Accounting Quizzes 1-6

Account payable, notes payable and wages payable are examples of liabilities.

True

All corporations acquire financing by issuing stock for sale on public stock exchanges.

False

Creditors are mainly interested in the profitability of a company.

False

Contributed Capital is an Asset on the Balance sheet.

False

Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

True

Generally Accepted Accounting Standards require profitable companies to distribute some of their profits to their stockholders.

False

If a company reports net income on the income statement, then the statement of cash flow must show an increase in cash flows from operating activities for the period.

False

In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight board).

False

Revenue is reported on the income statement only if cash was received at the point of sale.

False

Stockholders are creditors of a company.

False

The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.

False

The Securities and Exchange Commission (SEC) is the governmental agency that has primary authority for setting accounting standards in the U. S.

False

The stockholders’ equity of a company is the difference between assets and liabilities.

True

Net Income is:

the amount by which revenues exceed expenses.

Expenses are shown:

On the income statement in the time period in which they are incurred.

Cash flow from investing activities includes:

Amounts received from the sale of the company’s office building.

Operating activities:

include interest paid on a bank loan.

Public corporations:

are businesses whose stock is bought and sold on a stock exchange.

In which of the following organizational forms are the owners not taxed on the business profits? :

Corporations

The separate entity assumption means:

A company’s financial statements reflected only the business activities of that company.

Accounting information systems:

Capture and report the results of a business’s operating, investing, and financing activities.

Public accountants:

Provide services to a variety of business

Creditors are:

People or organizations to whom a business owes money.

Financial statements are most commonly prepared:

Monthly, quarterly, and annually.

Which of the following is true? :

Companies can choose to end their fiscal year on any date they feel is most relevant.

Assets:

Represent the resources owned by a company

Which of the following are the three basic elements of the balance sheet? :

Assets, liabilities, and stockholders’ equity.

A company signed an agreement to rent space from another company. This is an example of a recordable transaction.

False

A debit may increase or decrease an account, depending on the type of account.

True

A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders’ equity of a company.

True

If the total dollar value of credits to an account exceeds the total dollar value of debits to that account, the ending balance of the account will be a debit balance.

False

If total assets increase, then either liabilities or stockholders’ equity must also increase.

True

Retained earnings is a cumulative earnings of a company which have not been distributed to owners, and is the same as the amount of cash in the bank.

False

The ledger consists of all of the accounts used by a business.

True

The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts.

True

The trial balance is a financial statement that reports the assets, liabilities, and equity of a business at a point in time.

False

Transactions are analyzed from the point of view of the company, not the company’s owners.

True

Which of the following statements regarding the balance sheet is true?:

All liabilities require that the company sacrifice resources at some time in the future.

Which of the following statements regarding debits and credits is always true?:

The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger.

Which of the following statements regarding the balance sheet is true?:

Any item on a balance sheet labeled payable is a liability of that company.

Which of the following statements regarding the concepts underlying the balance sheet are true?:

Under Generally Accepted Accounting Principles, assets are generally written down if the market value declines, but are not written up if the market value increases.

Which one of the following would be listed as a long-term asset?:

Buildings and equipment.

Which of the following would be listed as a current liability?:

Accounts payable

A long-term liability is one that the company:

Will not pay off for over one year.

A current asset is one that:

the company will use up or convert into cash in less than one year.

Which line items on the balance sheet would be classified as long term?:

Property, Plant, and Equipment; Notes Payable; Other Assets.

Which of the following is not an example of an asset?:

Retained Earnings

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?:

Notes Payable

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to redesign its new store. Sweet Smell’s balance sheet would show this as:

$60,000 under Furnishings and Equipment and $60,000 under Notes Payable.

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?:

Accounts Payable.

Which of the following describes the classification and normal balance of the retained earnings account?:

Stockholders’ equity Credit.

If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then:

Assets would decrease by $20,000 while liabilities would decrease by $20,000

Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million. It is legally obligated to pay for the ad but has not yet done so:

This is an external event that affects the balance sheet.

Your Company pays back $2 million on a loan it had received earlier from a bank:

Assets decrease by $2 million, liabilities decrease by $2 million, stockholders’ equity is unchanged.

A company does not need to record the receipt of a bill for utilities used during this year if they will not pay for it until next year.

False

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.

