Accounting Exam
Jackie Wildermuth
Blank Endorsement
In a corporation, who approves the issuance of shares stock?
Board of Directors
Doc No
C110, C111, C112, M33, T31
A bankruptcy that results in liquidation of a company's assets is a
Chapter 7 bankruptcy
T or F: If an owner of a company withdrawals cash for personal use, then total assets will decrease and equity will increase
False - equity will decrease
T or F: A sale for which cash will be received at a later date results in an account payable
False- not payable, but receivable
The date on a monthly income statement prepared on July 31 is written as
For Month Ended July 31, 2011
GAAP
Generally Accepted Accounting Principles
what is the IRS?
International Revenue Service
The first digits in the account number 220 mean that the account is in the
Liability division of the chart of accounts
Payor vs. Payee
Payor - wrote the check Payee - received the check
T or P: Accts. Rec.
Permanent
Advantages and disadvantages to forming a company as a sole proprietorship
pros: all profits, total control, ease of formation cons: limited resources, limited expertise, limited life, all debts and liabilities
journalizing
recording transactions in a journal
owner's equity
reflects the value of a business
T or F: A chart of accounts is a list of account titles and numbers showing the location of each account in a ledger
True
T or F: A riskier bond will usually have a higher stated interest rate
True
T or F: A trial balance is a proof of the equality of debits and credit in a general ledger
True
T or F: Accounts in a general ledger are arranged differently than the order in which the accounts appear on the chart of accounts
True
T or F: Accts. Rec. accounts are increased with debit
True
T or F: Advertising Expense 510, Insurance Expense 520, so Electricity Expense being added would be 515
True
T or F: An endorsement consisting only of the endorser's signature is blank endorsement
True
T or F: Assets are items that a company owns
True
T or F: Each transaction changes the balances in at least two individual accounts
True
T or F: Journalizing a transaction occurs before posting
True
T or F: One of the advantages of buying preferred stock is a guarantee of dividends
True
T or F: Prepaid insurance is decreased with a credit
True
T or F: The amounts that a company owns are called assets
True
T or F: The work sheet is used to assist in preparing the revenue, expenses, and net income sections of an income statment
True
T or F: When a business uses EFT to pay vendors, previous arrangements have been made with its bank to process the transactions
True
T or F: When an error in a journal entry has already been posted, the incorrect journal entry should be corrected with an additional journal entry
True
T or F: When cash is received from sales, both cash account and sales account are increased
True
T or F: liabilities occur when a company takes ownership of an asset but does not pay cash at the time of a transaction
True
If own a share of stock in a company, then you have the right to
Vote for a person to be appointed to the Board of Directors
What can a corporation not do?
Vote for a state senator
A business form ordering a bank to pay cash from a bank account is a
check
T or F: A business form ordering a bank to pay cash from a bank account is a
check
to find the balance of an account what should be consulted
general ledger
when services are sold on account for 500
sales is increased with a credit and Accts. Rec. is increased with a debit
If cash is increased by 2,000 when the owner invests cash then capital is...
increased by 2,000
component percentage
is a percentage relationship between one financial statement item and the total that includes that item
general journal
journal with two columns in which all kinds of entries are recorded
fiscal period
length of time for which a business summarizes and reports financial information
When cash is decreased and supplies is increased by an equal amount
liabilities and capital are not changed
Accts. Pay = what type of account
liability
Adjusting supplies and prepaid insurance and recording the related expenses is appropriate according to the accounting concept of
matching
The source document for journalizing an electric funds transfer is a
memorandum
the source document for a correcting entry is
memorandum
When total revenue is greater than total expense, the difference is a
net income
IF a check is endorsed on the bank with the words "For Deposit Only" the check can be cashed by who?
no one, it must deposited
When a Dolle's company pays cash on account to Wildermuth's company, Dolle's company will show that
one asset and one liability have changed
Sales = what type of account
owner's equity
telephone expense = what type of account
owner's equity
cash on hand is known as
petty cash
The procedure for transferring information from a journal entry to a ledger account is
posting
Three main sources of funding for a corporation
stocks, bonds, loans
liabilities
stuff you owe
assets
stuff you own
when supplies are bought on account, the account debited is
supplies
which of the following statements is false
the Dow Jones Industrial Average encompasses all publicly traded stocks
an account number in the journal's "post. ref." column shows
the account to which an amount is posted
When cash is paid for insurance
the balance of the prepaid insurance accounts is decreased
A journal entry includes
the debit and credit parts of a transaction recorded on one page
A check must be signed with
the same signature as on the signature on file on the bank
a paper general journal page is complete when
there is insufficient space to record any more entries
what type of account is dividends
"Dividends" is an equity account, NOT an expense
accounting is referred to as the
"language of business"
calculating depreciation
(Straight - Line Depreciation) - charging an equal amount of depreciation expense for a plant asset in each year of its useful life
bank loan
- Corporations may borrow from a bank - Principal: the amount that is borrowed - Interest: the cost of borrowing a principal amount - Paid monthly to the bank - Compound interest: paying interest on the interest - Amortization: paying off debt in regular installments over a period of time
a corporate bond
- Debt obligations issued to the public - The term of the bonds are a fixed period of time - Bonds also pay a stated rate of interest, usually quarterly - Higher interest on riskier bonds - Risk is of bankruptcy - Bonds do not give the buyer ownership in the company
rights of a corporation
- Own property - Incur liabilities - Enter contracts - Sell ownership in itself (stock) - In order to do business, a corporation must acquire legal approval from a state and or federal agency - Best place to register: Delaware
why would a check get dishonored?
