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Financial Accounting quiz's
Terms in this set (127)
A general ledger should be arranged in statement order beginning with the balance sheet accounts.
A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
For each transaction, debits MUST ALWAYS equal credits.
Dollar signs are only used in the trial balance and financial statements, NOT in the journal or ledger.
To add a T-account for the cash account that has a balance of $500 and you then subsequently spend $300, ....
$300 is credited and your end result is a debit of $200
A journal provides
a chronological record of transactions.
An account consists of
a title, a debit side, and a credit side.
Another name for journal is
book of original entry
A number in the reference column in a general journal indicates
that the entry has been posted to a particular account.
The normal balance for an asset is a ---- and to increase the asset account it is ---- and to decrease the asset account, the account is -----.
DR. Debited, Credited
should be performed in account number order.
The usual ordering of accounts in the general ledger is
assets, liabilities, stockholders' equity, revenues, and expenses.
The usual sequence of steps in the recording process is to
analyze each transaction, enter the transaction in the journal, and transfer the information to the ledger accounts.
Which of the following correctly identifies normal balances of accounts?
Common Stock Credit
Expense recognition often follows revenue recognition.
Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.
The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.
Monthly and quarterly time periods are known as interim periods.
Accounts often need to be adjusted because
many transactions affect more than one time period.
A gift shop, located in a hotel, signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $60,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
interest Expense 1,200 Interest Payable 1,200
An adjusting entry
affects a balance sheet account and an income statement account.
Depreciation is the process of
allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
Prepaid expenses are
paid and recorded in an asset account before they are used or consumed.
The fiscal year of a business is usually determined by
The revenue recognition principle dictates that revenue should be recognized in the accounting records
when it is earned
Depreciation expense for a period is computed by taking the
cost of the asset ÷ useful life.
If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, then failure to make an adjusting entry will cause
revenues to be overstated.
The Larkin Hotel purchased $7,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand. The adjusting entry that should be made by the hotel on June 30 is
Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $5,500.
After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.
Closing entries are journalized after adjusting entries have been journalized.
Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.
If total credits in the income statement columns of a work sheet exceed total debits, the enterprise has net income.
The accounting cycle begins at the start of a new accounting period.
A company's liquidity is concerned with the relationship between long-term investments and long-term debt.
A liability is classified as a current liability if it is to be paid from current assets within the next year or operating cycle, whichever is longer.
The completed work sheet is NOT a substitute for formal financial statements.
A correcting entry
may involve any combination of accounts.
An intangible asset
derives its value from the rights and privileges it provides the owner.
cause the revenue and expense accounts to have zero balances.
Closing entries are journalized and posted
after the financial statements are prepared.
In preparing closing entries
each expense account will be credited.
The balance in the Income Summary account before it is closed will be equal to
the net income or loss on the income statement.
The closing entry process consists of closing
all temporary accounts.
The purpose of the post-closing trial balance is to
prove the equality of the balance sheet account balances that are carried forward into the next accounting period.
When using a work sheet, adjusting entries are journalized
after the work sheet is completed and after financial statements have been prepared.
Which of the following depicts the proper sequence of steps in the accounting cycle?
Prepare a trial balance, prepare adjusting entries, prepare financial statements
Generally, the most important category on the statement of cash flows is cash flows from
If a company has both an inflow and outflow of cash related to property, plant, and equipment, the
cash inflow and cash outflow should be reported separately in the investing activities section.
Meyer Deli reported net income of $40,000 for the year. During the year, accounts receivable increased by $14,000, accounts payable decreased by $6,000 and depreciation expense of $10,000 was recorded. Net cash provided by operating activities for the year is
Once all departmental income statements are put together, added, and summarized, the company now has:
a consolidated income statement.
On the statement of cash flows using the indirect method, patent amortization expense will
be added to net income in the operating section.
Significant noncash transactions would not include
treasury stock acquisition.
Which of the following would be added to net income using the indirect method?
A consolidated income statement is a summary statement of all the departmental income statements of a property.
The payment of interest on bonds payable is classified as a cash outflow from operating activities.
The amortization of a patent is added back to net income to arrive at net cash provided by operating activities.
Inflows and outflows from investing and financing activities should be reported separately on the statement of cash flows.
A statement of cash flows starts with net income and adds (or deducts) items that did not affect cash to arrive at net cash provided by operating activities if the indirect method is used.
Which of the following would decrease net cash provided by operating activities?
Decrease in short-term notes payable.
Which of the following is reported on both a multiple-step and single-step income statement?
Profit margin, return on assets, and return on common stockholders' equity are profitability ratios.
The formula for computing times interest earned is income before income taxes and interest expense divided by interest expense.
Sales (in millions) for a three year period are:
Year 1: $6
Year 2: $6.9
Year 3: $7.5
Using Year 1 as the base year, the percentage increase in sales in Years 2 and 3 are, respectively...
