Question 1. The rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business are:
A. Both broad and specific principles.
B. Known as generally accepted accounting principles.
C. Abbreviated as GAAP.
D. Both b and c.
E. All of the above.
Question 2. Which of the following statements is incorrect?
A. Accounting principles are intended to help produce relevant and reliable information.
B. Broad accounting principles include the business entity principle, the objectivity principle, and the cost principle.
C. Specific accounting principles for financial accounting are established in the United States by the SEC, which operates under the oversight of the FASB.
D. Auditing standards are established by the ASB, which is a committee of the AICPA.
E. The IASC identifies preferred practices and encourages their adoption throughout the world.
Question 3. Assets = Liabilities + Owner’s Equity is known as:
A. The income statement equation.
B. The cost principle.
C. The objectivity principle.
D. The accounting equation.
E. A transaction.
Question 4. A financial statement providing information that helps users understand a company’s financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date is called a(n):
A. Balance sheet.
B. Income statement.
C. Statement of cash flows.
D. Statement of changes in owner’s equity.
E. None of the above.
Question 5. Match the following definitions and terms by placing the letter that identifies the best definition in the blank space next to the term.
A. The accounting principle that requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange.
B. The accounting guideline that requires the information in financial statements to be supported by evidence other than someone’s imagination or opinion.
C. Inflows of assets received in exchange for goods or services provided to customers as part of the major or central operations of the business.
D. The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue.
E. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
F. Another name for the balance sheet.
G. A financial statement that shows the beginning balance of owner’s equity; the changes in equity that resulted from new investments by the owner, net income (or net loss), and withdrawals; and the ending balance.
1. Statement of changes in owner’s equity
2. Statement of financial position
3. Going-concern Principle
4. Assets
5. Revenues
6. Objectivity principle
Question 6. An account balance is:
A. The total of the credit side of the account.
B. The total of the debit side of the account.
C. The difference between the increases (including the beginning balance) and decreases recorded in the account.
D. Assets = liabilities + owner’s equity.
E. Unchanged by posting debits and credits to the account.
Question 7. An account used to record the owner’s investments in the business plus any more or less permanent changes in the owner’s equity is called a(n):
A. Withdrawals account.
B. Capital account.
C. Asset account.
D. Expense account.
E. None of the above.
Question 8. Double-entry accounting is:
A. An accounting system which disregards the accounting equation, A = L + OE.
B. An accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits.
C. An accounting system in which each transaction affects, and is recorded in, two or more accounts with unequal debits and equal credits.
D. An accounting system in which the sum of the debit account balances never equal the sum of the credit account balances.
E. An accounting system in which errors never occur.
Question 9. Aimes opened a new business by investing the following assets: cash, $4,000; land, $20,000; building, $80,000. Also, the business will assume responsibility for a note payable of $32,000 which Aimes signed as part of his payment for the land and building. Which journal entry should be used on the books of the new business to record the investment by Aimes?
A. Assets ………………………$104,000
Aimes, Capital ………………….. $104,000
B. Assets ………………………$104,000
Liability ………………………….. $32,000
Aimes, Capital …………………….$72,000
C. Cash ……………………….. $4,000
Land ………………………… $20,000
Building …………………….. $$48,000
Aimes, Capital ……………………. $$72,000
D. Cash ……………………….. $4,000
Land …………………………$20,000
Building ……………………..$80,000
Aimes, Capital ……………………. $72,000
Note Payable ………………………$32,000
E. Cash …………………………..$4,000
Assets …………………………$68,000
Aimes, Capital …………………….. $72,000
Question 10. The following list of accounts is for Shannon Sales, Co.:
A. Shannon, Capital
B. Advertising Expense
C. Notes Receivable
D. Land
E. Prepaid Rent
F. Unearned Rent Revenue
G. Interest Payable
H. Commissions Earned
I. Shannon, Withdrawals
J. Service Fees Earned
Use the form below to identify the type of account (above) and its normal balance.
_____Type of Account ______ _Normal Balance__
Asset Liability O. Equity Dr. Cr.
Example A. _____ _____ __X___ _____ __X__
Example B _____ _____ _____ _____ _____
Example C _____ _____ _____ _____ _____
Example D _____ _____ _____ _____ _____
Example E _____ _____ _____ _____ _____
Example F _____ _____ _____ _____ _____
Example G _____ _____ _____ _____ _____
Example H _____ _____ _____ _____ _____
Example I _____ _____ _____ _____ _____
Example J _____ _____ _____ _____ _____
Question 11. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expense is the:
A. Recognition principle.
B. Cost principle.
C. Cash basis of accounting.
D. Matching principle.
E. Time period principle.
Question 12. Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:
A. Items that require contra accounts.
B. Items that require adjusting entries.
C. Classified balance sheet accounts.
D. Assets.
E. Income statement accounts.
Question 13. A trial balance prepared before any adjustments have been recorded is:
A. An adjusted trial balance.
B. Used to prepare the financial statements.
C. An unadjusted trial balance.
D. Correct with respect to proper balance sheet and income statement amounts.
E. Both a and d.
Question 14. Financial statements are prepared in the following order:
A. Balance sheet, statement of changes in owner’s equity, income statement.
B. Statement of changes in owner’s equity, balance sheet, income statement.
C. Income statement, balance sheet, statement of changes in owner’s equity.
D. Income statement, statement of changes in owner’s equity, balance sheet.
E. Balance sheet, income statement, statement of changes in owner’s equity.