- insufficient funds - wrong signature / forged - void / stop check - altered check - if the written amount doesn't = the # amount
What does the FASB do
1) Create GAAP 2) Examine current accounting practice in business 3) Provide guidance for unusual accounting transactions
Accounting equation =
Assets = Liabilities + Owner's Equity
3 factors for calculating Depreciation Expense
1) Original Cost: the cost of the asset and the cost paid to make the asset usable to a business - (ie: delivery and installation) 2) Estimated Salvage Value: (AKA: "scrap value", "residual value") - the amount that will be received at disposal 3) Estimated Useful Life: How long an asset will be useful to a company (an estimate)
physical vs. functional depreciation
1) Physical depreciation - when an asset is worn out 2) Functional depreciation - when an asset still works, but becomes obsolete
Accounting Cycle
1) analyze transactions 2) journalize transactions 3) post transactions 4) prepare worksheet 5) prepare financial statements 6) journalize adjustments and closing entries 7) post adjustments and closing entries 8) prepare a post-closing trial balance
Two reasons why an investors would buy a share of common stock
1) increase in market value 2) to have ownership
Rank the following creditors in terms of the receipt of funds from a liquidation - preferred stockholder - common stockholder - loan secured by collateral - bondholder
1) loan secured by collateral 2) bondholder 3) preferred stockholder 4) common stockholder
what are the three main types of business?
1) sole proprietorship 2) Partnership 3) corporation
two types of bankruptcy
1. Chapter 7: A liquidation - when all assets of a company are sold and the proceeds are distributive to creditors a) Creditors are who you owe money to b) The company ceases to exist 2. Chapter 11: A re-organization: the company reorganizes its debts and pays off some of them a) The company continues to operate b) A bankruptcy court oversees major management decisions
Post Ref
110, 115, 120, 130, 140, 520, 530
Owner invested 8,000 bought 1,500 of supplies with cash, bought insurance coverage of 500 with cash, and bought 300 more supplies on account, total assets =
8,300
A properly amortized loan will have:
A near-zero principal balance at the end of the term of a loan
Uncollectible accounts
A/R that cannot be collected - Necessary because always a risk that someone won't pay you back - Allowance should be MATCHED in the same period that revenue is earned - Impossible to know exactly which accounts will become uncollectible
When services are sold on account
Accts. Rec. is debited, sales is credited
when 1,500 cash is received on account
Accts. Rec. is decreased with a credit and cash is increased with a debit
AICPA
American Institute of Certified Public Accounts
differences between common & preferred stocks
Common: - More risky ○ Last to receive a payment in bankruptcy - Voting - No guaranteed dividends Preferred: - Less risky ○ Second last to receive a payment in bankruptcy - Non-voting - Guaranteed dividends
Debits =
Credits
Adjusting Entries
Debit Expense, Credit Asset
what does EFT stand for?
Electronic Funds Transfer
T or F: If a business has only two asset accounts, Accts. Rec. and Cash, the two accounts should be numbered 110 for Accts. Rec. and 120 for Cash
False
T or F: One of the columns in the General Ledger provides a direct reference to a source docs
False
T or F: Owner's Equity = Assets + Liabilities
False
T or F: The left side of an asset account is the credit side bc assets accounts are on the left side of the accounting equation
False
T or F: The owner of a corporate bond has a share of ownership in the issuing company
False
T or F: To correct an error in a journal, erase the incorrect item and write the correct item in the same place
False
T or F: When an owner invests cash in a business, owner's equity decreases
False
T or F: When cash is paid for rent expense, total assets decrease and owner's equity increases
False
T or F: a balance sheet reports information over a period of time, indicating the financial progress of a business in earning a net income or net loss
False
T or F: the component percentage "% of sales" is calculated by dividing sales and total expense by net income
False
T or F: the petty cash fund is a liability with a normal debit balance
False
For deposit only
Restrictive Endorsement
SEC
Securities Exchanged Commission
Pay to the order of Jackie Wildermuth
Special Endorsement
T or P: Income Summary
Temporary
T or P: Sales
Temporary
T or P: Utilities Expense
Temporary
income statement
a financial statement showing revenue and expenses for the fiscal period
balance sheet
a financial statement that reports assets, liabilities, and owner's equity as a specific date
journal
a form for recording transactions in chronological order
A form showing a proof of a petty cash payment is
a petty cash slip
If the trial balance columns are not equal and the difference can by divided evenly by 9, the error most likely is
a transposed numbers
Permanent accounts
accounts used to accumulate information from one fiscal period to the next AKA "real accounts"
Temporary accounts
accounts used to accumulate information until it is transferred to the owner's equity account AKA "nominal accounts"
Equity account
amounts earned by a corporation and not yet distributed to the shareholders
adjustments
changes recorded on a work sheet to update general ledger accounts at the end of the fiscal period
A decrease in owner's equity resulting from the operation of a business for the use of the business is
an expense
When a transaction changes both sides of the accounting equation
an increase on the left side must equal an increase on the right side
A lost check with a blank endorsement on it can be cashed by
anyone who has the check
Accts. Rec. = what type of account
asset
What type of account is prepaid insurance
asset
furniture = what type of account
asset
Right side of T account
credit
Increase in a revenue account are shown on a T accounts...
credit side
The entry to record receipt of cash from the owner as an investment
debit cash, credit capital
Normal balance side of an asset account
debit side
the normal balance side of an expense account is
debit side
when cash is paid for an expense, the expense account is
debited
A journal entry consists of
debits and credits, source documents, and date
a check that a bank refuses to pay is called a
dishonored check
The recording of debit and credit parts of a transaction is called
double-entry accounting
For personal use
drawing
entry
each transactions recorded in a journal