Acct 1 - Exam 1

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tvr0227
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Acct 1 - Exam 1
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2014-09-10 21:56:00
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Acct 1 Exam 1
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  1. What is the accounting equation?
    Assets = Liabilities + Equity (Common Stock, Dividends, Revenues, Expenses)

    A=L+E
  2. Why does a business need acct information?
    Accounting records business transactions and communicates financial information
  3. Which of the following statements explain how the accounting equation applies to business?
    A=L+E

    Equation reflects that the total of what a business owns at any point in time will equal the total of what it owes to creditors and owners.

    The relatino of assets, liabilities and equity is reflected in the equation.

    The equation applies to all monetary business transactions and events.
  4. Expenses
    Decrease equity and are the cost of assets or svcs used to earn revenue
  5. Revenue
    Increase equity and are the assets earned from a company's earning activities
  6. Dividends:
    Decrease equity and are payments from the company to the owners
  7. Investments:
    Increase equity and are assets an owner puts into the business
  8. List of assets:
    • cash
    • NR
    • Land
    • Bldgs
    • Equip
    • Supplies
    • Vehicles
    • AR
  9. The correct definition of revenues is Revenues _______ (increase/decrease) _______ (liabilities/equity) and are the assets or monies earned from a company's earnings activities.
    Increase

    equity
  10. Owner investments cause a(n) (increase/decrease) _____in equity and are entered directly in the Common _____ (dividend/stock) account.
    increase

    stock
  11. Four major types of transactinos that affect equity in a business are:
    revenue, expenses, dividends, common stock
  12. Equity:
    claims of the business' owners on the assets of a business
  13. Examples of liabilities:
    • wages payable
    • AP
    • NP
    • taxes payable

    *keyword payable
  14. Expanded accounting equation:
    Assets=Liabilities+Common Stock-Dividends+Revenue-Expenses
  15. How do expenses affect equity?
    higher expenses result in lower total equity

    if expenses increase, total equity decreases
  16. Revenue accounts:
    interest revenue, professional fees earned, sales
  17. Dividends of $100 are paid to the shareholders. How would this affect the total equity of his business?
    Dividends would be increased and total equity would decrease
  18. Rule of double accounting:
    at least 2 accts are involved

    at least 1 debit and 1 credit
  19. Effects of debits and credits:
    Expenses reduce equity, so to increase and expense acct you would debit that acct
  20. Journaling steps:
    • 1. enter date
    • 2. name of debit acct
    • 3. name of credit acct
    • 4. explanation
  21. Normal credit balance:
    • common stock
    • unearned consulting revenue
    • AP
  22. Define account:
    record of increases and decreases in a specific asset, liability, equity, revenue or expense item
  23. Notes receivable (NR):
    • 1. promise of another entity to pay a definite sum of money on a specified future date
    • 2. promissory note
    • 3. asset
    • 4. decreased with a credit
  24. Accounts Payable (AP):
    refers to oral or implied promises to pay later, which may arise from the purchase of supplies or services
  25. Steps to prepare trial balance:
    • 1. list each acct and its amt from the general ledger
    • 2. compute the total debit balances and total credits
    • 3. verify the total debits = total credits
    • 4. locate and resolve errors
  26. Equipment purchased:
    • 1. equipment is reported on the left side and the accounting equation
    • 2. recorded on the balance sheet
    • 3. asset
    • 4. cost is initially recorded as an asset and as it is used and gets worn down, the cost is gradually expensed
  27. What is the benefit of technology in modern business practice?
    • makes info more available to users
    • does not make up for the lack of knowledge
    • reduces time, effort, and cost of record keeping
  28. Define internal users:
    • those directly involved in managing and operating an organization
    • ex. managers, officers, internal auditors, sales staff, budget officers, controllers
  29. CPAs:
    • must meet education and experience requirements and pass an exam
    • required to exhibit character
    • receive a certificate that denotes their professional standing
  30. True about ethics:
    • for info to be useful, it must be trusted
    • ethics are beliefs that distinguish right from wrong
    • ethics are acceptable standards of good and bad behavior
    • identifying the proper ethical path is sometimes difficult
  31. which does not correctly match the accounting principle with its major focus or assumption?
    revenue recognizes principle - revenue is recognized when cash is rec'd from customers for goods or svcs provided
  32. The measurement principle means that accounting info is based on actual cost because cost is considered to be:
    objective
  33. Which of the following represent creditor's claim on the assets of a company?

    A. AR
    B. Retained Earnings
    C. Liabilities
    D. Owner's equity
    e. None of the above
    C. Liabilities
    (this multiple choice question has been scrambled)
  34. If assets increase $5000 and equity increased by $1000 during the accounting period, then how did liabilities change?

