Accounting

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Chapters 1,2,3

The accounting equation can be expressed as

Assets - Liabilities = Owners Equity

Which Item(s) is(are) reported on the balance sheet?
A) Accounts Payable
B) Retained Earnings
C) Inventory
D) All of the above

D) All of the above

The amount a company expects to collect from customers appears on the
A) Income statement in the expenses section
B) Balance sheet in the stockholders equity section
C) statement of cash flows
D) balance sheet in the current assets section

D) balance sheet in the current assets section

The financial statement that reports revenues and expenses is called the
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of retained earnings

B) Income statement

Net Income appears on which financial statement(s)
A) Statement of retained earnings
B) Income statement
C) Balance sheet
D) Both A and B

D) Both A and B

Cash paid to purchase a building appears on the statement of cash flows among the
A) Stockholders' equity
B) Operating activities
C) Financing activities
D) Investing activities

D) Investing Activities

A debit entry to an account
A) Increases assets
B) increases Liabilities
C) increases stockholders equity
D) both A and C

A) Increases assets

An investment of cash into the business will
A) Decrease total liabilities
B) Decrease total assets
C) Have no effect on total assets
D) Increases Stockholders equity

D) Increases stockholders equity

Purchasing a laptop computer on account will:
A) increase total assets
B) have no effect on stockholders equity
C) increase total liabilities
D) all of the above

D) All of the above

Performing a service on account will:
A) increase stockholders equity
B) increase total assets
C) increase total liabilities
D) both A and B

D) both A and B

Receiving cash from a customer on account will:
A) decrease liabilities
B) increase total assets
C) increase stockholders equity
D) have no effect on total assets

D) have no effect on total assets

Purchasing computer equipment for cash will:
A) decrease both total liabilities and stockholders. E
B) increase both total assets and total liabilities
C) no effect on total assets,liabilities,stockholders. E
D) decrease both total assets and stockholders. E

C) no effect on total assets, liabilities, stockholders E

Which of the following transactions will increase an asset and increase stockholders equity?
A) Collecting cash from a customer on AR
B) Borrowing money from a bank
C) performing a service on account for a customer
D) purchasing supplies on account

C) performing a service on account for a customer

Which statement is false?
A) Assets are increased by debits
B) Dividends are increased by credits
C) Revenues are increased by credits
D) Liabilities are decreased by debits

B) Dividends are increased by credits

The journal entry to record the purchase of supplies on account:
A) credits Supplies and debits Accounts Payable
B) debits Supplies and credits Accounts Payable
C) credits Supplies and debits Cash
D) debits supplies expense and credits supplies

B) debits Supplies and credits Accounts Payable

The journal entry to record a payment on account will:
A) debit accounts payable and credit retained earnings
B) debit accounts payable and credit cash
C) debit cash and credit Expenses
D) debit Expenses and credit cash

B) debit Accounts Payable and credit Cash

The accountant for Exeter Corp. failed to make the adjusting entry to record depreciation for the current year. The effect of this error is:
A) Assets and expenses are understated; net income is understated
B) Assets, net income, and stockholders equity are all overstated
C) Assets are overstated; and stockholders equity are all overstated
D) Net income is overstated and liabilities are understated

B) Assets, net income, and stockholders equity are all overstated

In which month should revenue be recorded?
A) In the month that goods are shipped to the customer
B) In the month that goods are ordered by the customer
C) In the month that cash is collected from the customer
D) In the month that the invoice is mailed to the customer

A) In the month that goods are shipped to the customer

The account Unearned Revenue is a(n):
A) Liability
B) Revenue
C) Expense
D) Asset

A) Liability

Adjusting entries:
A) are needed to measure the period's net income or net loss.
B) update the accounts
C) do not debit or credit cash
D) all of the above

D) all of the above

An adjusting entry recorded April salary expense that will be paid in May. Which statement best describes the effect of this adjusting entry on the company's equation?
A) Assets are decreased, Liabilities are increased, and stockholders equity is decreased
B) Assets are decreased, Liabilities are not affected, and stockholders equity is decreased.
C) Assets are not affected, Liabilities are increased, and stockholders equity is increased
D) Assets are not affected, liabilities are increased, and stockholders equity is decreased

D) Assets are not affected, liabilities are increased, and stockholders equity is decreased

What is the effect on the financial statements of recording depreciation on equipment?
A) Assets are decreased, but net income and stockholders equity are not affected
B) Net income and assets are decreased, but stockholders equity is not affected
C) Net income is not affected, but assets are stockholders equity are decreased
D) Net income, assets, and stockholders equity are all decreased

