Danielle's study guide
If liabilities are $51,500 and assets are $173,425, then equity equals:
$121,925
Which of the following is the correct sequence for the heading for ABC Company's 2010 Balance Sheet?
ABC Company, Balance Sheet, 12/31/10
the description of the relation between a company's assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the:
Accounting equation
The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
Accrual basis accounting
Which of the following statements is incorrect?
Adjusting entries affect the cash account
The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:
FASB
Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?
FIFO
Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management and financial management are called:
General and administrative expenses
A partnership:
Has unlimited liability
Congress passed the Sarbanes-Oxley Act to
Help curb financial abuses at companies that issue their stock to the public
The International Accounting Standards Board (IASB)
Hopes to create harmony among accounting practices of different countries
Which of the following is the most serious limitation of internal controls
Human fraud or human error
The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
IASB
A limited partnership:
Includes a general partner with unlimited liability
Generally Accepted Accounting Principles:
Intend to make information on the financial statements relevant, reliable and comparable
A corporation:
Is a legal entity separate and distinct from its owners
The accrual basis of accounting
Is generally accepted for external reporting since it is more useful for most business decisions
Net Income:
Is the excess of revenues over expenses
An error in the period-end inventory causes an offsetting error in the next period and therefore:
It is sometimes said to be self-correcting
Prepaid expenses, depreciation, accrued expenses, unearned revenues and accrued revenues are all examples of:
Items that require adjusting entries
During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
LIFO method
The inventory valuation method that results in the lowest taxable income in a period of inflation is:
LIFO method
Source documents include all of the following except:
Ledgers
Creditors' claims on the assets of a company are called:
Liabilities
Generally accepted accounting principles require that the inventory of a company be reported at:
Lower of cost or market
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:
Matching principle
The inventory turnover ratio:
Measures how quickly a company turns over its merchandise inventory
Beginning inventory plus net cost of purchases is:
Merchandise available for sale
A company's internal control system
Monitors and controls business activities
Another name for equity is:
Net assets
Sales less sales discounts less sales returns and allowances equals
Net sales
A classified balance sheet
Organizes assets and liabilities into important subgroups
Due to an oversight, a company made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would:
Overstate net income by $24,000
The operating cycle for a merchandiser that sells only for cash moves from:
Purchases of merchandise to inventory to cash sales
A debit to Sales Returns and Allowances and a credit to Accounts Receivable
Recognizes that a customer returned merchandise and/or received an allowance
The main purpose of adjusting entries is to:
Record internal transactions and events
The impact of technology on internal controls includes which of the following:
Reduced processing errors
The consistency principle
Requires a company to consistently use the same accounting method of inventory valuation unless a change will improve financial reporting
The full disclosure principle:
Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made and its effect on net income
The conservatism principle:
Requires that when there are more than one equally likely estimate of amounts expected to be received or paid in the future, then the less optimistic amount should be used
The accounting principle that requires revenue to be reported when earned is the:
Revenue recognition principle
Increases in retained earnings from a company's earnings activities are
Revenues
Which of the following elements are found on the income statement?
Salaries Expense
Which of the following statements are true regarding the closing process of a merchandiser?
Sales Discounts, Sales Returns and Allowances and Cost of Goods sold should all be credited during closing
An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:
Single-step income statement
The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory is the:
Specific identification method
Double-entry accounting is an accounting system
That records the effects of transactions and other events in at least two accounts with equal debits and credits
When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:
The beginning inventory amount
According to generally accepted accounting principles, a company's balance sheet should show the company's assets at:
The cash equivalent value of what was given up
A debit is:
The left-hand side of a T-account
Which of the following statements is incorrect
The normal balance of an expense account is a credit
The excess of expenses over revenues for a period is:
net loss
The right side of a T-account is a(n):
credit
The distribution of assets to stockholders is called a(n):
dividend
The appropriate section in the statement of cash flows for reporting the cash payment of wages is:
operating activities
The process of transferring general journal information to the ledger is:
posting
An account used in the periodic inventory system that is not used in the perpetual inventory system is
purchases
The record in which transactions are first recorded is the:
journal
A collection of all accounts (with account balances) used by a business is called a:
ledger
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
$276
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the FIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
$304
If equity is $300,000 and liabilities are $192,000, then assets equal:
$492,000
IFRS tends to be more principles-based compared to GAAP which is viewed as more rules-based. Which of the following is a true statement about a principles-based system?
A principles-based system depends heavily on control procedures to reduce the potential for fraud or misconduct.
A trade discount is:
A reduction in price below the list price
Adjusting entries:
Affect both income statement and balance sheet accounts
A remittance advice is
An explanation for a payment by check
Each letter below contains three of the steps found in the accounting cycle. Which presents the given steps in the proper sequence, first to last?
Analyze transactions, Adjust, Close
Which of the following identifies the proper order of the accounting cycle?
Analyze, Journalize, Unadjusted Trial Balance
Damaged and obsolete goods:
Are included in inventory at their net realizable value
Physical inventory counts
Are necessary to measure and adjust for inventory shrinkage
Expenses:
Are the costs of assets or services used to earn revenues
Resources owned or controlled by a company that are expected to yield benefits are
Assets
If a company forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:
Assets, net income and equity overstated
An account used to record the owner's investments in the business is called:
common stock
The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:
Cash basis accounting
Multiple-step income statements
Contain more detail than a simple listing of revenues and expenses
The understatement of the ending inventory balance causes
Cost of goods sold to be overstated and net income to be understated
The understatement of the beginning inventory balance causes
Cost of goods sold to be understated and net income to be overstated
Wisconsin Rentals purchased office supplies on credit. The general journal entry made by Wisconsin Rentals will include a:
Credit to Accounts Payable
The difference between a company's assets and its liabilities or its net assets is:
Equity
The main principles of internal control include which of the following:
Establish responsibilities
Decreases in retained earnings that represent costs of assets or services that are used to earn revenues are called:
Expenses
If the Debit and Credit column totals of a trial balance are equal, then:
The total debit entries and total credit entries are equal
Which of the following statements best describes the relationship of U.S. GAAP and IFRS?
They are similar but not identical
Which of the following statements is true of external information users
They have limited access to an organization's accounting information
Business entity principle
To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:
The primary objective of financial accounting is:
To provide financial statements to help external users analyze and interpret an organization's activities
What is the difference between GAAP and IFRS presentations of the current assets section on the balance sheet?
Under GAAP it is mandatory to present current assets first while under IFRS it is customary (but not required) to present noncurrent assets first.
A good system of internal control
Urges adherence to prescribed managerial policies
The inventory valuation method that tends to smooth out erratic changes in costs is:
Weighted average
Goods in transit are included in a purchaser's inventory
When the purchaser is responsible for paying freight charges
balance sheet equation
another name for the accounting equation
What is another name for the general journal?
book of original entry
Which of the following accounts would not be impacted by adjusting journal entries?
cash
the statement of cash flows reports
cash inflows and outflows for an accounting period
Which of the following elements are found on the Balance Sheet?
retained earnings
The account used to record the transfers of assets from a business to its stockholders is:
retained earnings account
Which of the following accounts would be closed out with a debit?
sales
Of the following accounts, the one that normally has a credit balance is:
sales salaries payable
A simple account form widely used in accounting to illustrate how debits and credits work is called a:
t-account