    A. inc by $6000
    B. dec by $1000
    C. dec by $4000
    D. dec by $6000
    E. inc by $4000
    E. increased by $4000
    (this multiple choice question has been scrambled)
  35. The owner of a computer services business was able to acquire a new computer, valued at $5000, by establishing an acct with the computer vendor, Com Pewters Unlimited.  There was no down payment.  How does this transaction impact the accounting equation?
    Increase an asset, increase a liability
  36. Keith Manich deposited $5000 in a bank acct he established for a pet store that he is going to own and operate as KM's Pets, Inc.  How does this transaction impact the accounting equation?
    Increase an asset, increase an equity (common stock)
  37. A local fast food outlet hired a first year accounting student to work as its cashier.  The company pays the student after she works for a week.  How does this transaction impact the accounting equation?
    Decrease an asset (cash), decrease owner's equity (salary expense)
  38. Cash dividends are declared and paid to the stockholders of the corporation. How does this transaction impact the accounting equation?
    Decrease an asset (cash), decrease equity (dividends)
  39. If the balance of cash is $210,000, the sales revenue is $500,000, and the net income is $200,000, what is the return on assets (ROA) if the avg assets total is $800,000?
    ROA = NI/total assets

    $200,000/$800,000 = 25%
  40. Which one of the following financial statements does not cover a period of time?

    A. Statement of cash flows
    B. Statement of retained earnings
    C. Income Statement
    D. Balance sheet
    e. All of the above
    D. balance sheet
    (this multiple choice question has been scrambled)
  41. What is the proper order that describes the steps in the accounting process?

    1. Prepare and analyze the trial balance
    2. Record relevant transactions and events in a journal
    3. Analyze each transaction and event from source documents
    4. Post journal information to ledger accts

    A. 3,2,1,4
    B. 3,4,1,2
    C. 1,2,3,4
    D. 3,2,4,1
    E. 2,3,1,4
    D. 3,2,4,1
    (this multiple choice question has been scrambled)
  42. A bill rec'd from a vendor and supplier is an example of which of the following?

    A. journal entry
    B. source documents
    C. accts
    D. financial statements
    e. none of the above
    B. source documents
    (this multiple choice question has been scrambled)
  43. Which of the following is not a liability acct?

    A. salaries payable
    B. NP
    C. mortgage payable
    D. unearned revenue
    E. AR
    E. AR

    keyword: payable
    (this multiple choice question has been scrambled)
  44. Which of the following is a formal promise to pay a future amt and is classified depending on when it must be paid?

    A. prepaid insurance
    B. both AP and AR
    C. AP
    D. AR
    E. NP
    E. NP
    (this multiple choice question has been scrambled)
  45. Which of the following types of accts affect equity?

    A. dividends
    B. common stock
    C. a, b, and c
    D. a and b only
    E. retained earnings
    C. a, b, and c
    (this multiple choice question has been scrambled)
  46. Which of the following would be used in the entry to record a transaction in which the customer pays in advance for products or svcs before they are earned?

    A. dividends
    B. prepaid acct
    C. AP
    D. unearned rev.
    e. None of the above
    D. unearned rev
    (this multiple choice question has been scrambled)
  47. Which of the following is the term used to describe the list of accts that a company uses which includes an identification number assigned to each acct?

    A. trial balance
    B. source document
    C. ledger
    D. chart of accts
    E. journal
    D. chart of accts
    (this multiple choice question has been scrambled)
  48. On 3/15, Armstrong Corp performed consulting svcs on acct for a custormer. Armstrong collected $5000 on acct from that customer an 4/22. Which of the following general journal entries would be used to record the transaction that took place on 4/22?

    A. Debit assets $5,000, credit equity $5,000
    B. debit AR $5000, credit cash $5000
    C. Debit cash $5000, credit consulting svc revenue $5000
    D. debit AR $5000, credit consulting svc rev $5000
    E. debit cash $5000, credit AR $5000
    E. debit cash $5000, credit AR $5000
    (this multiple choice question has been scrambled)
  49. Caroline Duffy contributed $10,000 in cash and equipment worth $3000 to open a new business that she has incorporated. Which of the following general journal entries would be used to record this transaction?

    A. debit cash and equipment for $13000, credit common stock $13000
    B. debit cash $10000, debit equipment $3000, credit common stock $13000
    C. debit asset $13000, credit common stock $13000
    D. debit cash $10000, credit common stock $10000
    E. debit cash $10000, debit equipment $3000, credit dividends $13000
    B. debit cash $10000, debit equipment $3000, credit common stock $13000
    (this multiple choice question has been scrambled)
  50. 1/31 Harrington Corp, a consulting co., had AR in the amt of $10000. During Feb., payments from customers on acct totaled $5000.  At the end of Feb., AR was $12000.  What was the amt of consulting svcs provided to customers on credit during the month of Feb?

    A. 27000
    B. 2000
    C. 3000
    D. 7000
    E. cannot be determined
    D. 7000

    [12000-(10000-5000)]
    (this multiple choice question has been scrambled)
  51. Assets total $100,000, liabilities total $10,000, and equity totals $90,000...what is the debt ratio?

