Accounting Midterm - True or False
A company's fiscal year must correspond to the calendar year.
False
A credit term of "2/10, n/30" means that the buyer may deduct 2% from the invoice if payment is made within ten days from the end of the month.
False
A decrease in an expense account is the equivalent of a decrease in owner's equity.
False
A deferral is the recognition of an expense that has risen but has not yet been recorded.
False
A fiscal period must begin on January 1.
False
A revenue account is closed with a credit to the revenue account and a debit to Income Summary.
False
A trade discount is a cash discount.
False
A worksheet is more useful for a small entity than for a large one.
False
Accrual accounting recognizes revenues and expenses at the point that cash changes hands.
False
Accrued revenue is a term used to describe revenue that has been received but not yet earned.
False
Accumulated depreciation appears on the income statement.
False
Assets become liabilities when they expire.
False
There is sufficient information on a post-closing trial balance to prepare an income statement.
False
To simplify the recording of regular transactions in the next accounting period, all adjusting journal entries are reversed.
False
Total assets, total liabilities and owner's equity on the balance sheet are the same as the totals of the Balance Sheet columns on the worksheet.
False
Transportation in is considered a cost of merchandise purchased.
False
Transportation in is treated as a deduction in the cost of goods sold section of the income statement.
False
Transportation out is included in the cost of goods sold calculation.
False
Trial balances are prepared primarily to ensure that no entries have been omitted.
False
Under the periodic inventory system, cost of goods sold is treated as an account.
False
When "143" is written as "134," there is a sliding error.
False
When the adjusting entries are entered onto a worksheet, it is not necessary to record them in the general journal.
False
When the balance sheet columns of the worksheet are initially footed they should be in balance.
False
When the income statement columns of the worksheet are totaled, the excess of debits over credits is called profit.
False
Working papers provide a written record of the work performed by the accountant or auditor.
True
Acquiring a computer for cash is just exchanging one asset for another and will not result in an expense even in the future periods.
False
Adjusting entries affect cash flows in the current period.
False
Adjusting entries are all dated as at the first day of the new accounting period.
False
After the adjusting and closing entries have been recorded and posted, the general ledger accounts that appear on the balance sheet have no balances.
False
All decreases in owner's equity are a result of expenses.
False
All nominal accounts must be closed before the Income Summary account can be closed.
False
Allowance for bad debts is considered as contra asset account, presented on the liability portion.
False
An adjusting entry prepared at the end of the year for a deferral initially recorded using asset method would involve a credit to an expense account.
False
An asset's book value represents the true market value of the asset.
False
An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.
False
An expense account is closed with a debit to the expense account and a credit to Income summary.
False
As equipment is depreciated, its book value increases and it accumulated depreciation increases.
False
Assets, liabilities, capital and withdrawal accounts are extended to the income statement columns of the worksheet.
False
Because adjusting entries are recorded on a worksheet, they do not need to be journalized or posted.
False
Book value of an asset is the original cost of an asset less depreciation expense for the year.
False
Cash discounts are called purchases discounts from the buyer's point of view.
False
Cash loaned from a bank constitutes income.
False
Closing entries can be prepared by referring solely to the Income Statement columns of the worksheet.
False
Closing entries deal primarily with the balances of real accounts.
False
Concepts underlying the preparation of adjusting entries include periodicity and separate entity concept.
False
Depreciation Expense-Building is a permanent account.
False
Discounts offered to the buyer to encourage early payment are trade discounts.
False
During the closing process, expenses are transferred to the credit side of the Income Summary account.
False
Ending merchandise inventory is included in the calculation of cost of goods available for sale.
False
Expenses are increases in equity caused by the entity's income-generating activities.
False
FOB shipping point means the seller incurs the shipping costs.
False
Financial statements are confidential documents which are available only to the owner of the business.
False
Financial statements are prepared from the Adjusted Trial Balance columns of the worksheet.
False
For a merchandising entity, the difference between net sales and operating expenses is called gross margin.
False
For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to cash.
False
General ledger account balances agree with those in the financial statements even before adjusting and closing entries are recorded and posted.
False
If all transactions were originally recorded in conformity with GAAP, there would be no need for adjusting entries at the end of the period.
False
If the seller is to shoulder the cost of delivery, the term is stated as FOB destination.
