Accounting 2 test

A company started the year with $1,500 of supplies on hand. During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. At the end of the year the company determined that only $300 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period?

Debit Supplies Expense and credit Supplies for $2,000

An error must have been made if which of the following accounts appears on the post-closing trial balance with a balance other than zero?

Depreciation Expense

Which account below is a temporary account?

Depreciation Expense

The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies.

False

Which of the following statements correctly describes an imprest system?

If the transfers from the payroll account to the employees' checking accounts occur without error, the imprest payroll bank account will equal zero after all employees have been paid.

When will Accounts Receivable be involved in an adjusting entry?

Revenues are earned but have not been collected or recorded at the end of the period.

Which of the following statements about the income statement is correct?

Revenues are listed before expenses on the income statement

After the adjustments have been completed, the adjusted balance in the Supplies account represents the cost of supplies:

on hand at the end of the accounting period

Which of the following statements about net income and net losses is not correct?

A net loss increases the balance in Retained Earnings.

Which of the following trial balances is used as a source for preparing the income statement?

Adjusted trial balance

Which of the following statements about the need for adjustments is not correct?

Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.

Which of the following is not a correct statement regarding the Cash Shortage account?

It is reported on the balance sheet.

Research has found that three factors exist when fraud occurs. Which of the following is not one of the three factors of the fraud triangle?

Lack of a code of ethics

Which line item is reported on both the income statement and statement of retained earnings?

Net Income

The closing entry for dividends involves a debit to ______ and a credit to: (Select all that apply.)

Retained Earnings; Dividends

Which of the following is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence?

Sarbanes-Oxley Act

Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s?

Sarbanes-Oxley Act

A company's cash receipts procedures include the following. Cashiers collect cash and issue a receipt at the point of sale. Supervisors take custody of the cash at the end of each cashier's shift and deposit it in the bank. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. Which internal control principle is most evident with these procedures?

Segregate duties

Which principle of internal control states that you should not make one employee responsible for all parts of a transaction?

Separation of duties

How does the adjustment for depreciation differ from other deferral adjustments?

The depreciation adjustment uses a contra-asset account rather than reducing the asset accounts directly.

If inventory is sold with terms of FOB destination, the goods belong to the seller until they reach their destination.

True

Inappropriate inventory levels reduce a company's net income, either by increasing cost or reducing revenue.

True

Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance.

True

Internal controls include the policies and procedures a company implements to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.

True

Inventories regularly rise and fall as the company buys and sells merchandise.

True

Inventory shrinkage is the difference between inventory recorded and inventory counted.

True

Physical counts of inventory are necessary to measure and adjust for inventory shrinkage.

True

Sales discounts, sales returns & allowances, and cost of goods sold are all temporary accounts which are closed to retained earnings at the end of the accounting period.

True

The Sarbanes-Oxley Act (SOX) grants legal protection to 'whistle-blowers.'

True

The Sarbanes-Oxley Act (SOX) requires external auditors to test the company's internal control system.

True

The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.

True

When credit card sales occur, the seller may either debit Cash or debit Accounts Receivable depending upon when the credit card company pays the seller.

True

Which of the following is a correct statement about the nature of equipment?

While equipment is an asset, its use is recorded as an expense

In an accrual adjustment for expenses incurred but not yet paid:

a liability is increasing since cash will be paid in the future due to the expense incurred

If certain assets are partially used up during the accounting period, then

an asset account is decreased and an expense is recorded.

In recording an accrual adjustment to account for revenues earned but not yet collected:

an asset is increased since cash will be collected at a later date

Adjusting entries are typically prepared:

at the end of the accounting period.

After the adjustments have been completed, the balance in the Rent Expense account represents the:

cost of rent for the accounting period

Cash sales rung up by cashiers totaled $117,000. Cash in the drawer was counted and found to be $119,000. The journal entry to record the day's sales would include a:

credit to Cash Overage for $2,000.

Assume that the custodian of a $450 petty cash fund has $62.50 in currency and coins plus $387.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include a:

credit to Cash for $387.50.

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

ensure that revenues and expenses are recognized during the period they are earned and incurred.

The objectives of a company's system of internal control include all of the following except:

ensuring the company's stock price provides a reasonable return to investors.