    A. 0.50
    B. 0.75
    C. 0.10
    D. 0.90
    E. 0.20
    C. 0.10

    debt ratio = liabilities / assets (10,000/100,000)
    (this multiple choice question has been scrambled)
  52. The ordering of accts in a trial balance is:

    A. chart of accts order
    B. highest $ to lowest $
    C. lowest $ to highest $
    D. alphabetical
    e. none of the above
    A. chart of accts order
    (this multiple choice question has been scrambled)
  53. Beg. Retained Earnings are $12,000. During the period, stockholders invested $50,000. The End. RE balance was $32,000. If dividends of $10,000 were paid during the period, what was the NI or NL of the business?

    A. NI $20,000
    B. NL $2,000
    C. NI $30,000
    D. NI $2,000
    e. none of the above
    C. NI $30,000

    Formula: Beg RE + NI - Div= End RE

    (12,000 + ?? - 10,000 = 32,000)
    (this multiple choice question has been scrambled)
  54. Which of the following accts would not appear on the income statement?

    A. dividends
    B. b and c
    C. office supplies expense
    D. unearned consulting revenue
    E. professional fees earned
    B. b and c

    Only revenues and expenses show up on the IS.

    Unearned revenue is a liability and dividends is an equity
    (this multiple choice question has been scrambled)
  55. Which of the following statement is true concerning US GAAP and IFRS balance sheets?

    A. only GAAP requires current  items first on the BS
    B. only IFRS requires current  items first on the BS
    C. only GAAP requires that  current items present seperately from noncurrent items in the BS
    D. both require current items first on the BS
    e. all of the above
    A. only GAAP requires current  items first on the BS
    (this multiple choice question has been scrambled)
  56. Which of the following statements are important when choosing the appropriate time period for financial reporting processes?

    a. value of info. is often linked to timeliness
    b. useful info must reach decision makers frequently and promptly
    c. timely info requires thta reports be prepared at regular intervals
    d.all of the above
    e. none of the above
    d.all of the above
  57. Which of the following statements is correct concerning the accrual basis of accounting?

    A. accrual basis does not consider the revenue recognition principle
    B. accrual basis uses the adjusting process to recognize revenues when earned and to match expenses w/revenues
    C. accrual basis recognizes revenues when earned and records expenses when cash is paid
    D. accrual basis must follow the revenue recognition principle but not the expense recognition principle
    E. accrual basis is the same as the cash basis
    B. accrual basis uses the adjusting process to recognize revenues when earned and to match expenses w/revenues
    (this multiple choice question has been scrambled)
  58. Which of the following statements are correct w/respect to the cash basis of accounting?

    a. cash basis of acct recognizes rev when cash is rec'd
    b. cash basis of acct recognizes expenses when the cash is paid
    c. cash basis of acct is acceptable for GAAP
    d. all of the above
    e. none of the above
    d. all of the above
  59. The steps in the acct cycle includes the following: adjusting the accts, preparing a post-closing trial balance, preparing an unadjusted trial balance, analyzing the transactions, journalizing, posting, closing temp accts, and preparing the financial statements. What is the proper order for the first 5 steps?
    • 1. analyze
    • 2. journalizing
    • 3. posting
    • 4. preparing and unadjusted trial balance
    • 5. adjusting the accts
  60. Which of the following accts represent a current asset on a classified balance sheet?

    a. short term investments
    b. merchandise inventory
    c. prepaid expenses
    d. cash
    e. all of the above
    e. all of the above
  61. Which is true about an adjusting entry?

    A. only temp accts are adjusted
    B. only permanent acct are adjusted
    C. both perm and temp accts are adjusted
    D. required to satisfy the revenue recognition principle only
    e. none of the above
    C. both perm and temp accts are adjusted
    (this multiple choice question has been scrambled)
  62. Which is the formula for the profit margin ratio?

    A. net sales/NI
    B. NI/total equity
    C. net sales/total equity
    D. NI/total assets
    E. NI/net sales
    E. NI/net sales
    (this multiple choice question has been scrambled)
  63. Current assets total $30,000, plant and equip assets, net, total $40,000, current liabilities total $10,000 and long term liabilities total $20,000. What is the current ratio?
    3:1

    current ratio = current assets/current liabilities

    (30,000/10,000)
  64. What happens or is accomplished when the adjusting entry for depreciation is recorded?
    cost of the asset is allocated over its useful life
  65. What is true about the accumulated depreciation acct?
    contra asset acct (credit balance)
  66. Which of the following is not a temp acct?

    A. rental rev.
    B. depreciation exp ofc equip
    C. common stock
    D. IS
    E. dividends
    C. common stock
    (this multiple choice question has been scrambled)
  67. After closing is complete, what proves the equality of debits and credits?
    post closing trial balance

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