True

All revenues come from selling the company’s goods or services.

False

Costs that benefit future periods are reported as assets.

True

Expenses are the same as expenditures.

False

GAAP does not allow cash basis accounting to be used in external financial reports.

True

If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result.

False

If debits equal credits on the trial balance, it means that the accounting records do not contain any errors.
False- In any given industry, companies are entirely consistent in the account titles they use on financial statements.

False

It is possible for a company to be profitable, yet not enough cash to pay its bills.

True

Net Income on the Income Statement is equal to the amount of cash generated by the business.

False

Prepaid expenses would be reported on the Balance Sheet.

True

Unearned Revenue is reported on the Balance Sheet as a liability.

True

Which one of the following statements regarding the accrual and cash basis of accounting is true?:

Using the accrual basis of accounting, if payment is received after delivery of a good or service, and asset is recorded at the time the good or service was delivered.

Which one of the following statements regarding the debit/credit processing of revenues and expenses is true?:

Credits increase revenues.

Which one of the following statements regarding the trial balance is true?:

The balances for each account reported on an unadjusted trial balance are determined by adding the amounts on the "+" side and subtracting the amounts on the "-" side of each ledger or T-account.

Which one of the following statements regarding the Revenue Recognition Principle and Expense Recognition (Matching) Principle is true?:

Expenses are recorded when the company uses goods or services.

Which of the following statements regarding revenues and expenses is true?:

Expenses decrease the amount of stockholders’ equity.

Melody’s Piano School operations for the month of May are summarized in the following three transactions:

• Provided $500 of instruction to students.
• Of the $500 of instruction provided in May, $400 is collected in cash, and an additional $300 is collected for lessons provided in April.
• Paid April’s piano rental bill of $100. Received May’s bill of $150 but did not pay.

What is Melody’s Net Income for May using the cash basis of accounting? : $600 What is Melody’s Net Income for May using the accrual basis of accounting? : $350

Net Income refers to:

The difference between what was earned and the costs incurred during a period.

During November 2013, Asler Inc. performs consulting serices. The client does not pay Asler until January, 2014:

Using the accrual basis of accounting, the revenue is reported in November 2013.

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. The cost of fertilizer is recorded:

As an asset, which will later be reduced as the fertilizer is used.

Which of the following practices would not be considered ethical?:

Recording 31 days of sales in April.

A contra account is added to the account it offsets.

False

A deferral adjustment may involve one asset and one expense account.

True

Adjusting entries often involve cash.

False

Corporate income taxes cannot be calculated until all other adjustments are made.

True

Depreciation is a measure of the decline in market value of an asset.

False

One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

False

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.

False

The carrying value of an asset is an approximation of the asset’s market value.

False

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

True

The purpose of adjusting entries is to transfer net income and dividends to retained earnings.

False

Which of the following statements regarding types of adjusting entries is true? :

A deferral adjustment that decreases an asset will include an increase in an expense.

Which of the following statements regarding adjusting entries is not true?:

Adjusting entries often affect the cash account.

The book value of equipment is equal to which of the following?:

Cost of equipment less accumulated depreciation.

Which of the following statements regarding the need for adjustments is not true?:

Adjusting entries are intended to change the operating results to reflect management’s objectives for operating performance.

Which of the following statements regarding the trial balance is correct?:

The adjusted trial balance is a check that the accounting records are still in balance after posting all adjustments to the accounts.

Which of the following statements regarding the presentation of a trial balance is correct?:

The order of accounts is assets, liabilities, stockholders’ equity, dividends, revenues, and expenses.

Which of the following statements regarding financial statements and the trial balance is correct?:

Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits.

Which of the following statements regarding the effect of a net loss on the closing process is true?:

If a company has a net loss during the current accounting period, then the ending retained earnings will be smaller than the beginning retained earnings.

One major difference between deferral and accrual adjustments is:

Deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.

The company uses up $5,000 of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement?:

This is a deferral adjustment.

When existing assets are used up in the ordinary course of business:

An expense is recorded.

Unearned insurance premiums were $5,500 at the beginning of the year and $7,500 at the end of the year. Insurance premiums collected were $42,000. How much in insurance premiums were earned this year? :

$40,000

An audit report expressing an unqualified opinion is generally desired by the company presenting its financial statements.