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:

establishing responsibility.

An adjusting journal entry that includes an increase to an asset contra-account would also include an increase in a(n):

expense account.

The entry to record to replenishing the petty cash fund involves debiting ______ and crediting:

expense accounts; Cash

When a deferral adjustment is made to an asset account, that asset becomes a(n):

expense.

If a company hires an auditor to check that the work done by others within the company is supported by documentation, it is doing so under the principle of control activities referred to as:

independent verification

All of the following are goals of internal control except:

minimizing the amount of income taxes that must be paid

The primary goals of inventory management do not include:

minimizing the quantity of ending inventory.

The evaluation of the internal control system to determine whether it is working as intended is referred to as:

monitoring activities.

A difference between an imprest payroll account and petty cash is petty cash is:

not held at the bank.

Bearskin Inc. has recorded all the year-end adjustments. Its revenue accounts total $190,000 and its expense accounts total $130,000. The closing entry to close the income statement accounts for the year will debit the various:

revenue accounts for a total of $190,000, credit the various expense accounts for a total of $130,000, and credit Retained Earnings for $60,000.

Accounts Receivable should be increased for

revenues earned during the period but not yet collected

Deferring a revenue or expense account in accounting means that the amount:

will be reported as a revenue or an expense in a later period

Pinkney's Inc. had income before income tax of $164,000 last quarter and a 34% tax rate. What is the company's net income?

$108,240

What is the amount of the discount to be taken by a company that purchases inventory for $10,000 with terms 2/10, n/30, returns $2,000 of the inventory purchased, receives an allowance for defective merchandise of $100, and pays the amount due within the discount period?

$158

The Don't Tread on Me Tire Company had Retained Earnings at December 31, 2015 of $200,000. During 2016, the company had revenues of $400,000 and expenses of $350,000, and the company declared and paid dividends of $11,000. Retained earnings on the balance sheet as of December 31, 2016 will be:

$239,000.

On December 31, 2015, the balance in Retained Earnings is $20,000. On December 31, 2016, the balance in Retained Earnings is $19,100. During 2016, dividends of $4,000 were declared and paid. What is the amount of net income for 2016?

$3,100

The Treasure Chest Corporation had Retained Earnings at the end of December 31, 2015 of $450,000. During 2016, the company had net income of $170,000 and declared dividends of $20,000. The amount of Retained Earnings reported on the balance sheet as of December 31, 2016 will be:

$600,000.

Three months of rent were prepaid on May 1 for $7,200, but two months have now expired, leaving only one month prepaid at June 30. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?

4,800

A company purchases software; it has an estimated useful life of three years. The adjustment to recognize amortization for the use of software would cause which of the following?

A decrease in assets, a decrease in stockholders' equity, and an increase in expenses

Recording an adjusting journal entry to recognize depreciation would cause which of the following?

A decrease in assets, a decrease in stockholders' equity, and an increase in expenses

Which of the following statements about adjustments is correct?

A deferral adjustment that decreases an asset will include an increase in an expense.

The account Cash Overage is which type of account?

A miscellaneous revenue account

After posting the adjusting entry to record revenues earned but not yet collected, which account will be increased?

Accounts Receivable

How can accrual adjustments for interest earned but not yet collected affect the balance sheet and the income statement?

Accrual adjustments can increase assets and increase revenues.

Which of the following is not a term for the value at which an asset is reported on a financial statement?

Accrual value

All of the following accounts will have zero balances on a post-closing trial balance except:

Accumulated Depreciation

When recording an adjustment for the use of equipment during the current accounting period, which two accounts are affected?

Accumulated Depreciation and Depreciation Expense

Which of the following is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

Adjusted trial balance

Which of the following statements about adjusting entries is not correct?

Adjusting entries often affect the cash account.

How does the timing of adjusting entries differ from the accounting for daily transactions?

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

Which of the following statements about the closing process is correct?

After closing entries are posted, the balances of the income statement accounts will be zero.

Sonic Gateway purchased $1,000 of app software that is estimated to have four years of usefulness. The adjusting entry to record the amortization includes a debit to ______ and a credit to:

Amortization Expense; Accumulated Amortization

A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required?

An accrual adjustment

Wiggly Pet Store had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not correct?

