Which of the following scenarios best describes the historical cost principle?
A company frequently updates it asset values to current prices
Exchange transactions determine the cost of asset value
Land purchased 10 years ago is revalued annually at market value
Assets are carried on a company's books at purchase value
What best describes an arms-length transaction?
The parts department manager dictates employee pricing for shop goods
Buyers and sellers are generally independent and have equal information
A company with a monopoly dictates prices to consumers
Parents sell a vacation home to their only daughter at a discount price
Companies that record accounting events as they happen use:
Hybrid accounting
Accrual accounting
Modified accrual accounting
Cash-basis accounting
An example of the periodicity assumption is:
An owner that frequently looks at his checking account
Each accounting event and financial statement must follow the same time period
An overworked accountant who records business events when he has time
A company that prepares financial statements each month
On August 1, a business collected $3,300 rent in advance, debiting Cash and crediting Unearned rent revenue. The tenant was paying one year's rent in advance. At December 31, the business must account for the amount of rent it has earned. Indicate which category of adjustment is described.
Depreciation
Prepaid expense
Unearned revenue
Accrued expense
Which type of income statement account has the opposite type of balance as the Capital account?
Liability
Expense
Asset
Revenue
Which of the following would NOT be a note placed on a financial statement?
An assumption regarding an asset
The use of FIFO to report inventory
CEO salary
Certain administrative expenses for a given period
The cash basis method of accounting is popular for:
Product costing
Tax return preparation
Accrued expenses
Bank reconciliations
The cash basis method of accounting can be misleading because it skews a company's:
Financial statements
Trial balance
Journal entries
Transactions
Which is NOT a general principle for revenue recognition?
Seller present merchandise at a single price
A settled arrangement exists between a buyer and seller
Delays hindering the delivery of goods is acceptable
Goods sold on account are assumed to be collectible
Cash represents coin, currency, and standard bank deposits. Companies also report cash equivalents. Which of the following is an example of a cash equivalent item?
Money market
Bill of lading
Customer payment
Invoice for goods received
Part of a treasurer's job is to create controls that limit access to his company's cash. What would be a good example of a cash control for receipts?
Requiring credit cards used for business purchases
Using two employees to receive and open mail
Checking customer IDs
Placing deposits in a bank dropbox
Sam runs a carwash. He uses a petty cash drawer to make quick payments for needed items. Lately, however, he is concerned that someone is using the money for unauthorized purposes. What should he do?
Only use petty cash for employee lunches
Compare register receipts with petty cash receipts
Have a manager sign off on petty cash tickets
Set up a second bank account for petty cash
Internal controls are designed to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate accounting records. Which objective is most important?
Ensure accurate accounting records
Safeguard assets
Promote operational efficiency
Encourage employees to follow company policies
Which bank control protects against forgery?
Deposit ticket
Bank statements
Signature card
General Journal
Which bank control reports what the bank did with the customer's cash each period?
Bank statements
Signature card
Deposit ticket
General Journal
Which bank control confirms the amount of money put into the bank?
General Journal
Deposit ticket
Bank statements
Signature card
Consider accounts receivable and notes receivable. Which of the following is NOT a feature of accounts receivable?
Do not charge interest
Does not require a promissory note
Are more formal than accounts receivable
Reside in the current asset section of the balance sheet
The proper definition for the term "note receivable" is:
Amounts to be collected from customers from sales made on credit
Transaction results in a liability for this party
Transaction results in a receivable for this party
The debtor promises to pay the creditor a definite sum at a future date usually with interest
The proper definition for the term "maturity date" is:
Transaction results in a receivable for this party
Serves as evidence of the indebtedness and includes the terms of the debt
The date a note is due to be paid in full
Amounts to be collected from customers from sales made on credit