Z-Mart had a gross profit of $340,000 based on sales of $700,000. Its cost of goods sold
was $350,000.
The acid-test ratio is current assets divided by current liabilities.
The chart of accounts is a list of all the accounts used by a company.
The financing side of the accounting equation describes where the assets came from.
Closing entries are designed to transfer the end-of-period balances in the revenue
accounts, the expense accounts, and the withdrawals account to a balance sheet equity
account.
Sharp has current assets of $15,000 and current liabilities of $9,500. Its current ratio is
1.6 to 1.
The account format of the balance sheet matches the accounting equation. Assets are on
the left side of the statement. Liabilities and equity are on the right side of the
statement.
The underlying concepts that make up acceptable accounting practices are referred to as
generally accepted accounting principles (GAAP).
Cash equivalents are short-term investments that a company invests in to increase
earnings.
Sales Discounts are closed to Income Summary.
Gross profit is also called gross margin.
The matching principle requires that revenue be assigned to the accounting period in
which it is earned.
The cost of goods sold section of a multiple-step income statement includes beginning
and ending inventories, goods available for sale and operating expenses.
The adjustment to reflect shrinkage is a debit to Income Summary and a credit to
Shrinkage Expense.
Some businesses use only one account to keep track of the amount of goods and
services tax (GST) and/or Harmonized Sales Tax (HST) owed or owing.
Accounting information is only relevant for people in business.
It is not necessary for businesses to reconcile their chequing accounts since banks keep
accurate records and provide internal control support for cash.
Equipment, inventory, and investments may also need subsidiary ledgers.
On the work sheet, a loss is indicated if the total of the Income Statement Debit column
exceeds the total of the Income Statement Credit column.
As long as a company accurately records credit sales information, it is not necessary to
have accounts for specific customers.
Although a proprietorship is not a separate legal entity, a partnership is.
The petty cash fund should be reimbursed at the end of the period even if the fund is not
low on money.
Generally, accrual basis accounting results in a more accurate measurement of net
income for the period than does cash basis accounting.
The General Ledger system represents the primary data base in the AIS.
Expenses incurred during an accounting period but that, before end-of-period
adjustments, remain unrecorded because payment is not due are referred to as accrued
expenses.
The matching principle requires use of the direct write-off method.
The closing process is a two-step process. First revenue, expense, and withdrawals are
set to zero balance. Second, the process summarizes a period’s assets and expenses.
Four qualitative characteristics of information produced by an AIS are that the
information must be timely, accurate, relevant and cost-effective.
Purchasing supplies on credit increases assets while decreasing liabilities.
Notes receivable are classified as current liabilities.
A partnership is a business owned by two or more people.
The Income Summary account is a permanent account that will be carried forward year
after year.
The difference in the Sales Journal between the perpetual and periodic systems is the
column to record cost of goods sold and inventory amounts for each sale.
When a note is discounted to a bank without recourse, the bank assumes the risk of a
bad debt loss and the original payee doesn’t have a contingent liability.
Most businesses use expected sales price minus the cost of making the sale as the
definition of net realizable value.
Revenue is recognized in most businesses:
A. When the customer’s order is received.
B. Only if the transaction creates an account receivable.
C. Only if paid in cash.
D. Upon completion of the sale or when services have been performed and the business
obtains the right to collect the sales price.
E. When cash from a sale is received.
The custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50
in receipts at the end of the month. The entry to replenish the petty cash fund will
include:
A. A debit to Miscellaneous Expenses for $377.50.
B. A credit to Cash Over and Short for $5.00.
C. A debit to Petty Cash for $382.50.
D. A credit to Cash for $387.50.
E. A debit to Cash for $387.50.
Ethical behaviour requires:
A. Accountants to keep business information confidential.
B. Auditors to invest in businesses they audit.
C. Analysts to report information favourable to their companies.
D. Purchasing agents to favour certain suppliers.
E. The government to regulate businesses.
Firms maintain their own credit cards:
A. To earn interest on any balances not paid within a specified period.
B. To avoid the fees charged by credit card companies such as VISA.
C. In order to speed up receipt of cash from the sale.
D. To grant credit to approved customers.
E. All of these answers are correct.
A form attached to the counted items in the process of taking a physical inventory is
a(n):
A. Sales tag.
B. Subsidiary record.
C. Inventory ticket.
D. Credit invoice.
E. Sales receipt.
The accounting principle that requires revenue to be reported when earned is the:
A. Matching principle.
B. Revenue recognition principle.
C. Timeliness principle.
D. Cost principle.
E. Going concern principle.
Of the following errors, which one by itself will cause the trial balance to be out of
balance?