An asset should be debited for $1,000 in November.

Which of the following best describes when an accrual adjustment is required?

An expense has been incurred but not yet paid in cash.

Which of the following statements concerning electronic funds transfers is not correct?

Because electronic funds transfers are deposited directly into the company's bank account, they require additional internal control procedures.

Which of the following is the equation for cost of goods sold?

Beginning inventory + net purchases - Ending inventory

The unadjusted trial balance is a key starting point for the adjustment process. Which of the following accounts is unlikely to be affected by an adjusting entry?

Cash

A voucher system employs various forms of documentation related to steps in the control over cash. Which of the following is not a document in the voucher system?

Cash count sheet

Which of the following statements is correct regarding the use of the cash account in deferral and accrual adjustments at the end of the accounting period?

Cash is never involved in end-of-period deferral or accrual adjustments.

Criminally minded employees have been known to override internal controls or do which of the following to get around them?

Collude

The book value of equipment is equal to which of the following?

Cost of equipment less the related accumulated depreciation

Which of the following is not an example of internal control?

Customer satisfaction surveys

A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of the following adjustments would be made at the end of a month in which no payment for interest was made?

Debit Interest Expense and credit Interest Payable

On December 31, 2015, interest of $500 is owed on a bank loan that will not be paid until June 30, 2016. What is the necessary adjusting journal entry on December 31, 2015?

Debit Interest Expense and credit Interest Payable for $500

Your business purchased an investment security on April 1 that will pay $90 interest on June 30. Which of the following adjusting entries would be made on April 30?

Debit Interest Receivable and credit Interest Revenue for $30

Assuming that revenues exceed expenses, which of the following correctly indicates the structure of the journal entry that is used to close revenue and expense accounts?

Debit Revenues, credit Expenses, and credit Retained Earnings

What is the effect of the adjusting entry for depreciation on the accounting equation?

Decrease assets; No effect on liabilities; Decrease stockholders' equity

What is the main difference between accrual and deferral adjustments?

Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded.

How do deferral adjustments for prepaid expenses—such as rent—that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?

Deferral adjustments decrease assets and increase expenses.

To recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period, ______ Expense should be recorded.

Depreciation

Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?

Depreciation contains depreciation since the asset was purchased.

The balance of which of the following accounts would appear in the debit column of an adjusted trial balance?

Dividends

Which of the following appear on an adjusted trial balance?

Dividends

Which financial statement reports the dividends during the current accounting period?

Dividends are reported on the Statement of Retained Earnings.

Which of the following statements about the statement of retained earnings is correct?

Dividends are subtracted to calculate the ending balance of Retained Earnings.

Which of the following is the primary goal of internal controls for cash payments?

Ensure that the business pays only for properly authorized transactions

The principles of internal control include which of the following

Establish responsibility

A company is either a service company, a merchandising company, or a manufacturer, but cannot be more than one of these.

False

A company should always keep extra inventory on hand; it could be needed if demand increases and it has to be bought sooner or later so it adds nothing to cost.

False

A retailer is a company that buys products from manufacturers and sells them to wholesalers.

False

Companies that choose to use FIFO must report in the financial statement notes what their inventory balance would have been had they used LIFO.

False

Cost of goods sold is reported on both the income statement and the balance sheet.

False

Credit card companies charge a fee to the seller that accepts the credit cards and this fee is recorded by the seller as a non-operating expense on the Income Statement.

False

Which of the following statements is correct?

Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.

Which of the following statements about financial statements and the trial balance is correct?

Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits

Which of the following is not a reason that a business needs an effective internal control system?

Identify ways to circumvent applicable laws and regulations

Assume that no dividends were declared during the current year. Which of the following statements about the effect of a net loss on the closing process is correct?

If a company has a net loss during the current accounting period, then the ending Retained Earnings will be smaller than the beginning Retained Earnings.

Which of the following statements about revenues and expenses is correct?

If revenues are less than expenses, the company has a net loss and Retained Earnings decreases.

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Which is the first financial statement that should be prepared after the adjusted trial balance has been prepared?

Income Statement

The balance of which of the following accounts appear in the credit column of an adjusted trial balance?

Income Tax Payable

When cash is received from a remote source, the accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank. Which internal control principle is being met with this procedure?

