Accounting 201 Review
Postage stamps on hand are considered to be
a prepaid expense.
On the last day of the period, Jim Otto Company buys a $900 machine on credit. This transaction will affect the
balance sheet only.
Cost of goods sold is computed from the following equation:
beginning inventory + cost of goods purchased - ending inventory.
The entry to record the granting of credit to a customer for a sales return is posted to
both the accounts receivable subsidiary ledger and the general ledger.
A system of internal control
can be rendered ineffective by employee collusion.
A note receivable is a negotiable instrument which
can be transferred to another party by endorsement.
The use of special journals to record transactions
can save time in the posting process.
The operating cycle of a company is the average time that is required to go from cash to
cash in producing revenues.
An expense is recorded under the cash basis only when
cash is paid.
If merchandise from a cash sale is returned by a customer for a refund, the sales return is recorded in the
cash payments journal.
When an account is written off using the allowance method, the
cash realizable value of total accounts receivable will stay the same.
Closing entries
cause the revenue and expense accounts to have zero balances.
Posting of journal entries should be done in
chronological order.
When three or more accounts are required in one journal entry, the entry is referred to as a
compound entry.
A company using the same accounting principles from year to year is an application of
consistency
A business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock is a
corporation
Under the gross profit method, each of the following items are estimated except for the
cost of goods purchased.
Gross profit for a merchandiser is net sales minus
cost of goods sold
The selection of an appropriate inventory cost flow assumption for an individual company is made by
management
The assumption that the unit of measure remains sufficiently constant over time is part of the
monetary unit assumption.
The totals in the cash payments journal are posted
monthly
Limited partnerships
must have at least one general partner.
The custodian of a company asset should
not have access to the accounting records for that asset.
Cash-basis accounting is
not permissible under IFRS.
A check returned by the bank marked "NSF" means
not sufficient funds.
Interest is usually associated with
notes receivable.
A seller may encourage early payment by
offering a discount for early payment.
In the final step of the liquidation process, remaining cash is distributed to partners
on the basis of the remaining capital balances.
A post-closing trial balance will show
only balance sheet accounts.
A sales journal is used to record
only credit sales of merchandise.
Most companies pay current liabilities
out of current assets.
If supplies that have been purchased are used in the course of business, then
owner's equity will decrease.
If services are rendered for credit, then
owner's equity will increase.
If a company is given credit terms of 2/10, n/30, it should
pay within the discount period and recognize a savings.
A payroll record that accumulates the gross earnings, deductions, and net pay by employee for each pay period is the
payroll register.
The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the
percentage of receivables basis.
Balance sheet accounts are considered to be
permanent accounts.
Controls that enhance the accuracy and reliability of the accounting records are
physical controls
Which of the following steps in the accounting cycle may be performed more frequently than annually?
prepare a trial balance
An income statement
presents the revenues and expenses for a specific period of time.
A contingent liability need only be disclosed in the financial statement notes when the likelihood of the contingency is
reasonably possible.
Losses on an exchange of plant assets that has commercial substance are
recognized immediately.
If a transaction cannot be recorded in a special journal, it is
recorded in the general journal.
Keeping a systematic, chronological diary of events that are measured in dollars and cents is called
recording
To be useful, the information outputs of a system should be
relevant, reliable, timely, and accurate.
The recording process occurs
repeatedly during the accounting period.
The percentage-of-sales basis of estimating uncollectibles
results in a better matching of expenses with revenues.
A cash discount is usually granted to all of the following except
retail customers.
Owner's equity is increased by
revenues
Unearned revenues are
revenues not recorded as revenues until services are performed.
Internal controls are concerned with
safeguarding assets.
In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of
sales revenue.
The control principle related to not having the same person authorize and pay for goods is known as
segregation of duties.
Blank checks
should be safeguarded.
The balance sheet is frequently referred to as
statement of financial position
Goods in transit should be included in the inventory of the buyer when the
terms of sale are FOB shipping point.
The face value of a note refers to the amount
that is identified on the formal instrument of credit.
All of the following are characteristics of partnerships except
unlimited life.
Correcting entries are made
whenever an error is discovered.
A current liability is a debt that can reasonably be expected to be paid
within one year or the operating cycle, whichever is longer.
Which of the following is a basic principle of designing and developing an effective accounting information system?
Flexibility Cost effectiveness Usefulness
GAAP stands for
Generally Accepted Accounting Principles.
Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
Going concern assumption.
Which of the following should be included in the physical inventory of a company?
Goods in transit from another company shipped FOB shipping point.
Which of the following are the same under both GAAP and IFRS?
The account. Debit and credit rules. Steps in the recording process. A: All of these answer choices are correct.
The primary accounting standard-setting body in the United States is the
Financial Accounting Standards Board.
