Exam

Question 1

Which organizations is responsible for the creation and governance of accounting standards in the United States?

Answer 1

Financial Accounting Standards Board

Question 2

GAAP refers to guidelines for accounting information in the United States. The acronym GAAP in this statement refers to ________.

Answer 2

Generally Accepted Accounting Principles

Question 3

Which of the statements regarding the primary objective of financial reporting is correct?

Answer 3

The primary objective of financial reporting is to provide information useful for the acquisition of long-term assets.

Question 4

Which of the following statements is TRUE of a sole proprietorship?

Answer 4

The sole proprietor is personally liable for the liabilities of the business.

Question 5

Lawton Company records business transactions in dollars and disregards changes in the value of a dollar over time. Which of the following accounting assumptions does this represent?

Answer 5

monetary unit assumption

Question 6

What is monetary unit assumption

Answer 6

Monetary unit assumption states that only transactions which can be measured in monetary terms are recorded in a company’s books of accounts. If a transaction cannot be expressed in dollar value, it should not be included in the company’s financial books. It is considered useless for financial accounting purposes.

Question 7

What is cost principle?

Answer 7

The cost principle is an accounting principle that records assets at their respective cash amounts at the time the asset was purchased or acquired. The amount of the asset that is recorded may not be increased for improvements in market value or inflation, nor can it be updated to reflect any depreciation. Assets that are recorded can include short-term and long-term assets, liabilities and any equity, and these assets are always recorded at their original cost.

Question 8

What is accounting period assumption?

Answer 8

This assumption states that businesses should report their financial position, results of operations, and cash flows at regular intervals. These intervals are typically monthly, quarterly, or yearly.

Question 9

What is going concern assumption?

Answer 9

The going concern principle assumes that any organization will continue to operate its business for the foreseeable future. The principle purports that every decision in a company is taken with the objective in mind of running the business rather than that of liquidating it.

Question 10

What is economic entity assumption?

Answer 10

The “Economic entity assumption” states that the activities of the entity are to be kept separate from the activities of its owner and all other economic entities. ( sole proprietorship)

Question 11

International Financial Reporting Standards ________ U.S. Generally Accepted Accounting Principles.

Answer 11

are generally less specific than

Question 12

A shortened form of the ledger is called a ________.

Answer 12

T-account

Question 13

The account title used for recording a written promise that a customer will pay the business a fixed amount of money and interest by a certain date in the future is ________.

Answer 13

Notes Receivable

Question 14

An accounting entry that is characterized by having multiple debits and/or multiple credits is called a ________ entry.

Answer 14

compound journal

Question 15

Chart of account

Answer 15

A chart of accounts is a list of financial accounts and reference numbers, grouped into categories, such as assets, liabilities, equity, revenue and expenses, and used for recording transactions in the organization’s general ledger.

Question 16

If a company is using accrual basis accounting, when should it record revenue?

Answer 16

when services are performed, even though cash may be received at a later date

Question 17

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?

Answer 17

Unearned Revenue

Question 18

Under the revenue recognition principle, a good or service is considered transferred when ________.

Answer 18

the customer obtains control of the good or service

Question 19

Revenue recognition

Answer 19

Revenue recognition identifies the specific conditions in which revenue is recognized and determines how to account for it. Revenue is typically recognized when a critical event has occurred, when a product or service has been delivered to a customer, and the dollar amount is easily measurable to the company.

Question 20

Which of the following accounting terms assumes that a business’s activities can be divided into small segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year?

Answer 20

time period concept

Question 21

What is adjusting entry concept

Answer 21

An adjusting journal entry is an entry in a company’s general ledger that occurs at the end of an accounting period to record any unrecognized income or expenses for the period

Question 22

What is economic entity concept

Answer 22

The economic entity principle is an accounting principle that states that a business entity’s finances should be keep separate from those of the owner, partners, shareholders, or related businesses.

Question 23

What is matching principle

Answer 23

The matching principle is an accounting concept that dictates that companies report expenses at the same time as the revenues they are related to. Revenues and expenses are matched on the income statement for a period of time (e.g., a year, quarter, or month).

Question 24

Which financial statement is prepared last?

Answer 24

income statement

Question 25

Which of the following account’s balance is carried forward to the next accounting period?

Answer 25

Accumulated Depreciation

Question 26

The current ratio measures ________.

Answer 26

a company’s ability to pay current liabilities from current assets

Question 27

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

Answer 27

Cost of Goods Sold

Question 28

What does “2/10” mean, with respect to “credit terms of 2/10, n/30”?

Answer 28

A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.

Question 29

The Estimated Returns Inventory account ________.

Answer 29

is credited when a customer returns merchandise to the seller

Question 30

When a company uses the allowance method to measure bad debts, ________.

Answer 30

the amount of bad debts expense is estimated at the end of the accounting period

Question 31

Which of the following line items will appear on the income statement of a merchandiser but not of a service company

Answer 31

Items that can be found in the income statement of a merchandising business but not in the statements of service companies include the cost of goods sold, sales returns and allowances, sales discounts, merchandise inventory, net sales, and gross profit.

Question 32

Assets normal balance is ?

Answer 32

Debit

Question 33

Equity normal balance is ?

Answer 33

Credit

Question 34

Liabilities normal balance?

Answer 34

Credit

Question 35

Revenue normal balance is?

Answer 35

Credit

Question 36

Expenses normal balance is?

Answer 36

Debit

Question 37

Assets and Expenses decrease and increase how?

Answer 37

Increase: Debit

Decrease: Credit

Question 38

Revenue, liabilities and Equity increase and decrease how?

Answer 38

Increase: Credit

Decrease: Debit

Question 39

A depreciable asset’s cost minus accumulated depreciation is called ________.

Answer 39

Book value

Question 40

9The entry to record depreciation includes a credit to the ________ account.

Answer 40

Accumulated depreciation