Intuit Bookkeeping Exam

True statements about liabilities

1. A credit to a liability account will increase it. 2. Contra liability accounts have a natural credit balance.

Accounting Cycle

1. Analyze and record transactions 2. Post transactions to ledger 3. Prepare an unadjusted trial balance 4. Prepare adjusted entries at the end of the period 5. Prepare adjusted trial balance 6. Prepare financial statements

What are two ethical responsibilities of bookkeepers

2a. Keeping client information confidential 2b. Reporting financial data in an accurate and timely manner.

You are reading a comparative income statement for Gaudy's Gourmet Dog Dinners. If Gaudy's expenses in March were $15,000 and in April they were $22,000, what would the percent change be?

46.60%

Notes Receivable

A current or non-current asset

Notes Payable

A current or non-current liability

Definition of a liability

A liability is any future financial obligation of the business to an outside entity.

Receivables, loans, or other debits that have virtually no chance of being paid

Accounts Uncollectible

Revenues are reported when they are earned and expenses are reported when they are incurred

Accrual Method of Accounting

Opposite of deferral. Concern future payments or expenses

Accruals

A contra-asset account that has a natural credit balance. Balances decrease with debits and increase with credits

Accumulated Depreciation Account

Full Disclosure Principle

All information that is relative to the business and is important to a lender or investor has to be provided in financial statements or in the notes of the statements.

An estimate of the future amount of bad debt is charged to a reserve account as soon as a sale is made. This is more accurate but complex

Allowance Method

Definition of a debit in double-entry accounting

An increase in assets/expenses and a decrease in liabilities/owner's equity and revenue.

Example of a current liability

An inventory loan that should be paid in full in the next 90 days.

What is the Maximum amount of time that a business owner should wait to correct inventory errors?

Annually

Normal (natural) Debit balance account types

Asset and Expense

What's is the accounting Equation?

Assets = Liabilities + Equity

Financial elements on the balance sheet:

Assets, Capital, and Liabilities

An expense that a business incurs once the repayment of credit previously extended to a customer is estimated to be uncollectible

Bad Debt

Receive payment and sales receipt are followed by

Bank deposit

Accounts that increase with debit

Cash, equipment, assets, expenses, and dividends

Revenue is recognized when payment is received and expenses are recognized when paid out

Cash-Basis Account Method

You review a comparative income statement that displays five years of data. What information would be obtained from this data?

Comparing the profitability of the business.

When choosing between two solutions, the one that will be least likely to overstate assets and income should be selected.

Conservatism Assumption

Once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods so that the results reported from period to period are comparable

Consistency Principle

Accounts that increase with credit

Contra-Asset : Accumulated Depreciation, Account Payable, common stock, equity, revenue and liability

An expense account on the income statement showing the cost of merchandise to the business

Cost of Goods Sold (COGS)

You are recording the month-end depreciation expense entry for a factory building. For each account, Accumulated Depreciation, Depreciation Expense, Building, and Cash, select whether you should Debit the account, Credit the account, or make No Change to the account.

Credit - Accumulated Depreciation, Debit - Depreciation Expense No Change - Building and Cash

A business owner of a specialty foods store does a full review of the inventory on hand and discovers items that have perished. What is the accounting journal entry that should be made to adjust the books?

Credit to the Inventory Asset Account and a Debit to the Obsolete Inventory Expense.

Difference between current assets and long-term assets

Current assets are expected to be converted to cash within one year, while Long-term assets are expected to extend beyond a year from the reporting date.

Things your company owns that you can easily convert to cash and expect to do so within the next 12 months

Currents Assets

Lou has a landscaping company. He received a $10,000 payment for a landscaping job that he completed for the Rose family. How would you record this transaction?

Debit $10,000 to Cash; Credit $10,000 to Service Revenue - Landscaping

You are the bookkeeper for a small coffee shop. At the end of the day, you receive the cash register sales report to record in the company's accounting software. What is an appropriate accounting transaction?