Independently verify

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to:

Interest Expense and credit to Interest Payable

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period?

Interest Expense should be increased, because the cost of interest relates to the current period.

Which of the following account balances will typically be increased as a result of adjusting entries?

Interest Payable

Which of the following statements is correct regarding the adjustment to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing

Which of the following is not a category of employee fraud?

Internal controls

Which of the following statements about internal control is not correct?

It guarantees the management will behave ethically.

Which of the following statements about the Dividends account is not correct?

It is an expense.

Which of the following statements about an adjusted trial balance is not correct?

It is prepared at the beginning of the year.

The petty cash fund was used to reimburse employees for office expenses during the month. The cash and receipts in the locked box equaled the Petty Cash account balance. When the petty cash fund is replenished, the related journal entry will include a debit to:

Office Expenses.

A company billed a client for services performed on January 10. The customer paid one-half of the amount owed on January 20 and the other one-half on February 24. When should the company record the related Service Revenue?

On January 10

How do temporary accounts differ from permanent accounts?

Only temporary accounts are closed at the end of the accounting period

Which of the following is not one of the internal control functions performed by a cash register?

Perform the bank reconciliation

The journal entry to establish a petty cash fund should include a debit to:

Petty Cash and a credit to Cash.

Which of the following is performed last at the end of the year?

Prepare a post-closing trial balance

Which of the following is performed first at the end of each accounting period?

Prepare adjusting entries

Which of the following is the usual last step in the accounting cycle?

Preparing a post-closing trial balance.

Which of the following is not a change introduced by the Sarbanes-Oxley Act?

Publically traded companies must have their financial statements audited.

The use of passcodes is an example of which internal control principle?

Restrict access

A company declared and paid a dividend of $8,000 this year. The entry to close the Dividend at the end of the year will include a debit to:

Retained Earnings and a credit to Dividends for $8,000.

Which of the following statements about the Retained Earnings account is correct?

Retained Earnings is a permanent account; income statement accounts are temporary.

A company pays salaries and wages every two weeks. Salaries and wages amount to $100 a day and the company has a seven-day work week. On March 31, the company pays wages for the two weeks ending March 24 and recorded the related journal entry. The adjusting journal entry, dated March 31, to record unpaid wages and salaries owed since March 25 will include a debit to

Salaries and Wages Expense and a credit to Salaries and Wages Payable for $700.

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period?

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

An adjustment to accrue the amount of salaries and wages owed was recorded on December 31. These salaries and wages were paid on the following January 5. The entry on January 5 would include a debit to:

Salaries and Wages Payable and Credit to Cash.

At the end of the month, the adjusting journal entry to record the use of supplies would include a debit to:

Supplies Expense and a credit to Supplies.

The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account.

Supplies Expense; Supplies

Which element is not part of the fraud triangle?

Sustainability

Temporary accounts are closed at what stage of the accounting process?

Temporary accounts are closed at what stage of the accounting process?

Which of these accounts would normally not be affected by an adjustment?

The Cash Account

Which of the following statements about the need to make accrual adjustments at the end of the accounting period is not correct?

The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period.

Which of the following is not a correct statement?

The Retained Earnings account is closed with a debit.

Which of the following is incorrect regarding the Income Tax Payable account?

The account represents tax refunds due to the company.

Which of the following is not an internal control for checks received through the mail?

The accounting department counts the cash, prepares the deposit slip and deposits the cash in the bank

The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month. The company used $980 of insurance coverage during the month. Which of the following statements is correct?

The company should debit Insurance Expense for $980 and credit Prepaid Insurance for $980.

Which of the following statements about the presentation of a trial balance is correct?

The order of accounts on a trial balance is as follows: assets, liabilities, stockholders' equity, dividends, revenues and expenses.

Which of the following statements about the adjusted and post-closing trial balances is correct?

The post-closing trial balance is a check that the accounting records are still in balance after posting all closing entries to the accounts.

Which of the following statements about the post-closing trial balance is correct?

The post-closing trial balance is an internal report prepared at the end of the accounting cycle.

Which of the following is not an internal control procedure relating to cash payments?

The use of cash count sheets

Which of the following statements concerning a voucher is not correct?

