Financial Accounting Midterm
The intent of the Sarbanes Oxley Act of 2002 is to
-Reduce unethical corporate behavior -decrease likelihood of future corp. scandals -increase severity of penalties for fraudulent financial activity
the historical cost principle states that ? -assets should be initially recorded at cost and adjusted when fair value changes. -activities of an entity are to be kept separate and distinct from its owner. -assets should be recorded at their cost
-assets should be recorded at their cost
ALL OF THE FOLLOWING ARE REQUIRED STEPS IN THE ACCOUNTING CYCLE
-journalizing and posting closing entries -preparing a post-closing trial balance -journalizing transactions
Before posting a payment of $5,000, the Accounts Payable of Senator Company has a normal balance of $29,000. The balance after posting this transaction was
24000
Basic Accounting Equation
Assets = Liabilities + Stockholders' Equity
if expenses are paid in cash, then
Assets will decrease
Accounts that normally have debit balances are
Assets, dividends, and expenses
THE TRIAL BALANCE SHOWS SUPPLIES $1,350 AND SUPPLIES EXPENSE $0. IF $600 OF SUPPLIES ARE ON HAND AT THE END OF THE PERIOD, THE ADJUSTING ENTRY IS: -DR. Supplies 600 CR. Supplies Expense 600 -DR. Supplies 750 CR. Supplies Expense 750 -DR. Supplies Expense 750 CR. Supplies 750 -DR. Supplies Expense 600CR. Supplies 600
DR. Supplies Expense 750 CR. Supplies 750
KEVIN CORP. PURCHASES A ONE YEAR INSURANCE POLICY FOR HIS OFFICE BUILDING ON JANUARY 1ST 2020 FOR $12000. ON JANUARY 31ST, KEVIN CORP. IS PREPARING FINANCIAL STATEMENTS FOR THE MONTH OF JANUARY. WHAT WILL BE THE ADJUSTING ENTRY? -Debit insurance expense $1000 and credit prepaid insurance $1000 -Debit prepaid insurance $12000 and credit cash $12000 -Debit insurance expense $12000 and credit prepaid insurance $12000 -Debit cash $1000 and credit prepaid insurance $1000
Debit insurance expense $1000 and credit prepaid insurance $1000
the organizations primary responsible for establishing generally accepted accounting principals are the
FASB & SEC
the private sector organization involved in developing accounting principles is the
Financial Accounting Standards Board
a balance sheet is prepared as of specific date T/F
TRUE
the income summary account is
Temporary account that need to be closed at the end of accounting period.
I trail balance will not balance if
a $10000 cash dividend is debited to dividends for $20000 and credited to cash for $1000
ACCUMULATED DEPRECIATION IS: -a contra asset account -an expense account -a stockholders' equity account -a liability account
a contra asset
accumulated depreciation is
a contra asset account
adjusting entries can be classified as
accruals and deferrals
the adjusted trail balance is prepared
after the adjusting entries are prepared & posted to the ledger
Depreciation is a process of
allocating the cost of an asset to expense over its useful life in a rational and systematic manner
which is NOT recorded in the accounting records
an employee is terminated
A debit to an asset account indicates
an increase in the asset
The first step in the recording process is to
analyze each transaction for its effect on the accounts.