A. A $200 salary payment posted as a $200 debit to Cash and a $200 credit to Salaries
Expense.
B. A $100 receipt from a customer in payment of his account posted as a $100 debit to
Cash and a $10 credit to Accounts Receivable.
C. A $75 receipt from a customer in payment of his account posted as a $75 debit to
Cash and a $75 credit to Cash.
D. A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment
and a $50 credit to Cash.
E. All of these errors will cause the trial balance to be out of balance.
A list of the balances of all the accounts in the Accounts Receivable Ledger that is
added to show the total of accounts receivable outstanding is called a:
A. Schedule of accounts payable.
B. Controlling account.
C. Schedule of accounts receivable.
D. Subsidiary ledger.
E. Special journal.
Goods in transit are included in inventory:
A. At any time in transit.
B. When the purchaser is responsible for paying freight charges.
C. When the supplier pays the freight charges.
D. When ownership has passed to the purchaser.
E. When the purchaser is responsible for paying freight charges and when ownership
has passed to the purchaser.
A business:
A. Is one or more individuals selling products or services for profit.
B. Can only have one legal form of organization.
C. Can have adequate financial records without a formal accounting system.
D. Has to issue shares before it opens.
E. Is one or more individuals selling products or services for profit and has to issue
shares before it opens.
The general journal provides a place for recording:
A. The transaction date.
B. The names of the accounts involved.
C. The amount of each debit and credit.
D. An explanation of the transaction.
E. All of these answers are correct.
Which of the following statements is incorrect?
A. The normal balance of the accounts receivable account is a debit.
B. The normal balance of the owner’s withdrawals account is a debit.
C. The normal balance of an unearned revenues account is a credit.
D. The normal balance of an expense account is a credit.
E. The abnormal balance of a revenue account is a debit.
A bank issues a debit memorandum:
A. To notify a depositor of all increases to the depositor’s account.
B. To notify a depositor of a deduction from a depositor’s account.
C. To notify a depositor of an NSF cheque.
D. To notify a depositor of an EFT.
E. To notify a depositor of a deduction from a depositor’s account and to notify a
depositor of an NSF cheque.
The approach to preparing financial statements based on recognizing revenues when
they are earned and matching expenses to those revenues is:
A. Accrual basis accounting.
B. The operating cycle of a business.
C. Cash basis accounting.
D. The revenue recognition principle.
E. The matching principle.
Principles of internal control include:
A. Record purchases using the gross method.
B. Divide responsibilities for related transactions.
C. Perform regular and independent reviews.
D. Divide responsibilities for related transactions and perform regular and independent
reviews.
E. All of these answers are correct.
Accumulated Depreciation, Equipment, Accounts Receivable, and Service Fees Earned
would be sorted to which respective columns in completing a work sheet?
A. Statement of changes in equity or Balance SheetCredit; Statement of changes in
equity or Balance SheetDebit; and Income StatementCredit.
B. Statement of changes in equity or Balance SheetDebit; Statement of changes in
equity or Balance SheetCredit; and Income StatementCredit.
C. Income StatementDebit; Statement of changes in equity or Balance SheetDebit; and
Income StatementCredit.
D. Income StatementDebit; Income StatementDebit; and Statement of changes in equity
or Balance SheetCredit.
E. Statement of changes in equity or Balance SheetCredit; Income StatementDebit; and
Income StatementCredit.
Due to an oversight, the company bookkeeper made no adjusting entry for accrued and
unpaid employee wages of $24,000 on December 31. This oversight would:
A. Understate net income by $24,000.
B. Have no effect on net income.
C. Overstate net income by $24,000.
D. Overstate liabilities.
E. Have no effect on the balance sheet.
A balance sheet that places the assets above the liabilities and equity is called a(n):
A. Report form balance sheet.
B. Account form balance sheet.
C. Adjusted balance sheet.
D. Unadjusted balance sheet.
E. The accounting equation.
The rules adopted by the accounting profession as guides in measuring, recording, and
reporting the financial affairs and activities of a business are:
A. Both broad and specific principles.
B. Known as generally accepted accounting principles.
C. Abbreviated as GAAP.
D. Intended to make information in financial statements relevant and faithfully
represented.
