Financial Accounting Notes

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Which of the following is false regarding the balance sheet?

The balance sheet reports the changes in specific account balances over a period of time

A business's balance sheet cannot be used to accurately predict what the business might be sold for because

assets are generally listed on the balance sheet at their historical cost, not their current value

what type of account is increased with a debit but is a decrease to retained earnings?


The operating cycle is best defined as

the length of time over which property, plant and equipment assets are expected to be used by the company in generating revenues

Which document/accounting tool lists all of the company's accounts, their respective ending balances, and if they are a debit or a credit?

Trial Balance

GAAP stands for what?

Generally accepted accounting principles

Which assumption or principle dictates that the activities of the business are seperate from the activities of the owners?

economic entity assumption

which assumption or principle dictates that all information sufficiently important to influence a decision is in the financial statements?

Full disclosure principle

which qualitative characteristic of accounting suggests that the capacity of information to make a difference in a decision exists?


Which if the following statements about inventory costing is false?

Sales returns and allowances is a contra-asset

The approach to financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Accrual basis accounting

A publishing company records the subscriptions paid in advance by its customers in an account called unearned subscription revenue. If the the company fails to make the end-of-period adjusting entry to record the portion of the subscriptions that have been earned, one effect will be:

an overstatement of liabilities

An account linked with another with another that has an opposite normal balance and that is subtracted from the balance of the related account is a(n)

Contra account

A debit to sales returns and allowances and a credit to accounts receivable:

recognizes that a customer returned merchandise and /or received an allowance

which of the following accounts would be closed out with a debit


The understatement of ending inventory balance causes

cost of goods to be overstated and net income to be understated

The inventory turnover ratio is calculated as:

cost of goods sold divided by average merchandise

The inventory valuation method that identifies the actual cost of each item in ending inventory to determine the cost assigned to that inventory is the:

specific identification method

A company uses the allowance method to account for accounts receivable. which of the following journal entries affects total assets?

Recording bad debt expense

The main purpose of recording depreciation is

allocate the cost of a tangible asset to the periods in which its use contributes to earning revenues

Goodwill is:

Checked for impairment at the end of the accounting period

The right to reproduce or sell a published work is a


Outstanding checks refer to checks that have been

written, then recorded on the company books and sent to the customer, supplier or creditor, but have not yet been paid by the bank

the maturity date of a note receivable

is the day the note is due to be paid

The useful life of a plant asset is

the length of time its is used productively in a company's operations

Both the straight-line depreciation method and the double-declining-balance depreciation method:

produce the same total depreciation over an asset's useful life

The matching principle requires

the use of the allowance method of accounting method for bad debts

The amount of bad debt expense can be estimated by:

The percent of sales method, the percent of accounts receivable method

The total cost of an asset less its accumulated depreciation is called

Book value

Which of the following statements concerning bonds is false?

term bonds retire in installments

The unammortized discount on a bond can always be found by the following equation:

Face value - carrying value

As a result of the stock dividend, stock holders' equity would

Remain the same

Which of the following represents the shares currently in the hands of investors?

Outstanding shares

Which statement regarding treasury stock is false?

Treasury stock has voting, dividend, and liquidation rights

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