FINANCIAL ACCOUNTING EXAM 1
Terms in this set (60)
Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?
Identify the accounts that would normally have balances in the credit column of a business's trial balance.
Revenues and expenses.
Smiles Entertainment had the following accounts and balances at December 31:
Account Debit Credit
Accounts Receivable 2,180
Prepaid Insurance 2,760
Accounts Payable $5,450
Common Stock 5,440
Service Revenue 7,900
Salaries Expense 590
Utilities Expense 1,180
Totals $18,790 $18,790
Using the information in the table, calculate the company's reported net income for the period.
Net Income = Total Revenues - Total Expenses.
(Service Revenue $7,900 - Salaries Expense $590 - Utilities Expense $1,180 = $6,130)
The Retained Earnings account has a credit balance of $25,500 before closing entries are made. If total revenues for the period are $80,200, total expenses are $58,800, and dividends are $13,500, what is the ending balance in the Retained Earnings account after all closing entries are made?
Ending Retained Earnings Balance = Beginning Retained Earnings Balance + Revenues - Expenses - Dividends
Ending Retained Earnings Balance = $25,500 + $80,200 - $58,800 - $13,500 = $33,400
Another name for a temporary account is a(n):
An account balance is:
The difference between the total debits and total credits for an account including the beginning balance.
Earns net income by buying and selling merchandise.
The correct adjusting entry for accrued and unpaid employee salaries of $8,400 on December 31 is.
Debit Salary Expense, $8,400; credit Salaries Payable, $8,400.
The basic financial statements include all of the following except:
Statement of Changes in Assets.
A company's ledger is:
A record containing all accounts and their balances used by the company.
Expenses to promote sales by displaying and advertising merchandise, making sales, and delivering goods to customers are known as:
A credit entry:
Decreases asset and expense accounts, and increases liability, stockholders' equity, and revenue accounts.
When closing entries are made:
All temporary accounts are closed but permanent accounts are not closed.
If a company uses $1,400 of its cash to purchase supplies, the effect on the accounting equation would be:
One asset increases $1,400 and another asset decreases $1,400, causing no effect.
The Income Summary account is used to:
Close the revenue and expense accounts.
Billington Corp. borrows $80,000 cash from Second National Bank. How does this transaction affect the accounting equation for Billington?
Assets would increase $80,000 and liabilities would increase $80,000.
Charlie's Chocolates Inc.'s stockholders made investments of $70,000 and dividends of $30,000. The company has revenues of $103,000 and expenses of $74,000. Calculate its net income.
Net Income = Revenues - Expenses
Net Income = $103,000 - $74,000; Net Income = $29,000
The Retained Earnings account has a credit balance of $48,000 before closing entries are made. Total revenues for the period are $66,200, total expenses are $45,300, and dividends are $13,400. What is the correct closing entry for the expense accounts?
Debit Income Summary $45,300; credit Expense accounts $45,300.
On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?
Revenue recognition principle.
Rent expense appears on which of the following statements?
Accounts payable appear on which of the following statements?
Prepaid expenses are generally:
Assets that represent prepayments of future expenses.
Creditors' claims on the assets of a company are called:
Multiple-step income statements:
Contain more detail than a simple listing of revenues and expenses.
Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method. The adjusting entry needed to record annual depreciation is:
Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.
The closing process is necessary in order to:
Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.
A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
Revenues, expenses, and dividend accounts, which are closed at the end of each accounting period are:
The increase in equity from a company's sales of products and services.
On July 1, a company paid the $4,080 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the current year ended December 31?
$4,080 × 6/12 = $2,040
After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $39,000. The entry to close the income summary account will be:
Debit Retained Earnings $39,000; credit Income Summary $39,000.
Decreases in equity that represent costs of providing products or services to customers, used to earn revenues are called:
A company purchased $3,100 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $340 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:
Cash Paid = ($3,100 - $340) * 0.97 = $2,677
The right side of a T-account is a(n):
Identify the accounts that would normally have balances in the debit column of a business's trial balance.
Assets and expenses.
The financial statement that shows the beginning balance of retained earnings; the changes in retained earnings that resulted from, net income (or net loss); dividends; and the ending balance, is the:
Statement of retained earnings.
Cost of goods sold:
Is the term used for the expense of buying and preparing merchandise for sale.
Prior to recording adjusting entries, the Office Supplies account had a $393 debit balance. A physical count of the supplies showed $95 of unused supplies available. The required adjusting entry is:
Debit Office Supplies Expense $298 and credit Office Supplies $298.
Is a current asset.
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the purchase on July 5 is:
Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
The credit terms 2/10, n/30 are interpreted as:
2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
The current period's ending inventory is:
The next period's beginning inventory.
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:
Debit Accounts Payable $1,600; credit Cash $1,600.
Marsha Bogswell is the owner of Bogswell Legal Services, Inc. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services, Inc.?
Business entity assumption.
Joel Consulting received $3,000 from a customer for services provided. Joel's general journal entry to record this transaction will be:
Debit Cash, credit Services Revenue.
Use the following information as of December 31 to determine equity.
Assets = Liabilities + Owner's Equity
Cash + Equipment + Buildings = Liabilities + Owner's Equity
$63,000 + $212,000 + $181,000 = $147,000 + Owner's Equity
$456,000 = $147,000 + Owner's Equity; Owner's Equity = $309,000
Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:
General and administrative expenses.
A double-entry accounting system is an accounting system:
That records the effects of transactions and other events in at least two accounts with equal debits and credits.
If a company receives $12,600 from the stockholders to establish a corporation, the effect on the accounting equation would be:
Assets increase $12,600 and equity increases $12,600.
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the merchandise return on July 7 is:
Debit Accounts Payable $200; credit Merchandise Inventory $200.
A company has sales of $718,800 and cost of goods sold of $287,800 Its gross profit equals:
Gross Margin = Sales - Cost of Goods Sold
Gross Margin = $718,800 - $287,800 = $431,000
A debit is used to record which of the following?
An increase in the dividends account.
Resources a company owns or controls that are expected to yield future benefits are:
Which of the following accounting principles require that all goods and services purchased be recorded at actual cost?
On April 1, Griffith Publishing Company received $17,280 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year?
debit Unearned Fees, $4,320; credit Fees Earned, $4,320.
Doc's Ribhouse had beginning equity of $52,000; net income of $35,000, and Dividends by the company of $12,000. Calculate the ending equity.
Ending Equity = Beginning Equity + Net Income - Dividends
Ending Equity = $52,000 + $35,000 - $12,000 = $75,000
Unearned revenues are generally:
Liabilities created when a customer pays in advance for products or services before the revenue is earned.
The accounting process begins with:
Analysis of business transactions and source documents.
Assets, liabilities, and equity accounts are not closed; these accounts are called:
Prentice Company, Inc. had cash sales of $94,525, credit sales of $83,600, sales returns and allowances of $1,800, and sales discounts of $3,575. Prentice's net sales for this period equal:
Net Sales = $94,525 + $83,600 - $1,800 - $3,575 = $172,750