a chart of accounts usually starts with
asset accounts
A balance sheet shows
assets, liabilities, and stockholders' equity (at a certain point in time)
the balances that appear on the post closing trail balance will match the
balance sheet account balances after closing entries
on the last day of the period, Alan cesura company buys a $900 machine on credit. This transaction will affect the -income statement only -balance sheet only -income statement, retained earnings statement only -income statement, retained earnings statement, and balance sheet
balance sheet only
WHEN RAMIREZ COMPANY PURCHASED SUPPLIES WORTH $500, IT INCORRECTLY RECORDED A CREDIT TO SUPPLIES FOR $5,000 AND A DEBIT TO CASH FOR $5,000. BEFORE CORRECTING THIS ERROR -cash is overstated and supplies is understated -cash is understated and supplies understated -cash is understated and supplies is overstated -cash is overstated and supplies is understated
cash is overstated and supplies is understated
Posting Journal Entries should be done in
chronological order
WHEN A NET LOSS HAS OCCURRED, INCOME SUMMARY IS -debited and retained earnings credited -credited and retained earnings debited -debited and dividends are credited -credited and dividends are debited
credited and retained earnings debited
EVAN'S SPORTING GOODS SELLS 5000 BASEBALLS ON ACCOUNT FOR $2 EACH ON MARCH 7TH 2020. WHAT WAS THE JOURNAL ENTRY TO RECORD THE TRANSACTION? -debit accounts receivable $10000 and credit sales revenue $10000 -debit cash $10000 and credit accounts receivable $10000 -debit cash $10000 and credit accounts payable $10000 -debit accounts payable $10000 and credit cash $10000
debit accounts receivable $10000 and credit sales revenue $10000
BOB CORP. BORROWS $500,000 DUE IN THREE YEARS. IF THE ANNUAL INTEREST RATE IS 3%, WHAT IS THE ADJUSTING ENTRY TO RECORD INTEREST ON THE NOTE FOR THE MONTH OF JUNE? -debit interest expense $15000 and credit interest payable $15000 -debit interest expense $1250 and credit cash $1250 -debit interest expense $1250 and credit interest payable $1250 -debit notes payable $1250 and credit cash $1250
debit interest expense $1250 and credit interest payable $1250
ON FEBRUARY 12, JOHN AND RAD ROOFERS ENTER INTO A CONTRACT TO INSTALL A NEW ROOF AT JOHN'S HOME FOR $1600. JOHN PAYS IN FULL ON THIS DAY. ON MARCH 21ST, THE ROOFERS INSTALL THE NEW ROOF. WHAT IS RAD ROOFERS ADJUSTING ENTRY ON MARCH 31? -debit unearned service revenue $1600 and credit service revenue $1600 -debit accounts receivable $1600 and credit service revenue $1600 -debit cash $1600 and credit unearned service revenue $1600 -debit unearned service revenue $1600 and credit accounts receivable $1600
debit unearned service revenue $1600 and credit service revenue $1600
payment of accounts payable affects the components of the accounting equation in this way :
decreases assets & decreases liabilities
A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
economic entity assumption
the common characteristic possessed by ALL assets is
future economic benifit
the first activity of the accounting process is
identification
The starting point of the accounting process is
identifying economic events
The double-entry system requires that each transaction must be recorded..
in at least two different accounts
the chart of accounts is a
listing of the accounts & the account #'s which identify their location in the ledger
people who manage a business OR make business decisions....
need to understand accounting statements in order to realize & measure the financial impact of their decisions on the business
expenses paid in cash & recorded as assets before they are used are called
prepaid expenses
An income statement
presents the revenues and expenses for a specific period of time.
a small neighborhood shop operated by its owner is likely to be organized as a
proprietorship
The accounting process involves all of the following EXCEPT
recording non-quantifiable economic events
AN ACCOUNT THAT WILL HAVE A ZERO BALANCE AFTER CLOSING ENTRIES HAVE BEEN JOURNALIZED AND POSTED IS -service revenue -prepaid insurance -unearned service revenue -accumulated depreciation- equipment
service revenue
When two accounts are required in one journal entry, the entry is referred to as a
simple entry
Generally accepted accounting principles are
standards that indicate how to report economic events
In order to close the dividends account,
the retained earnings should be debited
which of the following statements about the accrual basis of accounting is FALSE? -events that change a company's financial statements are recorded in the periods in which the events occur - revenue is recognized in the period in which services are performed - this basis is in accord with GAAP - revenue is recorded only when cash is received and expense is recorded only when cash is paid
this basis is in accord with GAAP
a compound journal entry involves
three or more accounts
After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to
transfer the information to ledger accounts
Posting
transferring information from a journal entry to a ledger account
a list of accounts & their balances at a given point in time is called a
trial balance
which of the following is not a step in the accounting process? -identification -verification -recording -communication
verification
in a service type business, revenue is considered recognized
when the service is proformed