Debit to Cash, Debit to Credit Card Payment Receivables, Credit to Sales Revenue

According to the matching principle, if an employee earns a bonus in December, and the bonus is paid out in April of the next year, the bonus is recorded?

December

Lou has a landscaping company. He purchased a $10,000 tractor with cash on December 1 and recorded it as a fixed asset. It is estimated that the tractor has a useful life of 5 years and no salvage value. How does the adjusting journal entry impact the December financial statements for depreciation?

Decrease in net profit on the income statement

Removing transactions that belong to a different period

Deferral

Step 4 of The Accounting Cycle: Preparing adjusted entries includes

Deferrals, Accruals, Missing Transactions, and Tax Adjustments

It is the end of the month, and you are reviewing your company's Trial Balance Report. As part of your review, you notice that Depreciation Expense has a credit balance. Is this noteworthy?

Depreciation Expense does not normally have a credit balance, so additional review is needed.

You are the bookkeeper for Jody's Jogging, Inc. Jody gives you a document for reconciling the vendor account with Michelle's Marathons. The document is missing some information. Which missing information renders the document inadequate for reconciliation?

Descriptions and amounts due for the transactions.

A bad debt is charged to expense as soon as it is apparent that an invoice will not be paid. This is easier for business owners.

Direct Write-Off Method

What is DEALER

Dividends + Expenses + Assets = Liabilities + Owner's Equity (beginning) + Revenue

The Business is a separate entity, so the activities of a business must be kept separate from any other financial activities of its business owners

Economic Entity Assumption

You record a partnership's assets and liabilities on a balance sheet. What does the difference between the assets and liabilities represent?

Equity

You are reconciling the bank account for Amy's Art Shop. You notice that an expense for paint was incorrectly recorded as $987.00 instead of $9.87. Which type of reconciliation error is this?

Error of Original Entry

On February 28, ABC Company received an invoice for $1,200 for running social media ads in February. The invoice will be paid in March. Assuming ABC Company uses the accrual method of accounting, which is correct for February?

Expenses are increased by $1,200.

Financial elements on the income statement:

Expenses, Revenue

Inventory Cost Flows

FIFO, LIFO, and Average Cost

The Payroll Register records the payroll information for contractors for each pay period.

False

The two primary records for payroll are the Form 941 and the Form 1040.

False

All info that is relative to the business and is important to a lender or investor has to be disclosed in financial statements or in the notes of the statements

Full Disclosure Principle

Refers to a business that is stable enough to operate and meet its obligation for the future

Going Concern Assumption

Four Key Elements of Bookkeeping Ethics

Honesty, Objectivity, Confidentiality and Professionalism

A combo of cash-basis and accrual methods

Hybrid Accounting

Not a physical asset. Examples would be a copyright, patent, or brand recoginition

Intangible Asset

Which of the following accounts is not considered a long term asset?

Inventory

If customers does not pay at the time of sale you must enter it as a

Invoice

Normal (natural) Credit balance account types

Liabilities, Equity, and Revenue

You have just been hired as a bookkeeper for Maddy's Manes and Manicures. It's the end of the month, and the former bookkeeper did not reconcile any of the following accounts. Which two typically need to be reconciled? (Choose 2.)

Line of Credit and Business Checking

Things your company owns that you expect to have for more than 12 months

Long-term Assets

Reliability Assumption

Makes mandatory for companies to record only accounting transactions that can be verified through invoices, billing statements and bank statements.

States that an amount can be ignored if its effect on the financial statements is small and not misleading

Materiality Principle

One currency is used throughout all accounting activities. In the US the dollar is the currency used in accounting. When this currency is used, inflation is not a consideration in recording finances

Monetary Unit Assumption

You are the bookkeeper for a small company with 10 employees. Your contact is currently the office manager and owner. You notice an invoice for $1,500 that was paid to the office manager. You questioned the manager about the invoice and the manager told you to just book the expense. In which of the four key bookkeeping ethics element does this scenario fall?

Objectivity

Which payroll transaction would be recorded in a cash basis accounting system?