Which of the following expressions is correct?
- Sales revenue - cost of goods sold - operating expenses = net income - Net income + operating expenses = gross profit - Gross profit - operating expenses = net income
Which of the following is a true statement about a multiple-step income statement?
- There may be a section for nonoperating activities. - Operating expenses are similar for merchandising and service enterprises. - There is a section for cost of goods sold.
Manufacturers usually classify inventory into all the following general categories
- work in process. - finished goods. - raw materials.
Which of the following statements about the trial balance is correct?
-A trial balance will uncover errors in journalizing and posting. -A trial balance will prove that the debits equal the credits after posting. -A trial balance will still balance if postings are made to incorrect accounts.
Closing entries may be prepared from all of the following
-Income and owner's equity statements -Adjusted balances in the ledger -Income statement and balance sheet columns of the worksheet
Which of the following would be classified as a contra account?
-Sales Discounts -Sales Returns and Allowances -Accumulated Depreciation
If a company uses a multi-column purchases journal, which of the following possible headings for debit columns of the journal would not be appropriate?
Accounts Payable
Which one of the following accounts is a control account?
Accounts Payable.
Management could determine the amounts due from customers by examining which ledger account?
Accounts Receivable
total in the debit column is
Cash ($8,000) + Accounts Receivable ($6,000) + Equipment ($10,000) + Owner's Drawings ($500) + Rent Expense ($1,000) + Salaries and Wages Expense ($3,000) + Advertising Expense ($2,500).
A $140 petty cash fund has cash of $16 and receipts of $82. The journal entry to replenish the account would include a credit to
Cash for $82.
Which one of the following would not cause a bank to debit a depositor's account?
Collection of a note receivable
The historical cost principle requires that when assets are acquired, they be recorded at
Cost
When the physical count of Sheridan Company inventory had a cost of $4420 at year end and the unadjusted balance in Inventory was $4610, Sheridan will have to make the following entry:
Cost of Goods Sold 190 Inventory 190
Which one of the following is not a primary problem associated with accounts receivable?
Depreciating accounts receivable
Vaughn Company pays cash dividends of $590. The entry for this transaction will include a debit of $590 to
Dividends
Which of the following would not cause an increase in partnership capital?
Drawings
Which of the following is part of the recording process?
Entering transactions in a journal. Posting transactions. Analyzing transactions.
In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the
FIFO method.
Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Hardware store
Which of the following would not be considered an expense of a partnership in determining income for the period?
Income tax expense
The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit
Inventory
Sunland Company uses a perpetual inventory system purchased inventory from Blossom Company. The shipping costs were $470 and the terms of the shipment were FOB shipping point. Sunland would have the following entry regarding the shipping charges:
Inventory 470 Cash 470
In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting
Inventory.
The managers of Venice Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?
LIFO
Which of the following is a characteristic of relevance?
Materiality Confirmatory value Predictive value
A credit is not the normal balance for which account listed below?
Owner's Drawings account
Under a periodic inventory system, acquisition of merchandise is debited to the
Purchases account.
Which of the following is not an advantage of a subsidiary ledger?
Puts greater detail in the general ledger.
Which one of the following is an external user of accounting information?
Regulatory agencies Customers Investors
Which of the following journal entries is recorded correctly and in the standard format?
Salaries and Wages Expense (D)510 Advertising Expense (D)1040 Cash (C)1550
Sales taxes collected by a retailer are reported as
Sales taxes collected by a retailer are reported as
An account that will have a zero balance after closing entries have been journalized and posted is
Service Revenue.
Which of the following would not result in unearned revenue?
Services performed on account
Which of the following companies would be least likely to use a worksheet to facilitate the adjustment process?
Small company with few accounts
Which one of the following inventory methods is often impractical to use?
Specific identification
Which depreciation method is most frequently used in businesses today?
Straight-line
The owners' equity statement for a partnership is called the
The owners' equity statement for a partnership is called the
When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?
They should be inserted on the lines immediately below the trial balance totals.
An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items.
True
Which of the following statements about Visa credit card sales is incorrect?
Two parties are involved.
Which of the following statements is correct with respect to inventories?
Under FIFO, the ending inventory is based on the latest units purchased.
Getting End. owner's equity
[Beg. owner's equity tot. + Add'l. invest. + (Rev. - Exp.) - Draws. = End. owner's equity tot.]
The standard format of a journal would not include
a T-account.
The heading for a post-closing trial balance has a date line that is similar to the one found on
a balance sheet.
A journal provides
a chronological record of transactions.
On January 14, Swifty Industries purchased supplies of $750 on account. The entry to record the purchase will include
a debit to Supplies and a credit to Accounts Payable.
A subsidiary ledger is
a group of accounts with a common characteristic that provides detailed information about a control account in the general ledger.
