Financial Accounting Exam 1 TS
When should a company report the cost of an insurance policy as an expense?
When the company receives the benefits from the policy over its period of coverage
When should companies that sell gift cards to customers report revenues?
When the gift card is used by the customer
Which of the following describes how assets are listed on the balance sheet?
In the order they will be used up or turned into cash
A company was recently formed with $50,000 cash contributed to the company by stockholders for common stock. The company then borrowed $20,000.......
$110,000
Webby Corporation reported the following accounts..... $1,600 $32,500 $300 $900
$29,700
Statement of cash flows equation
+/- Operating Cash Flows +/- Investing Cash Flows +/- Financing Cash Flows = Change in Cash +Beginning Cash = Ending Cash
Payable
+L
Matching Principle
- expenses are recorded when incurred in earning revenue -revenues are recognized (included) in the month they are earned -expenses are recognized in the same period as the revenues to which they relate -if expense cannot be directly associated with revenue, then expense in the period it is incurred
4 Financial Statements
-Income statement -Balance sheet - statement of retained earnings -Statement of cash flows
what are expenses recorded as in balance sheet
-SE
Which account is LEAST likely to be debited when revenue is recorded?
Accounts Payable
Classifying: Amounts K.Swiss owes to suppliers of watches
Accounts Payable; Liability
Classifying: Amounts K.Swiss can collect from customers
Accounts Receivable; Asset
Which of the following accounts would not appear in a closing journal entry?
Accumulated Depreciation
Depreciation Expense (+E, -SE)
Accumulated Depreciation (-A)
The T-account is used to summarize which of the following?
All of the above
Which of the following statements would be considered true regarding debits and credits?
All of the above
Which of the following statements would be considered true regarding the balance sheet?
All of the above
An adjusting journal entry to recognize accrued salaries payable would cause which of the following?
An increase in expenses and liabilities and a decrease in stockholders equity
Which of the following would NOT be a goal of external users reading a company's financial statements?
Assessing the company's contributions to social and environmental policies
Ending Retained Earnings = (equation)
Beginning R/E + Net Income - Dividends
Which account is least likely to appear in an adjusting journal entry?
Cash
Classifying: Coins and Currency
Cash; Asset
Which of the following is not an asset account?
Common stock
Amounts contributed to K.Swiss by stockholders
Common stock; SE
Which of the following regarding GAAP is true?
GAAP is the abbreviation for generally accepted accounting principles
Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include?
Debit to Advertising Expense of $10,000
Assume the balance in prepaid insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following?
Debit to Insurance Expense for $1000
Which of the following is the entry to be recorded by a law firm when it receives a payment from a new claim that will be earned when services are provided in the future?
Debit: cash, credit: unearned revenue
Company A has owned a building for several years. Which of the following statements regarding depreciation is FALSE from an accounting perspective?
Depreciation expense for the year will equal Accumulated Depreciation
Amounts distributed from profits to stockholders
Dividends; SE
Statement of retained earnings equation
Ending retained earnings = Beginning R/E + Net Income - Dividends
Which of the following acronyms is true?
FASB creates GAAP
Classifying: Property on which buildings will be built
Land; Asset
Assets = (equation)
Liabilities + SE
What is at the head of financial statements
Name of Company Title of Financial Statement Date (At then date)
which of the following items is not a specific account in a company's accounting records?
Net income
If a company incorrectly records a payment as an asset, rather than as an expense, how will this error affect net income in the current period?
Net income will be too high
Classifying: Amounts owed to bank for loan to buy building
Notes Payable; Liability
What goes with Rent Expense (+E, -SE)
Prepaid Rent (-A)
Which of the following accounts normally has a debit balance?
Rent expense
Net Income = (equation)
Revenues - expenses
When expenses exceed revenues in a given period
SE will be decreased
Amounts earned by K.Swiss by selling watches
Sales Revenue; Revenue
An adjusted trial balance
Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format
Cost of paper used up during month
Supplies Expense; Expense
Unused Paper in K.Swiss head office
Supplies; Asset
Which of the following is NOT required by the Sarbanes- Oxley Act?
Top managers of public companies must be members of the American Institute of Certified Public Accountants
The duality of effects can best be described as follows:
When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result
Order of an Income Statement
accounts are listed in order of greatest to least, with the exception of income tax expense, which is always last
Which of the following trial balances is used as a source for preparing the income statement?
adjusted trial balance
What is recorded the same as depreciation?
amortization
Which of the following statements describe transactions that would be recorded in the accounting system?
an exchange of an asset for a promise to pay
accumulated depreciation is a ______ and goes under ______
asset; what it depreciates
Balance sheet equation
assets = liabilities + SE
If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to report too small a value for which of the following on its balance sheet?
liabilities
Order of a Balance Sheet
listed in order of liquidity REQUIRED: current and long term assets and liabilities are listed in order from greatest to least
Which of the following regarding retained earnings is false?
retained earnings is an asset on the balance sheet
Income Statement equation
revenues - liabilities = net income
Which of the following is NOT one of the four basic financial statements? -balance sheet -audit report -income statement -statement of cash flows
the audit report
which of the following is false regarding the balance sheet?
the balance sheet summarizes the net changes in specific account balances over a period of time
which of the following is NOT one of the items required to be shown in the heading of a financial statement?
the financial statement preparer's name
which of the following is true regarding the income statement?
the income statement is sometimes called the statement of operations
Total assets on a balance sheet prepared on any date must agree with which of the following?
the sum of total liabilities and common stock on retained earnings
Which of the following statements regarding the statement of cash flows is false?
the total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement
If there is a title for a section, then...
there must be a total
On Dec. 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting journal entry?
two
When a concert promotions company collects cash for ticket sales two months in advance of the show date, which of the following accounts is recorded?
unearned revenue
The expense recognition principle ("matching") controls
when costs are recognized as expenses on the income statement