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Accounting Test #1 UMD – KAREN SAMELA

In what order are the financial statements generally prepared?
Income statement, statement of retained earnings, and balance sheet
All of the following accounts will be closed EXCEPT for:
Cash.
Closing entries:
prepare the accounts for the next periods transactions.
After the closing entries are prepared and posted:
the retained earnings account will have the correct ending balance.
Accounts that relate to a limited period of time are called:
temporary accounts
Which of the following accounts are considered permanent accounts?
Land and Accounts Receivable
The entry made to close Service Revenue would include a debit to:
Service Revenue and a credit to Net Income.
The closing entry for the Salaries Expense account would include a debit to:
Retained Earnings and a credit to Salaries Expense.
On a classified balance sheet:
Notes Payable due in one year is a current liability.
When preparing the financial statements for a company:
the account format for the balance sheet lists the assets on the left and liabilities and stockholders’ equity on the right.
Which of the following is CORRECT regarding liquidity?
A balance sheet lists assets and liabilities in the order of relative liquidity.
The following accounts are listed in order of liquidity:
Cash, Accounts Receivable, Inventory, Furniture
When classifying assets and liabilities:
furniture and fixtures are long – term assets.
On a multiple – step income statement, the heading or classification “Other income” refers to:
Interest income and Investment income.
On a multiple step income statement, several indicators of profitability are reported that include:
operating income, income before taxes, and net income.
Net working capital:
is computed by subtracting total current liabilities from total current assets.
A measure of a company’s ability to pay current liabilities with current assets is the:
current ratio
When analyzing a company’s debt ratio:
the ratio measures a company’s ability to pay its total liabilities.
The debt ratio is computed by dividing
total liabilities by total assets
Which of the following combinations of ratios is preferable?
A high current ratio and a low debt ratio.
The following accounts are up to date and need no adjustment at the end of the period:
Cash, Land and Common Stock.
Adjusting entries:
adjust unearned revenue
Adjusting entries:
are made before the financial statements can be prepared.
Prepaid expenses will:
become expenses when their future benefits expire.
______ is the allocation of the cost of an asset over the assets useful life.
Depreciation
______ will be increased when a company receives cash before performing the services.
Unearned Service Revenue
The book value of a plant asset is the:
cost of the asset less the accumulated depreciation.
With the accrual of revenue:
the cash is received after the revenue is recorded.
When an adjustment is made for prepaid rent:
an asset decreases and an expense increases
Which account is credited in the adjusting entry to allocate the cost of equipment to an expense account?
Accumulated depreciation
Which accounts are used in the adjusting entry to record salaries owed to employees, but not paid until the next accounting period?
Salaries Expense and Salaries Payable
At the end of the accounting period, a company has accrued interest revenue that they will not receive until the next accounting period. The adjusting entry would include a:
debt to Interest Receivable.
The Accumulate Depreciation account:
is a contra asset account.
Which of the following financial statements are prepared using the adjusted trial balance?
Balance sheet, income statement, and statement of retained earnings.
A tired accountant failed to record the adjusting entry for accrued revenues. How does this error affect the balance sheet?
The assets for the period will be understated.
Which of the following is NOT a correct statement about adjusting entries?
Every adjusting entry affects Cash.
The adjustment for an accrued expense:
increases expenses and increases liabilities
The adjustment for an accrued revenue:
is necessary because a business often earns revenue before they receive the cash.
The adjusting entry to record the accrual of income tax expense includes a:
credit to Income Tax Payable.
If adjusting entries are not prepared, which financial statements are misstated?
income statement, balance sheet and statement of retained earnings.
A doctor performed surgery in March and did not receive cash from the patient until July, Under accrual – basis accounting, the doctor recognizes revenue:
in March
A doctor performed surgery in April and did not receive cash payment from the patient until August. Under cash – basis accounting, the doctor recognizes revenue:
In August.
Under accrual – basis accounting, revenue is recorded:
when the services are performed, regardless of when the cash is received.
Which of the following transactions would be recorded under accrual – basis accounting but NOT under cash – basis accounting?
Purchasing of inventory on account.
Which of the following is a CORRECT statement about the different accounting methods?