The voucher must be prepared before the goods or services are ordered.

What is the primary goal of internal controls for cash payments?

To ensure that payments are made only for properly authorized transactions

What is the purpose of the adjusted trial balance?

To ensure that total debits equal total credits after the adjustments have been recorded

From the creditor's perspective, what is the purpose of loan covenants?

To help to ensure a company will be able to repay the loan

Why was the Sarbanes-Oxley Act (SOX) enacted?

To improve the financial reporting and restore investor confidence

What is the purpose of the closing process?

To prepare the accounting records so they are ready to track results for the following year

What are the effects on the accounting equation from the adjustment for depreciation?

Total assets will increase and total stockholders' equity will increase.

What are the effects on the financial condition of the business from the adjustment for revenues earned, but not yet collected, during the accounting period?

Total assets will increase and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjustment for income tax expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

What are the effects on the accounting equation from the adjustment for salaries and wages incurred, but not yet paid, during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

A company's ability to pay its short-term obligations depends on many factors including how quickly it sells its inventory.

True

A highly effective internal control should not be implemented if the cost is greater than the benefit.

True

A physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

True

Gross profit is not a ledger account name.

True

Which of the following accounts would be classified as a current liability on a classified balance sheet?

Unearned Revenue

Baylor Service Corp. redeemed $1,000 of gift cards that customers used to pay for services that were performed by the company. The related adjusting entry would include a debit to:

Unearned Revenue and a credit to Service Revenue.

The inventory costing method that smoothes out changes in costs is

Weighted average.

Which of the following statements about adjustments is not correct?

When making an adjustment to recognize supplies used in a period, total assets will not change.

Which of the following statements about adjustments is not correct?

Which of the following statements about adjustments is not correct?

The adjusting entry to record services earned but not yet billed requires:

a debit to Accounts Receivable and credit to Service Revenue

If an expense has been incurred but will be paid later, then:

a liability account is created or increased and an expense is recorded.

A company reports Equipment on its classified balance sheet. The balance of the Accumulated Depreciation account appears on a classified balance sheet as:

a subtraction to arrive at the amount of Equipment, Net.

The purpose of adjusting entries for income taxes is to record income taxes ______ the accounting period.

accrued, but have not been paid, at the end of

To calculate the company's income tax expense for the current period, it is necessary to know the company's:

adjusted income (before income taxes) and the company's tax rate.

After preparing adjusting entries, the equality of recorded debits and credits is checked by preparing a(n):

adjusted trial balance.

How do accrual adjustments affect liabilities and expenses?

adjustments can increase liabilities and increase expenses.

All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:

adoption of a code of ethics covering all employees.

An adjusted trial balance should be prepared immediately:

after posting adjusting entries.

When a trial balance is prepared, a contra-account appears immediately:

after the account it offsets but in the opposite column.

The cash count sheet determines all of the following except the

amount of cash to be reported on the balance sheet.

After the adjustments have been completed, the adjusted balance the Unearned Revenue represents the:

amount of the sales or services still owed to the customer

When existing assets are used up in the ordinary course of business:

an expense is recorded.

Permanent accounts:

are Balance Sheet accounts.

Dividends:

are reported only on the statement of retained earnings.

Adjustments ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

One type of deferral adjustment reduces the balance in a(n) ______ account on the balance sheet and transfers that reduction into a(n) ______ account on the income statement.

asset; expense

Accrual adjustments involve increasing

assets and revenues or increasing liabilities and expenses.

The accrual adjustment recorded to adjust for revenues earned but not yet collected will cause:

assets to increase

Accumulated Depreciation appears on the:

balance sheet as a contra- asset account.

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality

Adjusting entries affect:

both income statement and balance sheet accounts.

Long-lived assets, such as equipment, are reported at their ______ value on the balance sheet

carrying

The term, deferral, best describes a situation in which:

cash is paid in advance of recognizing an expense.

Closing entries:

cause the revenue and expense accounts to have zero balances.

Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX) include all:

companies that trade on U.S. stock exchanges.

The purpose of internal controls includes all of the following except:

completely eliminating fraud

The control components used by companies as a framework when analyzing their internal control systems include all of the following except:

compliance.

The Accumulated Depreciation account is a(n):

contra-asset account.

