Accounting Chapter 5

90 terms by tjp11 

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True

The report form of the balance sheet lists liabilities and owners' equity below assets.

False

A current asset may be cash or must be capable of being converted into cash with a relatively short period of time, usually less than five years.

False

Real accounts can only be closed at the end of the year with a single compound entry.

True

The adjusted trial balance contains income statement accounts and balance sheet accounts while the after-closing trial balance will only have balance sheet accounts.

False

Measures of profitability tell us how quickly current assets can be converted into profits.

True

The current ratio is a measure of liquidity.

True

The purpose of the after-closing trial balance is to give assurance that the accounts are in balance and ready for the new accounting period.

True

The account, Accumulated Depreciation, is considered a permanent account.

True

The net income percentage can be measured by dividing net income by total revenue.

False

Working capital equals current assets divided by current liabilities.

True

In regard to disclosures that are required to be contained in annual reports, the FASB has no well- defined list of items that must be included.

False

At year-end all equity accounts must be closed.

False

The income summary account appears, as stated, on the statement of retained earnings.

True

Dividends are closed out directly to retained earnings at year end.

True

Income summary does not appear on the income statement.

False

Dividends declared are an expense and reduce net income.

False

The current ratio equals current assets plus current liabilities.

False

The return on equity ratio equals net income divided by common stock.

False

Interim financial statements usually report on a period of time greater than one year.

False

Publicly owned companies are typically managed by their stockholders.

True

Financial statements are usually prepared before the closing entries are made.

True

Closing entries do not affect the cash account.

False

Return on equity is a commonly used measure of a company's solvency.

True

The current ratio is a measure of short-term debt paying ability.

True

An after-closing trial balance consists only of asset, liability, and owners' equity accounts.

True

IFRS 1 requires that management and auditors should depart from compliance with GAAP if it is necessary to achieve a fair presentation when reporting financial results.

False

An annual report filed with the Securities and Exchange Commission must include a section called "Management's Predictions of Future Earnings".

Statement of Financial Position

Of the following, which is not an alternative title for the income statement?

Retained Earnings + Net Income - Dividends

The Retained Earnings statement is based upon which of the following relationships?

The optimism of the CFO regarding future profits.

In the notes to financial statements, adequate disclosure would typically not include:

Transaction entries

A worksheet consists of all of the following except:

A post-closing trial balance

Closing entries would be prepared before:

Unearned Revenue

When a worksheet is prepared which account would not be entered into the income statement columns?

Debit to Income Summary and a credit to the expense account.

The closing entry for an expense account would consist of a

Net loss of $10,000

The income summary account has debits of $85,000 and credits of $75,000. The company had which of the following:

Non-financial information that is not included in the basic financial statements.

What types of information must be disclosed in the financial statements?

Reduce retained earnings

Dividends declared:

All revenue accounts are debited and expense accounts are credited.

During the closing process:

A Net Loss.

A debit balance in the income summary account indicates:

Closed to retained earnings.

The dividends account should be:

Prepaid Expenses

Which account will appear on an after-closing trial balance?

Dividends

Which account will not appear on an after-closing trial balance?

All three of the above would be disclosed.

Which of the following items will usually not be disclosed in an annual report?

Profitability

Return on equity measures:

Listed on a stock exchange

Publicly owned companies are:

Is not a formal step in the accounting cycle.

The worksheet:

Net income

If Income Summary has a net credit balance, it signifies:

Will equal net income or net loss

The balance in Income Summary:

Net income is correct and the balance in the Retained Earnings account is correct.

After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end?

Does not apply to information which is immaterial.

The concept of adequate disclosure:

Income projections for the next five years based upon anticipated market share of a new product; the . new product was introduced a few days before the balance sheet date.

The concept of adequate disclosure requires a company to inform financial statement users of each of the following, except:

Income summary does not appear on any financial statement.

Income Summary appears on which financial statement:

Is determined in the statement of Retained Earnings

Retained Earnings at the end of a period:

The changes in the Retained Earnings account occurring during the accounting period.

