Problem 1. Owners of business firms are the only people who need accounting information.
a. True b. False
Problem 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
Problem 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
Problem 4. The purchase of office equipment on credit increases total assets and total liabilities.
a. True b. False
Problem 5. A debit to an account always indicates an increase in that account.
a. True b. False
Problem 6. If a revenue account is credited, the revenue account is increased.
a. True b. False
Problem 7. Under the double-entry system, revenues must always equal expenses.
a. True b. False
Problem 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
Problem 9. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
a. True b. False
Problem 10. A company's calendar year and fiscal year are always the same.
a. True b. False
Problem 11. Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
a. True b. False
Problem 12. If a work sheet is used, financial statements can be prepared before adjusting entries are journalized.
a. True b. False
Problem 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
Problem 14. Retained Earnings is a part of stockholders' equity.
a. True b. False
Problem 15. Current assets are customarily the first items listed on a classified balance sheet.
a. True b. False
Problem 16. Generally accepted accounting principles are rules and practices that provide a general guide for financial reporting.
a. True b. False
Problem 17. A company should change its accounting methods if a new method will increase reported income for the period.
a. True b. False
Problem 18. The revenue recognition principle dictates that revenue should be recognized in the accounting period in which cash is received.
a. True b. False
Problem 19. GAAP stands for
a. Generally Accepted Auditing Procedures.
b. Generally Accepted Accounting Principles.
c. Generally Accepted Auditing Principles.
d. Generally Accepted Accounting Procedures.
Problem 20. The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
Problem 21. Liabilities of a company would not include
a. notes payable.
b. accounts payable.
c. wages payable.
d. cash.
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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
Problem 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.
Problem 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
Problem 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.
Problem 34. Accumulated Depreciation is:
a. an expense account.
b. a stockholders' equity account.
c. a liability account.
d. a contra asset account.
Problem 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
Problem 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.
Problem 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.
Problem 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.
Problem 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.
Problem 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.