True

An asset turnover ratio of 0.4 means that $4 in net income is generated for every $10 in assets.

False

A net profit margin ratio of 0.2 means that $1 of profit is generated for every $5 of sales revenue.

True

Financial statements in the quarterly reports are usually audited to ensure that GAAP were followed.

False

The International Accounting Standards Board (IASB) is the international counterpart to the FASB in the United States.

True

The Sarbanes-Oxley Act requires external auditors to test the company’s internal control system.

True

External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company.

False

The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks.

True

The opportunity to commit fraud exists if there are weak internal controls.

True

The Sarbanes-Oxley Act (SOX) requires the company’s board of directors to establish an audit committee of independent directors to oversee the financial matters of the company.

True

Which of the following statements regarding the roles of accounting information is not true? :

When directors use financial information, the information is being used in an audit function

Which of the following statements regarding ratios is true? :

Ratios can be used to compare companies of different sizes

Which of the following statements regarding financial information comparisons is true? :

A time-series analysis compares a company’s financial results for one period to its own results in other periods

Which of the following statements regarding distribution of financial information is not true? :

An audit involves an examination of every transaction that occurred during the year by an independent auditor

Accounting information serves a valuation function when it is used by:

investors to estimate how much the business is worth

Which of the following is correct? :

The stockholders elect the board of directors

Accounting information serves a management function when it is used by:

Executives to make a business decision

A purpose of comparative income statements is to :

Reveal trends in sales

Accounting information serves a governance function when it is used by:

Directors to oversee the business

Earnings Forecasts:

estimate future net income

When auditors conclude that a company’s financial statements conform to GAAP, the audit report is said to be? :

Unqualified

Which of the following would generally be considered an operating revenue or expense? :

Depreciation expense

The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders’ equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:

Loan Covenant

Which of the following statements is true? :

The debt-to-asset ratio requires only information found on the balance sheet.

Internal controls include the policies and procedures a company implements to protect against theft of assets, to promote efficiency, and to ensure compliance with laws and regulations.

True

A company is either a service company, a merchandising company, or a manufacturer, but cannot be more than one of these.

False

The sales returns and allowances account balance should be reported as a deduction from the sales account balance because it is an expense account.

False

In a perpetual inventory system, only one journal entry is required to record the sale of merchandise.

False

A highly effective internal control should not be implemented if the cost is greater than the benefit.

True

A physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

True

Gross profit is not a ledger account name.

True

A retailer is a company that buys products from manufacturers and sells them to wholesalers.

False

Inventory shrinkage is the difference between inventory recorded and inventory counted.

True

FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.

False

The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies.

False

Which one of the statements appearing below is true regarding bank reconciliations? :

After preparing a bank reconciliation, no adjusting journal entries need to be made for outstanding checks or deposits in transit

Which of the following statements regarding inventory counts is not true? :

If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account, there must have been shrinkage

Which of the following statements regarding shrinkage is not true? :

It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory

Which of the following statements regarding the recording of merchandising journal entries in a perpetual inventory system is true? :

When a customer pays within the discount period, accounts receivable is credited for the full amount.

Which one of the following statements regarding sales discounts is true? :

If a company offers a discount to encourage prompt payment and the discount is taken, the discount reduces the amount of Net Sales.

Which of the following statements regarding journal entries under a perpetual inventory system is true? :

When a customer returns inventory, the seller debits sales returns and allowances under a perpetual inventory system.

Which of the following statements regarding gross profit is true? :

Gross profit is net sales minus cost of goods sold.

A store holding a "25% off" sale will probably experience ______________ gross profit than usual and _______________ sales volume. :

Lower; Higher

When a customer returns for credit a defective product it had purchased, the seller would record the transaction using which of the following accounts? :

Sales Returns and Allowances.

Segregation of duties means that a company assigns responsibilities so that:

Responsibilities for related activities are assigned to two or more people.

Internal controls are concerned with:

Protecting against theft of assets and enhancing the reliability of accounting information.

The internal control principle related to separating employees’ duties so that the work of one person can be used to check the work of another person is called:

Segregation of Duties.

The main purposes of internal controls do not include:

Providing more favorable financial information.

Which of the following is an activity in the operations of a manufacturer, but not in the operations of a merchandising or service company? :

Buying raw materials.