False
In a worksheet, a net lost is shown in the income statement column only.
False
In recording the adjusting entry for accrued salaries, all the accounts involved are decreased.
False
In the accounting cycle, closing entries are prepared before adjusting entries.
False
Income and expense accounts are moved to the balance sheet columns of the worksheet.
False
Income summary is closed with a debit to Income Summary and a credit to the owner's Withdrawals account.
False
On a worksheet, the balance of the owner's Capital account is its ending amount for the period.
False
On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expense.
False
Paying taxes to the government is an example of financing activity.
False
Primary users of the accounting information are accountant and auditors.
False
Revenue is equal to the cash received by a company during an accounting period.
False
Revenue results from collection of accounts receivable.
False
Reversing entries are made to correct errors in the accounts.
False
Reversing entries can be made for deferrals but not for accruals.
False
Sales return and allowances is an expense account.
False
Temporary accounts are also known as real accounts.
False
Terms 2/10, n/30 is an example of a trade discount.
False
The Income Summary account appears in the income statement.
False
The Income Summary account will appear on the the post-closing trial balance.
False
The Merchandise Inventory account is not affected when a sales allowance is granted.
False
The Wages Payable would appear on the Income Statement.
False
The account commissions Earned would appear on the balance sheet.
False
The account form of the balance sheet shows assets, liabilities and equity in a vertical sequence.
False
The adjusting entries involving Depreciation Expense-Building and Supplies Expense could be reversed.
False
The adjusting entry to allocate part of the cost of a one-year fire insurance policy to expense will cause total assets to increase.
False
The adjusting entry to recognize an expense which is unrecorded and unpaid will cause total assets to increase.
False
The amount for the owner's withdrawals will appear in the income statement columns of the worksheet.
False
The amount placed opposite the owner's Capital in the balance sheet columns of the worksheet is the amount to be reflected for owner's Capital on the balance sheet
False
The balance sheet credit column of the worksheet usually contains only the liability and equity accounts.
False
The balance sheet may be prepared by referring solely to the Balance Sheet columns of the worksheet.
False
The balances of all the accounts that appear on a balance sheet are the same on the adjusted trial balance as they are on a post-closing trial balance.
False
The bill of lading is a document prepared by the seller detailing the terms of delivery.
False
The calculation of cost of goods available for sale during the year is not affected by the previous year's ending inventory.
False
The cost of merchandize purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period.
False
The debit balance of the inventory account in the trial balance under the periodic inventory system is the amount of the inventory at the end of the current year.
False
The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.
False
The difference between revenues from sales and cost of sales is operating income.
False
The excess of expenses over revenues is called loss.
False
The heading for an income statement might include the line "As at December 31, 2015."
False
The matching principle provides guidance in accounting for the recognition of assets.
False
The maximum period covered by a worksheet is six months.
False
The only accounts that are closed are income statement accounts.
False
The owner's Capital account is shown in the Income Statement Credit column on a worksheet.
False
The owner's Withdrawals account will not appear on an adjusted trial balance on the worksheet.
False
The owner's personal withdrawals for the year cause a decrease in profit.
False
The periodic inventory system provides an up-to-date amount of inventory on hand.
False
The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.
False
The purchase of equipment is an example of a financing activity.
False
The purchase of equipment not for resale should be debited to purchase account.
False
The statement of changes in equity uses only the profit figure from the income statement to explain the change in equity.
False
The term freight prepaid or collect will dictate who shoulders the transportation costs.
False
The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the invoice date.
False
The totals of the balance sheet columns of the worksheet will usually be the same as the totals appearing in the formal balance sheet.
False
The worksheet is prepared after the formal adjusting and closing entries.
False
The worksheet should be prepared after the formal financial statements have been prepared.
False
There is no need for a physical inventory count in the perpetual inventory system.
False
There is sufficient information on a post-closing trial balance to prepare a statement of changes in equity.
False
When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.
False
When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be understated.
False
A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.
True
A loss occurs when there are more expenses than revenue.
True
A physical inventory is usually taken at the end of the accounting period.
True
A reversing entry is a journal entry which is the exact opposite of a related adjusting entry made at the end of the period.
True
A reversing entry will include either a debit to a revenue account or a credit to an expense account.
