owners' equity, therefore, revenues are recorded with debit entries and expenses are recorded with credit entries. True False

False

The Cash account is usually affected by adjusting entries. True False

False

The Cash account is usually affected by adjusting entries. True False

False

The credit side of an account is the left side, while the debit side is the right side. True False

False

The failure to record an adjusting entry for depreciation would cause assets to be overstated and net income to be understated. True False

False

Unearned revenue is a liability and should be reported on the income statement. True False

False

Ledger

Groups all transactions of a particular account Reports account balances, T-Account (only if cash affected)

Internal control: policies and procedures

Helps make decisions Includes people and processes Captures, summarizes, and reports info about a business

Under accrual accounting, salaries earned by employees but not yet paid should be expensed: In the period in which they are earned. In the period in which they are paid. In the period with the higher earnings. In the period with the lower earnings.

In the period in which they are earned.

Under accrual accounting, salaries earned by employees but not yet paid should be expensed: In the period in which they are earned. In the period in which they are paid. In the period with the higher earnings. In the period with the lower earnings.

In the period in which they are earned.

DEA LER?

Increase with debits: Dividends Expenses Assets Increase with credits: Liabilities Equity Revenues

The concept of materiality: Treats as material only those items that are greater than 2% or 3% of net income. Justifies ignoring the matching principle or the realization principle in certain circumstances. Affects only items reported in the income statement. Results in financial statements that are less useful to decision makers because many details have been omitted.

Justifies ignoring the matching principle or the realization principle in certain circumstances.

Accounts that increase with Credits

LER Liabilities Equity Revenue

Which statement is true about land? Land should be depreciated over the same period as the building located on it. Land cannot be depreciated for greater than a 40-year period. Land should not be depreciated. The straight line method should be used to depreciate land.

Land should not be depreciated.

In accounting, the terms debit and credit indicate, respectively: Increase and decrease. Left and right. Decrease and increase. Right and left.

Left and Right

Which account have normal credit balances?

Liabilities revenues sales, gains owner equity stockholders' equity

Depreciation is: An exact calculation of the decline in value of an asset. Only an estimate of the decline in value of an asset. Only recorded at the end of a year and never over a shorter time period. Management must know the exact life of an asset in order to calculate an acceptable depreciation expense.

Only an estimate of the decline in value of an asset.

Depreciation is: An exact calculation of the decline in value of an asset. Only an estimate of the decline in value of an asset. Only recorded at the end of a year and never over a shorter time period. Management must know the exact life of an asset in order to calculate an acceptable depreciation expense.

Only an estimate of the decline in value of an asset.

Depreciation expense is: Only an estimate. An exact calculation prepared by an appraiser. Not to be calculated unless the exact life of an asset can be determined. To be determined for all assets owned by a company.

Only an estimate.

The purpose of making closing entries is to:

Prepare revenue and expense accounts for the recording of the next periods revenues and expenses

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles: Business entity concept and realization principle. Cost principle and the accounting equation. Realization principle and matching principle. Matching principle and safety principle.

Realization principle and matching principle.

Which of the following is the accounting principle that governs the timing of revenue recognition? Realization principle. Materiality. Matching. Depreciation.

Realization principle.

Appear on an after closing trial balance:

Retained Earnings (permanent account)

close income summary and dividend accounts to:

Retained earnings

The principle that states revenue should be recognized at the time goods are sold or services rendered is called: Adequate disclosure. Conservatism. Matching. Revenue realization.

Revenue Realization

Temporary accounts

Revenue and gains, expense and losses, dividends, income summary

Balance sheet Covers

Specific date

Statement of returned earnings

Statement of RE= Beginning RE + NI - dividends = Ending RE

Which of the following errors would not be disclosed by preparation of a trial balance? An error was made in computing the balance of the Cash account. A journal entry included a debit to the Equipment account for $3,200, but this amount was erroneously posted as $2,300. During the posting process, a $1,700 debit to Cash was accidentally entered in the credit side of the Cash account. The journal entries recorded on the last day of the year have never been posted to the ledger.

The journal entries recorded on the last day of the year have never been posted to the ledger.

During the last month of its fiscal year, Echo Lake Resort accepted numerous deposits from customers. By the end of the month many, but not all, of these guests had completed their stays. The entry to record this event is an example of an adjusting entry: To apportion a recorded cost. To apportion unearned revenue. To record unrecorded expenses. To record unearned revenue.

To apportion unearned revenue.

A credit to a ledger account refers to the entry of an amount on the right side of an account. True False

True

A credit to a ledger account refers to the entry of an amount on the right side of an account. True False

True

A trial balance proves that equal amounts of debits and credits were posted to the ledger. True False

True

An expenditure that benefits the year in which it is made should be deducted from revenue in the same year. True False

True

The matching principle refers to the relationship between revenues and expenses. True False

True

The matching principle refers to the relationship between revenues and expenses. True False

True

The period of time over which the cost of an asset is allocated to depreciation expense is called its useful life. True False

True

The period of time over which the cost of an asset is allocated to depreciation expense is called its useful life. True False

True

When a company uses the double-entry method, the total dollar amount of debits recorded must equal the total dollar amount of credits recorded, but the number of debit and credit entries may differ. True False

True

When a company uses the double-entry method, the total dollar amount of debits recorded must equal the total dollar amount of credits recorded, but the number of debit and credit entries may differ. True False

True

Different trial balances

Unadjusted, adjusted & post-closing trial

The realization principle indicates that revenue usually should be recognized and recorded in the accounting records: When goods are sold or services are rendered to customers. When cash is collected from customers. At the end of the accounting period. Only when the revenue can be matched by an equal dollar amount of expenses.

When goods are sold or services are rendered to customers.

Under accrual accounting, fees received in advance from customers should be shown as being earned: When cash is collected. When services are performed or goods delivered. When tax rates are low. When tax rates are high.

When services are performed or goods delivered.

industry practices convention

accepted industry practices should be followed even if they differ from GAAP

Every transaction that affects the income statement affects the

balance sheet account

what are the 5 components of internal control system

control environment, risk assessment, control activities, info and communication, and monitor

Liabilities, Equity, and Revenues always have which type of balance

credit balance

close to expenses

credit it

Asset & Expense accounts always have which type of balance:

debit balance

Contra Equity has what kind of balance

debit balance

Contra Liabilities what kind of balances

debit balance

To close imcome summary

debit income summary credit retained earnings

close to revenue

debit it

How to record asset

debit to asset credit to liability or cash depending on how purchased

Deferrals

delay recognizing certain revenues and expenses on income statement until later

which account do you close last

divdends

what 4 principals are underlying financial reports

historical cost matching revenue recognition/ realization full disclosure

Adjusting entries

journal entries recorded to update general ledger at the end of a fiscal period

what are the three modifying conventions

materiality cost-benefit industry practices

cost-benefit convention

relaxes GAAP if cost exceeds benefitsindustry practices conventionindustry practices convention

materiality convention

relaxes GAAP requirements if impact is not large enough to influence decision

Revenue Realization

revenue recognized at the time of goods sold or services rendered.

what accounts are closed to income summary

revs and gains expense and losses

closing entries temporary accounts

revs and gains expenses and losses dividends income summery

what are the 4 accounting assumptions

separate economic entity going concern stable monetary unit periodicity


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