A statement of retained earnings shows:

Income statement, statement of retained earnings, balance sheet.

The normal order in which the financial statements are prepared is:

Prepare revenue and expense accounts for the recording of the next period's revenue and expenses.

The purpose of making closing entries is to:

The Income Summary account

In the closing of the accounts at the end of the period, which of the following is closed directly into the Retained Earnings account?

SEC

Publicly traded companies must file audited financial statements with the:

Accumulated Depreciation account

Closing entries never involve posting a credit to the:

Dividends

Which of the following account titles could not be debited in the process of preparing closing entries for Andrew's Auto Shop?

Revenue and expense accounts reflect year-to-date amounts throughout the year.

If a business closes its accounts only at year-end:

Within a year or less

Assets are considered current assets if they are cash or will usually be converted into cash:

Net income

Which of the following amounts appears in both the Income Statement debit column and the Balance Sheet credit column of a worksheet?

A tool to assist accountants in making end-of-period adjustments and in preparing financial
statements.

A worksheet should be viewed as:

Revenue exceeds total expenses for the period.

The amount of net income (or loss) will appear on the debit side of the Income Statement columns in a worksheet if:

Dividing net income by average stockholders' equity.

Return on equity is calculated by:

The number of account titles applicable to the Adjusted Trial Balance columns is usually greater than . the number of account titles applicable to the Trial Balance columns.

Which of the following is true regarding a worksheet prepared at year-end?

Cover a period less than one year.

Interim financial statements:

Financial statements may be prepared before recording adjusting and closing entries in the
accounting records.

When a worksheet is used:

Is done monthly or quarterly, in-between the year-end financial statements.

Preparation of interim financial statements:

Monthly financial statements can be prepared from worksheets; adjustments and closing entries need not be entered in the accounting records.

If monthly financial statements are desired by management:

Not change net income.

Declaring a dividend will:

Decrease

Dividends will have what effect upon retained earnings?

None of the above

Which of the following accounts will be closed to Income Summary?

The Retained Earnings Statement

Net income from the Income Statement appears on:

Both A and B are false

Which statement is true regarding the Income Statement?

Both A & B

Which of the following items should not be disclosed in the body of the financial statements, but rather in the notes to the financial statements?

Every year.

Closing entries should be made:

Each of the above accounts should be closed.

Which accounts should be closed?

Unearned revenue

Which account appears on the After-Closing Trial Balance?

Is required by the SEC

The section of the annual report titled "Management Discussion and Analysis"

All of the above

Under the Sarbanes-Oxley Act, CFOs and high-ranking corporate officers are now

Adequate disclosure

The generally accepted accounting principle of providing with financial statements any information that users need to interpret those statements properly.

After-closing trial balance

A trial balance prepared after all closing entries have been posted. This trial balance consists only of accounts for assets, liabilities, and owners' equity.

Closing entries

Journal entries made at the end of the period for the purpose of closing temporary accounts (revenue, expense, and dividend accounts) and transferring balances to the Retained Earnings account.

General ledger software

Computer software used for recording transactions, maintaining journals and ledgers, and preparing financial statements. Also includes spreadsheet capabilities for showing the effects of proposed adjusting entries or transactions on the financial statements without actually recording these entries in the accounting records.

Income Summary

The summary account in the ledger to which revenue and expense accounts are closed at the end of the period. The balance (credit balance for a net income, debit balance for a net loss) is transferred to the Retained Earnings account.

Interim financial statements

Financial statements prepared for periods of less than one year (includes monthly and quarterly statements).

Notes to financial statements

Supplemental disclosures that accompany financial statements. These notes provide users with various types of information considered necessary for the proper interpretation of the statements.

Worksheet

A multicolumn schedule showing the relationships among the current account balances (a trial balance), proposed or actual adjusting entries or transactions, and the financial statements that would result if these adjusting entries or transactions were recorded. Used both at the end of the accounting period as an aid to preparing financial statements and for planning purposes.

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