True
A validated deposit slip indicates that cash and checks were actually deposited.
True
Accounting periods should be of equal length to facilitate comparisons between periods.
True
Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.
True
Accounts that are partly income statement amounts and partly balance sheet amounts are called mixed accounts.
True
Accrued Revenues should be recorded as an asset on the balance sheet.
True
Accumulated depreciation accounts may be referred to as contra-asset accounts.
True
Adjusting entries are useful in apportioning costs among two or more accounting periods.
True
Advertising expense appears as a selling expense on the income statement.
True
After all necessary adjustments are entered in the worksheet, the two adjustments columns are totaled to prove the equality of debits and credits.
True
After all the closing entries have been entered and posted, the balance of the Income Summary account will be zero.
True
An adjusting entry includes at least one balance sheet account and at least one income statement account.
True
An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory.
True
An important use of the worksheet is as an aid in the preparation of financial statements
True
An income statement relates to a specified period while a balance sheet shows the financial position of the entity at a particular date.
True
Applying accrual accounting results in a more accurate measurement of profit for the period than does the cash basis of accounting.
True
Book value is the original cost of a building less depreciation for the year.
True
Buying and producing goods and services are examples of operating activities.
True
Cash flow statement reports the amount of cash received and disbursed during the period.
True
Closing entries clear income and expense accounts at the end of the period.
True
Closing entries result in the transfer of profit or loss into the owner's Capital account.
True
During the closing process, revenues are transferred to the credit side of the Income Summary account.
True
Ending merchandise inventory for year 1 automatically becomes beginning merchandise inventory for year 2.
True
Every adjusting entry must change both an income statement account and a balance sheet account.
True
Failure to record the adjusting entry for accrued salaries results in the current year's profit being overstated.
True
Failure to record the adjusting entry for depreciation results in assets and owner's equity being overstated on the balance sheet.
True
Failure to record the adjusting entry for depreciation will overstate assets on the balance sheet.
True
Financial flexibility is the ability to take effective actions to alter the amounts and timings of cash flows so that it can respond to unexpected needs and opportunities.
True
Financial position may be assessed by referring to a balance sheet.
True
Financial statements cannot be prepared correctly until all the accounts have been adjusted.
True
For a merchandizing entity, the difference between net sales and operating expenses is called gross margin.
True
Goods should be recorded at their list price less any trade discounts involved.
True
If an asset has been carried to the debit column of the income and a similar error occurred involving income or liabilities, the worksheet may appear to be correct but the profit figure is actually misstated.
True
If revenue and expenses were equal for an accounting period, the result would be neither a profit nor a loss.
True
If the post-closing trial balance does not balance, then the error(s) definitely occurred at some point during the closing process.
True
In recording the adjusting entries for depreciation, both accounts involved are increased.
True
In the accounting cycle, information from source documents is initially recorded in the journal.
True
Liquidity refers to the availability of cash in the near future after taking account of the financial commitments over this period.
True
Merchandise inventory could include goods that are in transit.
True
Nominal account balances are reduced to zero by closing entries.
True
Not all increases to cash represent revenues.
True
Notes to financial statements include narrative descriptions or more detailed analysis of amounts shown on the face of the balance sheet, income statement, cash flow statement and statement of changes in equity.
True
Of the adjustment for accrued salaries is omitted, liabilities and expenses will be understated.
True
On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expense.
True
One way to handle prepaid items is to initially charge them to an appropriate expense account and at the end of the accounting period transfer the unused portion to an appropriate prepaid account.
True
Pabebe Company bought a building that cost ₱200,000, has accumulated depreciation of ₱20,000. The book value of the building is ₱180,000.
True
Post-closing trial balance tests the equality of the accounts after the adjustments and the closing entries are posted.
True
Purchases returns and allowances is a deduction from purchases.
True
Recording incurred but unpaid expenses is an example of an accrual.
True
Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.
True
Reversing entries are never required.
True
Sales return and allowances is described as a contra-revenue account.
True
Solvency refers to the availability of cash over the longer term to meet financial commitments as they fall due.
True
Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.
True
Supplies expense is a temporary account.
True
Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.
True
The Adjusted Trial Balance columns of the worksheet are prepared by combining the Trial Balance and Adjustments columns of the worksheet.
