Chapter 3 Sample Test Questions
When something is purchased and paid for in a year before it will be used to produce income it is called a(n) a. accrued expense b. account payable c. prepaid expense d. account receivable
prepaid expense
The Farm Financial Standards Council (FFSC) a. reviews loan applications b. recommends uniform procedures and standards for preparing farm financial statements c. recommends changes in farm tax regulations to the Internal Revenue Service d. sets financial goals for different types of farms and ranches
recommends uniform procedures and standards for preparing farm financial statements
1. An accounting period must be from January 1 to December 31.
False
An accounting system only needs to be able to record those transactions which are part of the farm's production activities.
False
Cash accounting will always show a lower profit than accrual accounting.
False
Farmers and ranchers must use a calendar year accounting period.
False
Records are of no use when trying to obtain a new loan.
False
Revenue and expenses can be properly matched in the correct time period when using cash accounting.
False
The accrual method of accounting is easier to use than the cash method.
False
The basic accounting equation is Assets + Liabilities = Owner Equity.
False
Selling grain from storage would be which type(s) of farm business activity? a. operating b. investment c. financing d. operating and investment
Operating
A depreciation schedule is a necessary part of a complete accounting system.
True
A single-entry accounting system does not maintain current values for assets and liabilities.
True
Changes in inventory values are not included in a cash accounting system.
True
Depreciation is a noncash expense which is included as an expense when using cash accounting.
True
Good farm records can be useful when applying for a farm loan.
True
Most farmers and ranchers use the cash method of accounting.
True
Profit or net farm income is equal to total revenue for the accounting period minus total expenses for the same period.
True
An organized list of all accounts used by an accounting system is called a. a chart of accounts b. a balance sheet c. an income statement d. a debit
a chart of accounts
One advantage of a double-entry accrual accounting system over a single-entry cash system is a. it is easier to enter transactions b. a current balance sheet is always available c. noncash transactions do not need to be entered d. it can be done on a computer
a current balance sheet is always available
A major advantage of accrual accounting over cash accounting is a. a more accurate estimate of annual profit b. simplicity c. always shows a higher profit d. can use single entry instead of double entry
a more accurate estimate of annual profit
At the end of the year a farmer has an unpaid bill at the local machinery repair shop. It would be shown in an accrual accounting system as a(n) a. prepaid expense b. account receivable c. account payable d. accrued expense
account payable
When using cash accounting which of the following accounts would never be used? a. grain sales b. depreciation c. fertilizer purchases d. accounts payable
accounts payable
Which of the following would not be recorded when using a single-entry, cash accounting system? a. charging $2,000 worth of chemicals at the farm supply store b. billing a neighbor $850 for baling hay c. recognizing that $3,476.34 of interest has accrued since the last interest payment d. all of the above
all of the above
Any item of value is called a(n) a. owner equity b. credit c. profit d. asset
asset
A fiscal accounting period is one which a. covers January 1 through December 31 b. is only 3 months in length c. ends on any date other than December 31 d. can only be used by governmental agencies
ends on any date other than Dec. 31st
A prepaid expense is one where payment is made a. by check b. in an accounting period prior to the one in which the item will be used to produce income c. in a series of payments over time d. before the bill is even received
in an accounting period prior to the one in which the item will be used to produce income
11. Using double entry accounting, transactions can be posted to which accounts a. only income and expense b. only assets and liabilities c. income, expense, asset, and/or liabilities d. only cash and noncash
income, expense, asset and/or liabilities