The attitude that people in the organization hold regarding internal control is referred to as the:

control environment

A weak system of internal ______ provides the ______ to commit fraud.

controls; opportunity

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

cost of goods sold

A closing entry may include a:

credit to Wages Expense

When a company uses a perpetual inventory system, purchase returns will be recorded by:

crediting inventory.

A closing entry includes a:

debit to Sales Revenue

The deferral adjustment to record the amount of unearned service revenue that is now earned includes a:

debit to Unearned Revenue

At the end of the year, accrual adjustments could include a:

debit to an expense and a credit to a liability.

Employee fraud includes all of the following categories except:

deception.

During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in a(n):

decrease in an asset and an equal increase in expenses.

The adjusting entry to record the amount earned that previously had been collected in advance will:

decrease liabilities and increase revenue

The adjusting entry to record the supplies used during the period will result in a(n):

decrease to Supplies and an increase to Supplies Expense

A prepayment is originally recorded as an asset. Later, at the end of the accounting period, an adjustment is recorded causing a(n) ______ in the asset account and a(n) ______ in the expense account.

decrease, increase

Supplies should be ______ and Supplies Expense should be ______ for supplies used up during the period

decreased; increased

The company uses up $5,000 of an existing asset and the company adjusts its accounts accordingly. This is an example of a(n):

deferral adjustment.

After the adjustments have been completed, the adjusted balance in the Depreciation Expense account represents the:

depreciation for the current period

The process of allocating the cost of buildings, vehicles, and equipment to the accounting periods in which they are used is called:

depreciation.

Most companies pay salaries and wages to employees through EFTs, which are known by employees as:

direct deposits.

The use of sequentially numbered checks is an example of:

document procedures.

Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of:

documenting procedures.

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account.

expenses and dividends; revenues

When a petty cash fund is in use:

expenses paid with petty cash are recorded when the fund is replenished.

A deferral adjusting entry that adjusts assets (such as prepaids and supplies):

expenses the amount used during the period

Amortization is the concept that applies to the:

expensing of long-term assets that lack physical substance over their useful lives

A merchandise company's beginning inventory plus merchandise purchases equals:

goods available for sale.

The Sales Revenue account has a credit balance of $367,200 at year end. After the closing entries have been posted, the account will:

have a zero balance.

The fraud triangle contains three elements that must exist for accounting fraud to occur. The elements are:

incentive, opportunity, and rationalization.

The purpose of recording an adjusting entry for salaries and wages is to record wages:

incurred but not yet paid

The Sarbanes-Oxley Act (SOX) requires the establishment of an audit committee that includes the:

independent directors.

After the adjustments have been completed, the adjusted balance in the Interest Payable account represents:

interest that has accrued, but has not been paid, at the end of the period

One major difference between deferral and accrual adjustments is that deferral adjustments:

involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities

A voucher is an internal file that:

is a collection of documents prepared at each step in the voucher system.

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause:

liabilities to increase

The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:

loan covenant.

Amortization is the expensing of:

long-term assets that lack physical substance.

Carrying insufficient quantities of inventory on hand:

may result in lost sales.

A contra-account

offsets, or reduces, another account.

Permanent accounts are found on

only the balance sheet

Common control principles include all of the following, except:

outsource work to third parties.

Fraud is best defined as:

personal gain.

A system used to reimburse employees for expenditures they have made on behalf of the organization is referred to as a:

petty cash system.

Internal controls are concerned with:

protecting against theft of assets and enhancing accounting information.

The main purposes of internal controls include all of the following except:

providing more favorable financial information.

A cash register does not:

reconcile accrual accounting with cash accounting.

Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system?

reconciliations

The customer typically explains the purpose of the payment using a(n):

remittance advice.

Segregation of duties means that a company assigns responsibilities so that:

responsibilities for related activities are assigned to two or more people.

Physically locking up assets and electronically securing other assets and information is required by the internal control principle of:

restricting access.

A company makes a deferral adjustment that decreased a liability. This must mean that a(n):

revenue account was increased by the same amount.

Adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles, specifically the ______ principle.

revenue recognition

The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as:

segregation of duties.

After net income has been determined, it is then transferred to the:

statement of retained earnings.