115% and 125%
current ratio= current assets / current liabilities
receivables turnover= net credit sales / average net receivables
payout ratio= cash dividends / net income
The acid-test ratio:
measures immediate short-term liquidity
Comparative balance sheets are usually prepared for:
Assume the following sales data for a company:
2007 $ 900,000
2006 $ 750,000
2005 $ 500,000
If 2005 is the base year, what was the percentage increase in sales from 2005 to 2007?
Vertical analysis is also called:
common size analysis
Stockholders are most interested in evaluating:
profitability and solvency
In ratio analysis, the ratios are never expressed as a
__________ reveal the ability of a hospitality establishment to meet its short term obligations.
The _____________ is one example of a Liquidity Ratio
All of the following are limitations of the balance sheet except:
It fails to reflect many elements of value to the operation
In performing a vertical analysis, the base for sales revenues on the income statement is
The formula for horizontal analysis of changes since the base period is the current year amount
minus the base year amount divided by the base year amount.
Stockholders are most interested in evaluating
profitability and solvency.
Retailers and wholesalers are both considered merchandisers.
For a merchandiser, all accounts that affect the determination of income are closed to the Income Summary account.
The revenue recognition principle applies to merchandisers by recognizing sales revenues when they are earned.
The Sales Returns and Allowances account is classified as a(n)
contra revenue account.
net income =
Sales - cost of goods sold - operating expenses = net income
Gross profit - operating expenses = net income
gross profit =
Net income + operating expenses = gross profit
The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit
A merchandiser that sells directly to consumers is a
The operating cycle of a merchandiser is
generally longer than it is for a service company.
Russo Company purchased merchandise with an invoice price of $3,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
When goods are returned that relate to a prior cash sale,
the Cash account will be credited.
Which of the following accounts has a normal credit balance?
Hill Company sells merchandise on account for $3,000 to Karr Company with credit terms of 2/10, n/30. Karr Company returns $500 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
A Sales Returns and Allowances account is NOT debited if a customer
utilizes a prompt payment incentive.
In preparing closing entries for a merchandiser, the Income Summary account will be credited for the balance of
The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are
credit, debit, debit.
Trane Company purchased merchandise inventory with an invoice price of $4,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Trane Company pays within the discount period?
The primary source of revenue for a wholesaler is
the sale of merchandise
Barnett Restaurant Equipment has a beginning merchandise inventory of $20,000. During the period, purchases were $60,000; purchase returns, $2,000; and freight-in $5,000. A physical count of inventory at the end of the period revealed that $10,000 was still on hand. The cost of goods available for sale was
In periods of inflation, phantom or paper profits may be reported as a result of using the
FIFO costing assumption.
Related selling activities do not include
ordering the merchandise.
Selection of an inventory costing method by management does not usually depend on
the fiscal year end
The Freight-in account
increases the cost of merchandise purchased.
The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be
Accounts Payable Purchase Returns and Allowances
The LIFO inventory method assumes that the cost of the latest units purchased are
the first to be allocated to cost of goods sold.
Under a periodic inventory system, acquisition of merchandise is debited to the
Which of the following statements is true regarding inventory cost flow assumptions?
A company may use more than one costing method concurrently.
The data below are for Parrett Pasta: Beginning inventory 200 units at $2.00 Purchase—August 500 units at $1.50 Purchase—October 200 units at $3.00 A periodic inventory system is used; ending inventory is 440 units. What is the ending inventory under FIFO?
When a company uses the periodic method of accounting for inventories the
inventory balance does not change until the end of the year.
When prices are rising, FIFO results in a higher ending inventory than LIFO.
If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.
The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.
Inventory turnover is calculated by dividing cost of goods sold by
A bank statement
shows the activity which increased or decreased the depositor's account balance
A check returned by the bank marked "NSF" means
no sufficient funds
should be safeguarded
Checks received through the mail should
immediately be endorsed "For Deposit Only."
Control over cash disbursements is generally more effective when
payments are made by check
For accounting purposes, postdated checks (checks payable in the future) are considered to be
In preparing a bank reconciliation, outstanding checks are
deducted from the balance per bank.
Internal controls are concerned with
The custodian of a company asset should
not have access to the accounting records for that asset.
The following information is available for Starr Company at December 31, 2003: Beginning inventory $ 80,000 Ending inventory 120,000 Cost of goods sold 900,000 Sales 1,200,000 Starr's inventory turnover in 2004 is
All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.
The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.
A check is a written order signed by the depositor directing the bank to pay a specified sum of money to a designated recipient.
An effective system of internal control will segregate functions between individuals to reduce the potential for errors and fraud.
Independent internal verification should be made periodically and should be done by an employee who is independent of the employee responsible for the information.
The lack of agreement between the balance per books and the balance per bank is due to time lags and errors by either party.