E. All of these answers are correct.
The premium on a three-year insurance policy purchased on June 30, 2015, was
$36,000. What is the amount of insurance expense that should be presented on the
company’s income statement for the year ended December 31, 2015?
A. $500.
B. $1,000.
C. $3,000.
D. $6,000.
E. $8,000.
Something of value, such as products, services and money, is called a(n):
A. Business transaction.
B. Business event.
C. Accounting equation.
D. Economic consideration.
E. Source document.
Accounting is an information and measurement system that:
A. Identifies economic activities.
B. Records economic activities.
C. Communicates economic information.
D. Identifies and records economic activities.
E. All of these answers are correct.
Quality of receivables refers to:
A. The creditworthiness of the customers.
B. The speed of collection.
C. The likelihood of collection.
D. Sales turnover.
E. The speed and likelihood of collection.
Which of the following statements is incorrect?
A. An adjusted trial balance shows the account balances after they have been revised to
reflect the effects of end-of-period adjustments.
B. Interim financial reports can be based on one-month or three-month accounting
periods.
C. The fiscal year is any 12 consecutive months used by a business as its annual
accounting period.
D. Property, plant, and equipment are long term assets.
E. The cash basis of accounting is consistent with GAAP.
When a petty cash fund is in use:
A. Expenses paid with petty cash are recorded when the fund is replenished.
B. Petty Cash is debited when funds are replenished.
C. Petty Cash is credited when funds are replenished.
D. Expenses paid with petty cash are recorded when the fund is replenished and petty
cash is debited when funds are replenished.
E. Expenses paid with petty cash are recorded when the fund is replenished and petty
cash is credited when funds are replenished.
Accounts that are used to describe assets, liabilities, and equity, that are not closed as
long as the company continues to own the assets, owe the liabilities, or have equity, and
whose balances appear on the balance sheet are called:
A. Nominal accounts.
B. Temporary accounts.
C. Permanent accounts.
D. Contra accounts.
E. Accrued accounts.
Adjusting entries:
A. Affect only income statement accounts.
B. Affect only balance sheet accounts.
C. Affect both income statement and balance sheet accounts.
D. Affect only statement of cash flows accounts.
E. Affect only equity accounts.
Which of the following statements is true?
A. Journalizing consists of analyzing and recording transactions in T-accounts.
B. Preparing a post-closing trial balance helps to prove the accuracy of the adjusting
and closing procedures.
C. The information on the work sheet can be used in place of preparing financial
statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to
the ledger accounts.
E. All of these statements are true.
Blue Company collected $2,000 cash for work completed. The effects on the
accounting equation are:
A. Total assets decrease and equity increases.
B. Both total assets and total liabilities decrease.
C. Total assets, total liabilities, and equity are unchanged.
D. Both total assets and equity are unchanged.
E. Total assets increase and equity increases.
Professional accountants can be:
A. Chartered Accountants.
B. Certified General Accountants.
C. Certified Management Accountants.
D. Certified General Accountants or Chartered Accountants.
E. Any of the above.
The organization established to try to achieve global agreement on the use of a common
set of accounting principles is called:
A. Accounting Standards Board.
B. Abbreviated as IFRS.
C. International Accounting Standards Board.
D. Generally accepted accounting principles.
E. All of these answers are correct.
Discuss the use of the trial balance.
Explain the difference between the retail method and gross profit method for valuing
inventory.
Identify the steps in the accounting cycle.
Match the following terms with the appropriate definition.
Blu Lightning Co. received $5,000 for a previously recorded account receivable from
the Cheetah Co. Enter the appropriate amounts into the accounting equation format.
______________________ accounting means that revenues are recognized when cash
is received and that expenses are recorded when cash is paid.
______________________ accounting means that the economic effects of revenues and
expenses are recorded when earned or incurred.
Explain the difference between estimating the amount of uncollectible accounts using
the approaches based on percent of sales and accounts receivable.
Describe the relationship between sales (or revenues), expenses, and profit.