At the end of the accounting period:

temporary accounts are closed; permanent accounts are not.

The balance in retained earnings prior to the closing process equals

the balance at the end of the previous accounting period

If no errors have been made, when a company prepares its adjusted trial balance:

the debit column and the credit column will be equal.

In a deferral adjustment for revenues collected in advance that are now earned:

the liability recorded when cash was received is decreased by the adjustment for revenue being earned

Petty cash payments are recorded in the accounting system when:

the petty cash fund needs to be replenished

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the:

total depreciation taken on the long-lived assets since their purchase

Closing journal entries:

transfer net income (or loss) and Dividends to Retained Earnings.

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the:

value of the insurance prepayment that remains to benefit future periods

A process for approving and documenting all purchases and payments on account is referred to as a:

voucher system.

A collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account is referred to as a:

voucher.

FOB shipping point means that ownership of goods passes to the buyer when the goods reach their destination.

False

Which of the following is not a commonly used internal control?

Consolidating duties

Lansing Limited had a beginning balance in its Retained Earnings account of $385,600. During the year, the company declared and paid a $4,700 dividend, and at the end of the year, it reported Retained Earnings of $399,860. The company's net income for the year was:

$18,960.

A company using a perpetual inventory system made the following entry: Accounts payable - 3000 inventory - 60 cash - 2,940 What does this entry reflect?

A payment within the discount period for inventory previously purchased on credit.

What is the effect of the December 31 adjusting entry to record $400 of revenues earned but not yet collected?

Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400

Which of the following types of transactions could be an accrual adjustment?

An increase to an asset account and an increase to a revenue account

When the petty cash fund is replenished:

Appropriate expense accounts are debited.

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?

Conceal fraud

Which of the following entries records the adjustment for revenue earned, but not yet collected?

Debit Accounts Receivable and credit Sales Revenue

Which of the following statements about an adjusted trial balance is correct?

Debits should equal credits both before and after adjustments are made

Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement.

False

FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.

False

If a merchandiser offers a sales discount of 2/10, net/30 on a sale of $1,000, the amount due in 30 days is the net amount of $980.

False

Merchandisers have inventories of finished goods only; manufacturers have inventories of raw materials only.

False

Sales discounts are discounts that consumers get from buying clearance items at a reduced price

False

The components of an internal control system include control environment, risk assessment, control activities, information and communication, and rationalization.

False

The fraud triangle identifies incentive, opportunity, and benchmarks as the requirements for a fraud to occur.

False

The lower the inventory turnover ratio, the more efficiently the company manages its inventory, all other things equal.

False

The sales returns and allowances account balance should be reported as a deduction from the sales account balance because it is an expense account.

False

Which of the following accounts would be classified as a current liability on a classified balance sheet?

Interest Payable

An example of an account that could be included in an accrual adjustment for expense is:

Interest Payable.

An example of an account that could be included in an accrual adjustment for revenue is:

Interest Receivable

Which of the following was not a change introduced by the Sarbanes-Oxley Act?

Limits on executive compensation for most companies

Considering current laws that deal with misstatements of financial results, which of the following statements is correct?

Managers can be sentenced to maximum jail terms of up to 20 years for each violation

Which of the following is not related to the segregation of duties for cash received in person?

Members of the accounting department count the cash collected and deposit it in the bank.

Which of the following is not a reason why it is especially important for companies to have internal controls over cash?

Most businesses accept remote sources of payment on account.

Which of the following transactions constitutes an accrual adjustment involving a revenue account?

Revenue earned, but not yet collected, on investments

A company incurred $5,000 in salaries and wages for employees for the year; $4,500 of these salaries and wages had been paid by the end of the year. Which of the following statements about this situation is correct?

Salaries and Wages Payable on the balance sheet will be $500.

Recognizing that Salaries and Wages Payable (resulting from adjustments at the end of the period) will be paid in a future period, what will be the effect on the accounts when the salaries and wages are paid?

Salaries and Wages Payable will decrease and Cash will decrease.

Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?

Segregate duties

The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions. Which of the following is not one of those functions?

Segregate duties

A small company would have the most difficulty in implementing which of the following internal control principles?

Segregating duties

Accrued revenues recorded at the end of the current year:

often result in cash receipts from customers in the next period.