D) Net income, assets, and stockholders equity are all decreased

The entry to close Management Fee Revenue would be:
A) Retained Earnings
Management Fee Revenue

B) Management Fee Revenue does not need to be closed out

C) Management Fee Revenue
Retained Earnings

D) Management Fee Revenue
Service Revenue

C) Management Fee Revenue
Retained Earnings

Which of the following accounts in not closed?
A) Interest Revenue
B) Depreciation Expense
C) Dividends
D) Accumulated depreciation

D) Accumulated depreciation

For 2012, Matthews Company had revenues in excess of expenses. Which statement describes Matthews closing entries at the end of 2010?
A) Revenues will be debited, expenses will be credited, and retained earnings will be credited
B) Revenues will be credited, expenses will e debited, and retained earnings will be debited
C) Revenues will be debited, expenses will be credited, and retained earnings will be debited
D) Revenues will be credited, expenses will be debited and retained earnings will be credited

A) Revenues will be debited, expenses will be credited, and retained earnings will be credited

A major purpose of preparing closing entries is to:
A) adjust the asset accounts to their correct current balances
B) update the retained earnings account
C) zero out the liability account
D) close out the supplies account

B) update the Retained Earnings account

The accounting assumption that states that the business, rather than its owners, is the reporting unit is the:
A) historical cost assumption
B) stable-monetary- unit assumption
C) entity assumption
D) going concern assumption

C) entity assumption

The major types of transactions that affect retained earnings are:
A) assets and liabilities
B) revenues and liabilities
C) revenues, expenses, and dividends
D) paid - in capital and common stock

C) revenues, expenses, and dividends

Revenues are recorded when:
A) work is begun on the job
B) cash is received from the customer
C) the work is completed on the job, whether or not the cash is received
D) the company signs a contract

C) the work is completed on the job, whether or not the cash is received

When a business makes a sale on account, the asset created is a(n):
A) account receivable
B) expense
C) revenue
D) account payable

A) Account receivable

All of the statements are true about the income statement EXCEPT the income statement:
A) data appears as revenues and expenses under Retained Earnings
B) Reports a net income or a net loss
C) Reports revenues and expenses
D) is as of specific date and not a period of time

D) is as of a specific date and not a period of time

Decreases in stockholders equity that are due to the cost of operating the business are:
A) assets
B) revenues
C) expenses
D) liabilities

C)Expenses

An account is increased by a debit and has a normal balance of a debit. This account is:
A) A liability account
B) an asset account
C) an expense account
D) both an expense account and an asset account

D) both an expense account and an asset account

A grouping of all the T - accounts with their balances is called the:
A) journal
B) accounting equation
C) trial balance
D) ledger

D) ledger

The normal balance of the common stock account is a ________ because it increases ________.
A) debit, assets
B) debit, stockholders equity
C) credit, stockholders equity
D) debit, expenses

C) credit, stockholders equity

Lefton Company made a $2 million sale on account. How will this transaction affect the current ratio and the debt ratio.
A) It improves the current ratio and has no effect on the debt ratio
B) It hurts both the current ratio and the debt ratio
C) It hurts the current ratio and has no effect on the debt ratio
D) it improves both the current ratio and the debt ratio

D) It improves both the current ratio and the debt ratio

Prepaid expenses will:
A) become liabilities when their future benefits expire
B) become expenses when their future benefits expire
C) become revenues when their future benefits expire
D) become none of the above

B) become expenses when their future benefits expire.

Classify the following items as an Asset (A), a Liability (L), or Stockholders Equity (S).
a. Accounts payable
b. Common stock
c. Supplies
d. Retained earnings
e. Land
f. Prepaid expenses
g. Accounts receivable
h. Long-term debt
i. Merchandise inventory
j. Notes Payable
k. Expenses Payable
l. Equipment

a. L
b. S
c. A
d. S
e. A
f. A
g. A
h. L
i. A
j. L
k. L
l. A

Identify each item with its appropriate financial statement: Income Statement (IS), Statement of retained earnings (SRE), Balance Sheet (BS), Statement of Cash Flows (SCF)
*3 items appear on 2 financial statements, and 1 item shows up on 3 statements.

a. Dividends
b. Salary Expense
c. Inventory
d. Sales revenue
e. Retained Earnings
f. Net cash provided by operating activities
g. Net income
h. Cash
i. Net cash used for financing activities
j. Accounts Payable
k. Common Stock
l. Interest Revenue
m. Long-Term debt
n. Increase or decrease in cash

a. SCF, SRE
b. IS
c. BS
d. IS
e. BS, SRE
f. SCF
g. SCF, IS, SRE
h. BS, SCF
i. SCF
j. BS
k. BS
l, IS
m. BS
n. SCF

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