Interest expense on an interest-bearing note is
accrued over the life of the note.
An adjusting entry that debits an asset and credits a revenue is necessary for
accrued revenues.
On a bank reconciliation, deposits in transit are
added to the bank balance.
The adjusted trial balance is prepared
after adjusting entries have been journalized and posted.
The balance in the Accumulated Depreciation account represents the
amount charged to expense since the acquisition of the plant asset.
The steps in the accounting cycle for a merchandising company are the same as those in a service company except
an additional adjusting journal entry for inventory may be needed in a merchandising company.
Capital is
an owner's permanent investment in the business.
A gift card purchased in December for $100 and used in January of the following year for purchase of goods, should be recognized as (assume December 31st as end of accounting year)
an unearned revenue liability in December, which should be reversed into Sales Revenue in January.
The Income Summary account is an important account that is used
annually in preparing closing entries.
Bank errors
are infrequent in occurrence.
Current liabilities
are obligations that the company expects to pay within the coming year or the operating cycle, whichever is longer.
If total liabilities increased by $9000, then
assets must have increased by $9000, or owner's equity must have decreased by $9000.
The historical cost principle states that
assets should be recorded at their cost.
The usual ordering of accounts in the general ledger is
assets, liabilities, owner's capital, drawings, revenues, and expenses.
The lower-of-cost-or-net-realizable-value (LCM) basis may be used with all of the following methods
average cost. LIFO FIFO
On October 4, 2020, Bonita Corporation had credit sales transactions of $3500 from merchandise having cost $2300. The entries to record the day's credit transactions include a
credit of $3500 to Sales Revenue.
The one characteristic that all entries recorded in a multi-column purchases journal have in common is a
credit to the Accounts Payable account.
The individual amounts in the sales journal are posted to the accounts receivable subsidiary ledger
daily
Assets normally show
debit balances
Posting a sales journal to the accounts in the general ledger requires a
debit to Accounts Receivable and a credit to Sales Revenue.
Debits
decrease liabilities and increase assets.
In a bank reconciliation, a bank service charge is
deducted from the book balance.
The use of pre-numbered checks in disbursing cash is an application of the principle of
documentation procedures.
A contingency that is remote
does not need to be disclosed.
When an owner withdraws cash or other assets from a business for personal use, these withdrawals are termed
drawings
The cost of goods available for sale is allocated between
ending inventory and cost of goods sold.
The Inventory account balance appearing in a perpetual inventory worksheet represents the
ending inventory.
Owner's equity is decreased by
expenses
When a note is accepted to settle an open account, Notes Receivable is debited for the note's
face value.
An exception to disbursements being made by check is acceptable when cash is paid
from petty cash.
An accumulated depreciation account
has a normal credit balance.
Adjustments for accrued revenues
have an asset and revenue account relationship
The starting point of the accounting process is
identifying economic events
In the balance sheet, ending inventory is reported
in current assets immediately following accounts receivable.
The Freight-In account
increases the cost of merchandise purchased.
Revenues are
increases/decreases in assets/liabilities from selling goods or providing services.
The daily cash count of cash register receipts made by department supervisors is an example of
independent internal verification.
All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except
independent outside auditors must eliminate redundant internal controls.
A subsidiary ledger frees the general ledger from details of
individual balances.
A patent
is nonrenewable.
When an owner makes a withdrawal
it doesn't have to be cash, it could be another asset.
If a transaction cannot be recorded in a special journal
it is recorded in the general journal.
The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
journal, and transfer the information to the ledger accounts.
Companies amortize the cost of a patent over its
legal life or its useful life, whichever is shorter.
The factor which determines whether or not goods should be included in a physical count of inventory is
legal title.
The chart of accounts is a
listing of the accounts and the account numbers which identify their location in the ledger.
In a period of rising prices, FIFO will have
lower cost of goods sold than LIFO.
A bank may issue a credit memorandum for
the collection of a note receivable for the depositor by the bank.
The entries in a sales journal will show
the credit sales of merchandise.
The left side of an account is
the debit side.
A problem with the monetary unit assumption is that
the dollar has not been stable over time.
Cross-footing a cash receipts journal means
the equality of debits and credits in the journal have been proved.
Evidence that the monthly posting of the sales journal total has been accomplished is indicated by
the general ledger account numbers under the double-lined total.
The Sales Returns and Allowances account does not provide information to management about
the percentage of credit sales versus cash sales.
An account consists of
three parts
In the liquidation of a partnership, any gain or loss on the realization of noncash assets should be allocated
to the partners on the basis of their income ratios.
An (x) below the "Other Accounts" column in a cash receipts journal indicates the
total is not posted to the general ledger.
Accountants refer to an economic event as a
transaction
