Financial Accounting

The rules of debit and credit may be summarized as follows:

Accounts on the left side of the balance sheet are increased by debits, whereas, accounts on the right side of the balance sheet are increased by credits.

Which of the following accounts normally has a debit balance?

Accounts receivable.

Which of the following is not a purpose of adjusting entries?

To prepare the revenue and expense accounts for recording transactions of the following period.

The general purpose financial statements prepared annually by a corporation would not include the:

Income tax return.

The principal difference between management accounting and financial accounting is that financial accounting information is:

Intended primarily for use by decision makers outside the business organization.

Sally Smith had expenses of $800 in June which she paid in July. She declared these expenses on her June income statement. By doing this, she is following the accounting principle of:

Matching.

If a company purchases equipment for $65,000 by issuing a note payable:

Total assets will increase by $65,000.

Which of the following is correct if a company purchases equipment for $70,000 cash?

Total assets will remain the same.

The normal balance of the Accumulated Depreciation account is:

A credit balance.

If during the current year, liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000, then:

Assets increased during the year by $25,000.

Which statement is true about an adjusted trial balance?

Balance sheet items are presented before income statement items.

Adjusting entries are prepared: (Look to the 8 steps in the accounting cycle.)

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

The reason that both expenses and dividends are recorded by debit entries is that:

Both expenses and dividends reduce owners' equity.

Unearned revenue may also be called:

Deferred revenue.

Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book. Each book contained a certain number of coupons for video rentals. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. At the end of the period, it was determined that $15,000 worth of book coupons had been used by customers to rent videos. The appropriate adjusting entry at the end of the period would be:

Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.

Rose Corp. has a note receivable from Jewel Co for $80,000. The note matures in 5 years and bears interest of 6%. Rose is preparing financial statements for the month of June. Rose should make an adjusting entry:

Debiting Interest Receivable for $400 and crediting Interest Revenue for $400.

Hahn Corp. has three employees. Each earns $600 per week for a five day work week ending on Friday. This month the last day of the month falls on a Wednesday. The company should make an adjusting entry:

Debiting Wage Expense for $1,080 and crediting Wages Payable for $1,080.

Which of the following statements is not true regarding prepaid expenses?

Prepaid expenses are shown in a special section of the income statement.

Financial statements are prepared:

Primarily for the benefit of persons outside of the business organization.

The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the:

Public Company Accounting Oversight Board.

Profitability may be defined as:

The ability to increase retained earnings.