Payroll Company Expense

What is FUTA

Payroll tax that only the employer pays for unemployment.

An inventory system that updates the inventory account only at specified intervals

Periodic

An inventory system that continuously update the inventory account

Perpetual

Accounts to reconcile monthly

Petty Cash and Credit Card Payable

Interest Equation

Principle x Interest (mulitply by 30/365 to find day)

A signed document containing a written promise to pay a stated sum to a specified person or bearer at a specified ate or on-demand

Promissory Note

Once and customer has paid an invoice it goes to

Receive payment

Going Concern Assumption

Refers to a business that is now stable enough to operate and meet its obligations for the foreseeable future.

Materiality Principle

Refers to an accounting standard that can be ignored if the impact has such a small effect on the financial statements that it would not be misleading.

Monetary Unit Assumption

Refers to one monetary unit being used throughout all of the accounting activities.

Consistency Principle

Refers to when a business adopts a specific accounting method that it will enter all similar items in the exact same way in the future.

Only transactions that can be proven should be recorded in accounting practices. And what this means is that businesses must be able to prove transactions through such things as receipts, billing statements, invoices, and bank statements.

Reliability Assumption

income statement (profit and loss statement)

Report of all revenue and expenses for the month

You just sold $100 worth of inventory to a customer for $150. Which of the following accurately describes the effect on the Income Statement?

Revenue is credited $150 and Cost of Goods Sold is debited by $100.

If customers pays at the time of sale you must enter it as a

Sales Receipt

Joe and Jake go into business together and decide to form a corporation called J&J, Inc. They each make an initial investment of $20,000. Which account will you record this initial investment in?

Shareholder Equity

You are reconciling a checking account. Several checks that were written over the past three weeks have not cleared the bank as of the closing period date. What should you do?

Take no action so that the checks correctly impact the account balance

A physical asset, such as inventory, vehicle, or a building

Tangible Asset

A financial statement that reports a company's assets, liabilities, and equity at a specific point in time

The Balance Sheet

Profit and Loss statement. Shows the company's revenues and expenses during a particular period

The Income Statement

Reports the sources and uses of cash by a business

The Statement of Cash Flow

Reports the changes in company equity, from the opening balance to the end of the period balance.

The Statement of Equity

You are reconciling a client's checking account. Several checks the client wrote to pay bills are over a year old and have not been cleared by the bank as of the closing period date. What are the differences between the book balances and actual balances?

The actual balances for Accounts Payable and Cash are higher.

Economic Entity Assumption

The business is a separate entity, so the activities of a business must be kept separate from any other financial activities of its business owners.

General Ledger

The debits and credits posted to the company's line of credit during the last 6 months

Transaction Journal

The debits and credits recorded for a rental equipment expense

What is the Purpose of a balance sheet

To determine the financial health of an organization at a point in time.

The total you get when adding all current assets and all long-term assets. This should equal Total Liabilities+Toal Equity

Total Assets

FUTA is a payroll tax that only the employer pays

True

SUTA taxes are only paid by employers

True

The owners of a business have the sole claim to the business assets if the business has no liabilities.

True

You are the bookkeeper for a new partnership that operates a car wash. The business has two equal partners, Mr. Parker and Ms. Patel. Each partner contributed $100,000 to start the business. The business also took out a note payable from the bank for $100,000. For each statement, select True or False.

True - Cash should be debited $300,000. True - Note Payable should be credited $100,000. True - Contributions - Parker and Patel - should each be credited $100,000 False - Equity is the partners' paid-in capital plus the value of the Note Payable.

Conservatism Assumption

When bookkeepers are uncertain and need to determine how to report an item, this guides them to choose the option that shows less income or asset benefit.

Is the ending balance for the inventory on Balance Sheet?

Yes, Ending balance for the inventory

Reasons for making adjusting journal entries (Choose 3)

a. To record expiration of prepaid insurance. b. To record depreciation. c. To recognize unpaid salaries for the current period.