Accounting Practice Test

The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the

income statement

The financial statement that reports the assets, liabilities, and stockholders’ (owner’s) equity at a specific date is the

balance sheet

Under the accrual basis of accounting, revenues are reported in the accounting period when the

service or goods have been delivered

Under the accrual basis of accounting, expenses are reported in the accounting period when the

expense matches the revenues or is used up

Revenues minus expenses equals _____ ________.

net income

Resources owned by a company (such as cash, accounts receivable, vehicles)are reported on the balance sheet and are referred to as __________.

assets

Assets are usually reported on the balance sheet at which amount?

cost

Obligations (amounts owed) are reported on the balance sheet and are referred to as _____.

liabilities

Liabilities often have the word ___________ in their account title.

payable

Unearned Revenues is what type of account?

liability

Accounting entries involve a minimum of how many accounts?

two

The listing of all of the accounts available for use in a company’s accounting system is know as the ______ ____ _________.

chart of accounts

Assets minus liabilities equals ________ ________.

stockholders’ equity or owners equity

Which term is associated with "left" or "left sided"

debit

Which term is associated with "right" or "right sided"?

credit

When cash is received, the account Cash will be?

debited

When a company pays a bill, the account Cash will be?

credited

What will usually cause an asset account to increase?

debit

What will usually cause the liability account Accounts payable to increase?

credit

Entries to expenses such as Rent expense are usually?

debits

Entries to revenues accounts such as Service Revenues are usually?

credits

The basic accounting equation is Asset= Liabilities+ ______ _____.

stockholders’ equity

The owner invests personal cash in the business: Assets _____; Liabilities ______; Stockholders equity ___________.

A- increase L- no effect SE- increase

The owner withdraws business assets for personal use.:Assets _____; Liabilities ______; Stockholders equity ___________.

A- decrease L- no effect SE- decrease

The company receives cash from a bank loan:Assets _____; Liabilities ______; Stockholders equity ___________.

A- increase L- increase SE- no effect

The company repays the bank that had lent money to the company:Assets _____; Liabilities ______; Stockholders equity ___________.

A- decrease L- decrease SE- no effect

Which of the following will cause stockholders’ equity to increase?

revenues

Which of the following will cause stockholders’ equity to decrease?

net loss

A corporation’s net income is eventually recorded in the following stockholders’ equity account _____ ______.

retained earnings

The personal assets of the owner of a company will not appear on the company’s balance sheet because of which principle/guideline?

economic entity

Which principle/guideline requires a company’s balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount?

cost

Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time?

monetary unit

Which principle/guideline requires the company’s financial statements to have footnotes containing information that is important to users of the financial statements?

full disclosure

Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial?

materiality

Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments?

going concern

When a sale is made with the credit terms of 2/10, net 30, the "10" refers to the _______________ period

discount

On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the buyer pays on June 8?

$792

On June 1, $800 of goods are sold with credit terms of 1/10, n/30. On June 3 the customer returned $100 of the goods. How much should the seller expect to receive if the buyer pays on June 8?

$693

When the terms of a sale are FOB ________________, ownership of goods will transfer to the customer at the customer’s dock

destination

The seller is responsible for the costs of shipping its goods to the buyer when the terms of the sale are FOB

destination

The buyer is responsible for the costs of shipping when goods are sold with the terms FOB

shipping point

When the Allowance for Doubtful Accounts appears on a company’s financial statements, its balance will be a __________ balance.

credit

On which financial statement would you expect to find Allowance for Doubtful Accounts?

balance sheet

Which method of reporting losses on accounts receivable is required in the U.S. for income tax purposes?

direct write-off

Which method of reporting losses on accounts receivable is to be used for financial reporting?

allowance

A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $8,000. The adjusting entry will include a ___________________ to the Allowance for Doubtful Accounts.

a credit of $12,000

A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a credit balance of $18,000. The adjusting entry will include a ____________________ to Bad Debts Expense.

a debit of $2,000

A company estimates that $20,000 of its $500,000 of accounts receivable will be uncollectible. Its Allowance for Doubtful Accounts presently has a debit balance of $3,000. The adjusting entry will include a _____________________ to Allowance for Doubtful Accounts.

a credit of $23,000

A common characteristic of an adjusting entry is that it involves a balance sheet account and an ___________ ______________ account.

income statement

Adjusting entries are usually dated the last day of the accounting period and they convert accounts from the cash basis of accounting to the _____________ basis of accounting.

accrual

Company S received money in advance of providing services to Company P. The money received before it is earned is an increase to Company S’s asset account Cash. The amount unearned should also be reported as

a liability

Adjusting entries are often categorized into two groups: _____________ and deferrals.

accruals

An adjusting entry to record interest expense incurred by a company but not yet included in its accounting records is categorized as a(n)

accrual

An adjusting entry to adjust the amounts already recorded in the asset account Supplies and in the income statement account Supplies Expense is categorized as a(n)

deferral

Which of the following is a category or element of the balance sheet?

liabilities

Which of the following is an asst account?

prepaid insurance

Which of the following is a contra account?

accumulated depreciation

What is the normal balance for an asset account?

debit

What is the normal balance for liability accounts?

credit

What is the normal balance for stockholders’ equity and owner’s equity accounts?

credit

What is the normal balance for contra asset accounts?

credit

Which of the following would not be a current asset?

land

Which of the following would normally be a current liability?

unearned revenue

Deferred credits will appear on the balance sheet with the

liabilities

A journal _________ includes the date, accounts, and amounts.

entry

In a manual bookkeeping system, each amount in a journal is posted to an _____________.

account

A company’s ___________ ledger contains all of the accounts such as Rent Expense, Supplies, and Interest Payable.

general

An internal document that is prepared to prove that the total of all the debit balances is equal to the total of all the credit balances is a _________ ___________.

trial balance

The inventory cost flow assumption where the cost of the most recent purchase is matched first against sales revenues is

LIFO

The inventory cost flow assumption where the cost of the most recent purchases are likely to remain in inventory

FIFO

The inventory cost flow assumption where the oldest cost of inventory items is likely to remain on the balance sheet is

LIFO

The inventory system that does NOT update the Inventory account automatically at the time of each purchase or sales is the _______________ method/system.

periodic

If a company is experiencing continuous cost increases for the merchandise that it purchases, which cost flow assumption will result in the least amount of profit and the least amount of income tax expense?

LIFO