True
The Merchandise Inventory account is not affected when a sales allowance is granted.
True
The adjusting entries involving Rent Receivable and Salaries Payable could be reversed.
True
The adjusting entry to recognize earned commission revenues not previously recorded or billed will cause total assets to increase.
True
The adjusting entry to recognize earned revenues which was received in advance will cause total liabilities to decrease.
True
The adjustment to record depreciation of property and equipment consists of a debit to depreciation expense and a credit to accumulated depreciation.
True
The amount of accrued revenues is recorded by debiting an asset account and crediting an income account.
True
The amount of owner's withdrawals can be found on the worksheet.
True
The balance into the merchandise inventory account at the beginning of the period represents the cost of the merchandize on hand at that time.
True
The balance of the Unearned Revenues account will appear in the balance sheet credit column of the worksheet.
True
The balance of the owner's capital account represents the cumulative net result of income, expense and withdrawal transactions.
True
The balance sheet is also known as the statement of financial position.
True
The balance sheet is prepared based on the final equity balance in the statement of changes in equity.
True
The balance sheet provides the financial statement user the type and amounts of each asset, liability and capital account at a particular date.
True
The balances of the Accumulated Depreciation accounts will appear on the credit side of the worksheet's Balance Sheet columns.
True
The change in inventory level from the beginning to the end of the year affects cost of goods sold.
True
The chart of accounts for a merchandizing entity differs from that of a service entity.
True
The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.
True
The ending inventory of one period is the beginning inventory of the next period.
True
The expiration of usefulness of equipment during an accounting period is called depreciation.
True
The final trial balance is called a post-closing trial balance.
True
The focal point of the accounting cycle is the financial statements
True
The income statement of an entity that provides services only will not have cost of goods sold.
True
The income statement shows the types and amounts of revenues and expenses for the accounting period.
True
The income summary account is used to close the income and expense accounts.
True
The last step in worksheet preparation is to enter the profit or loss figure as a balancing figure in the income statement and balance sheet columns.
True
The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for purchases and collection of cash.
True
The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.
True
The perpetual inventory system requires recording the cost of each sale as it occurs.
True
The post-closing trial balance contains asset, liability, withdrawal and capital accounts.
True
The post-closing trial balance will contain only real accounts.
True
The post-closing trial balance will have fewer accounts than the adjusted trial balance.
True
The purchase of land is an example of an investing activity.
True
The purpose of reversing entries is to simplify the bookkeeping process.
True
The sales discounts account is a contra-income account and will have a debit balance.
True
The statement of cash flows discloses significant events related to the operating , investing, and financing activities of a business.
True
The statement of changes in equity discloses the withdrawals during the period.
True
The statement of changes in equity relates the income statement to the balance sheet by showing how the owner's Capital account changed during the accounting period.
True
The third step in worksheet preparation is to enter the adjusted account balances in the adjusted trial balance columns.
True
The two main systems for accounting for merchandize are periodic and perpetual.
True
The worksheet helps the accountant discover existing posting and calculation errors.
True
The worksheet is a convenient device for completing the accounting cycle.
True
The worksheet is a type of accountant's working paper.
True
The worksheet is not presented with the financial statements.
True
The worksheet is used to pull together up-to-date account balances needed to prepare the financial statements.
True
There is sufficient information on a post-closing trial balance to prepare a balance sheet.
True
Transportation in is considered a cost of merchandise purchased.
True
Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory Account.
True
Under the periodic inventory system, the purchases account I'd used to accumulate a purchases of merchandise for resale.
True
Under the perpetual inventory, the cost of merchandise is debited to Merchandise Inventory at the time of purchase.
True
When profit or loss is exactly zero, one of the usual closing entries will be avoided.
True
When services are not paid for until after they have been performed, the accrued expense is recorded by an adjusting entry at the end of the accounting period.
True
When the Income Statement columns of the worksheet are initially footed, they should be out of balance by the amount of profit or loss.
True
When the freight term is "FOB Destination, Freight Collect," it means the seller shoulders the freight but the buyer pays it.
True
When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.
True
When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.
True
When there is no direct connection between revenues and costs, the costs are systematically allocated among the periods benefited.
True
Withdrawals are recorded in the Balance Sheet Debit column of a worksheet.
True