GAAP requires accrual – basis accounting
The method of accounting that records revenues ONLY when cash is received is the:
cash – basis method
When cash – basis accounting is used, and services are provided on account
both the income statement and the balance sheet will be incorrect.
An expense occurred in 2013, but is is not paid until 2014. Using the accrual basis of accounting, the expense should appear on:
the 2013 income statement.
An interim period used for reporting purposes is generally:
less than one year.
The requirement to report accounting information at regular intervals is known as the:
time – period concept.
Under cash – basis accounting, cash receipts are treated as _____ and cash payments are treated as _________.
revenues; expenses
The revenue principle governs two things:
when to record revenue and the amount of revenue to record.
The revenue principle requires that a business record revenue when the business:
deleivers goods or services to a customer.
Following the expense recognition principle, recognizing expenses along with the related revenues means to:
subtract expenses from the related revenues to compute net income or net loss.
The left side of a T – account is always the:
debit side
An important rule to remember when working with T accounts is:
to credit an account means to enter an amount on the right – hand side of the T account.
Which of the following statements about the rules of debits and credits is CORRECT?
Revenue is increased by a credit.
Decreases in stockholders equity that result from the cost of operating the business are:
expenses
Which accounts are increased by debits?
Accounts Receivable and Utilities Expense
Accounting transactions are initially recorded in the:
Journal
An account will have a debit balance if:
the amount of the debits exceeds the amount of the credits.
The proper order for the accounting process is:
transactions occurs, transactions analyzed, journalizing, and posting.
The ledger:
contains all the accounts used by a business.
Posting is:
copying the information from the journal to the ledger.
Every Journal entry:
must debit at least one account and credit at least one account.
An owner makes an investment of cash into the business and receives shares of stock. This transaction would include a:
debit to Cash and a credit to Common Stock.
A business paid $40,000 cash to purchase equipment. The business would:
debit Equipment for $40,000 and credit cash for $40,000.
A business purchased office supplies of $15,000 on account. The business would:
debit supplies for $15,000 and credit Accounts Payable for $15,000.
A business paid $1,900 on account. The journal entry would:
debit Accounts Payable for $1,900 and credit Cash for $1,900.
The normal balance of an account:
falls on the side where increases are recorded.
When computing the normal balance of an account:
accounts payable should have a credit balance.
A chart of accounts:
lists all of an organizations accounts and account numbers.
A trial balance has which of the following features?
Totals for all accounts listed in the ledger.
The debt created by a business when it makes a purchase of inventory on account is an:
account payable
Which of the following transactions will increase Stockholders Equity.
The company issues common stock to new shareholders.
Which of the following transactions will increase one asset and decrease another asset?
The purchase of equipment for cash
A company performed services for a customer for cash. This transaction increase assets and:
increased revenues
A company receives an utility bill and immediately pays it. With this transaction:
stockholders equity is decreased.
Company Z sells land for the same amount it paid for it three years ago. When the company records this transaction:
one asset is increased and another asset is decreased.
When a company borrows money from the bank, which type of accounts are increased?
asset and liability accounts
When a company pays an amount it owes a creditor:
assets are decreased and liabilities are decreased.
Purchasing supplies on account would:
increase total assets and increase total liabilities.
Which of the following transactions would decrease an asset and decrease a stockholders equity?
The declaration and payment of a dividend to the shareholders.
A company received $31,000 cash and issued common stock in exchange. In transaction analysis, how does this transaction affect the accounting equation?
Add $31,000 to cash account and add $31,000 to common stock account.
A company purchased supplies of $6000 on account. In transaction analysis, how does this transaction affect the accounting equation?
Add $6,000 to supplies account and add $6,000 to Accounts payable account.
On May 1, a company provided legal services for a new client. The lawyer asked for $1,100 and the client paid with a check on May 1 before leaving the office. In transaction analysis, how does this transaction affect the accounting equation?
Add $1,100 to cash account and add $1,100 to Retained Earnings account.
A company went to the bank and borrowed $13,000 on a long term note. In this transaction analysis, how does this transaction affect the accounting equation?
Add $13,000 to Cash account and add $13,000 to Notes Payable account.
A company declared and paid dividends of $600. In transaction analysis, how does this transaction affect the accounting equation?
Subtract $600 from retained earnings account and subtract $600 from Cash account.

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