Question 1. Owners of business firms are the only people who need accounting information.
a. True b. False
Question 2. The study of accounting is not useful for a business career unless your career objective is to become an accountant.
a. True b. False
Question 3. The Securities and Exchange Commission has the power to require companies filing reports with them to follow generally accepted accounting principles.
a. True b. False
Question 4. The purchase of office equipment on credit increases total assets and total liabilities.
a. True b. False
Question 5. A debit to an account always indicates an increase in that account.
a. True b. False
Question 6. If a revenue account is credited, the revenue account is increased.
a. True b. False
Question 7. Under the double-entry system, revenues must always equal expenses.
a. True b. False
Question 8. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.
a. True b. False
Question 9. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
a. True b. False
Question 10. A company's calendar year and fiscal year are always the same.
a. True b. False
Question 11. Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
a. True b. False
Question 12. If a work sheet is used, financial statements can be prepared before adjusting entries are journalized.
a. True b. False
Question 13. Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.
a. True b. False
Question 14. Retained Earnings is a part of stockholders' equity.
a. True b. False
Question 15. Current assets are customarily the first items listed on a classified balance sheet.
a. True b. False
Question 16. Generally accepted accounting principles are rules and practices that provide a general guide for financial reporting.
a. True b. False
Question 17. A company should change its accounting methods if a new method will increase reported income for the period.
a. True b. False
Question 18. The revenue recognition principle dictates that revenue should be recognized in the accounting period in which cash is received.
a. True b. False
Question 19. GAAP stands for
a. Generally Accepted Auditing Procedures.
b. Generally Accepted Accounting Principles.
c. Generally Accepted Auditing Principles.
d. Generally Accepted Accounting Procedures.
Question 20. The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
Question 21. Liabilities of a company would not include
a. notes payable.
b. accounts payable.
c. wages payable.
d. cash.
Question 22. Collection of a $400 Accounts Receivable
a. increases an asset $400; decreases an asset $400.
b. increases an asset $400; decreases a liability $400.
c. decreases a liability $400; increases stockholders' equity $400.
d. decreases an asset $400; decreases a liability $400.
Question 23. If expenses are paid in cash, then
a. assets will increase.
b. liabilities will decrease.
c. stockholders' equity will increase.
d. assets will decrease.
Question 24. A balance sheet shows
a. revenues, liabilities, and stockholders' equity.
b. expenses, dividends, and stockholders' equity.
c. revenues, expenses, and dividends.
d. assets, liabilities, and stockholders' equity.
Question 25. The primary purpose of the statement of cash flows is to report
a. a company's investing transactions.
b. a company's financing transactions.
c. information about cash receipts and cash payments of a company.
d. the net increase or decrease in cash.
Question 26. The right side of an account
a. is the correct side.
b. reflects all transactions for the accounting period.
c. shows all the balances of the accounts in the system.
d. is the credit side.
Question 27. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.
Question 28. Which of the following is not true of the terms debit and credit?
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and decrease.
c. They can be used to describe the balance of an account.
d. They can be interpreted to mean left and right.
Question 29. In the first month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $500. The cash account has a
a. $500 credit balance.
b. $900 debit balance.
c. $400 debit balance.
d. $400 credit balance.
Question 30. Management could determine the amounts due from customers by examining which ledger account?
a. Service Revenue
b. Accounts Payable
c. Accounts Receivable
d. Supplies
Question 31. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates
a. no errors have been made.
b. no errors can be discovered.
c. that all accounts reflect correct balances.
d. the mathematical equality of the accounting equation.
Question 32. A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?
a. December 5
b. December 10
c. November 30
d. December 1
Question 33. Adjusting entries are:
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
Question 34. Accumulated Depreciation is
a. an expense account.
b. a stockholders' equity account.
c. a liability account.
d. a contra asset account.
Question 35. Jill Ryan has performed $600 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Jill make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue
Question 36. Closing entries are made:
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and stockholders' equity accounts will have zero balances when the next accounting period starts.
c. in order to transfer net income (or loss) and dividends to the Retained Earnings account.
d. so that financial statements can be prepared.
Question 37. The Income Summary account
a. is a permanent account.
b. appears on the balance sheet.
c. appears on the income statement.
d. is a temporary account.
Question 38. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances.
b. the Retained Earnings account is credited for the amount of net income.
c. the Dividends account is closed to the Retained Earnings account.
d. the balance sheet accounts have zero balances.
Question 39. The balance in the Income Summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the Retained Earnings account.
c. the ending balance in the Retained Earnings account.
d. zero.
Question 40. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. expected to be realized in cash, sold or consumed within one year of the balance sheet or the company's operating cycle, whichever
is longer.