Test 1 final docx

Chapter Accounting in Business

1 Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

TRUE FALSE

2 An accounting information system communicates data to help users make better decisions.

TRUE FALSE

3 Financial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users.

TRUE FALSE

4 External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

TRUE FALSE

5 External users include lenders, shareholders, customers, and regulators. TRUE FALSE

6 Regulators often have legal authority over certain activities of organizations. TRUE FALSE

7 The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code.

TRUE FALSE

8 The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization.

TRUE FALSE

Chapter Analyzing and Recording Transactions

9 The first step in the processing of a transaction is to analyze the transaction and source documents.

TRUE FALSE

10 Preparation of a trial balance is the first step in processing a financial transaction.

TRUE FALSE

11 Source documents provide evidence of business transactions and are the basis for accounting entries. TRUE FALSE

12 Items such as sales tickets, bank statements, checks, and purchase orders are examples of a business's source documents.

TRUE FALSE

13 An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

TRUE FALSE

14 Unearned revenues are classified as liabilities. TRUE FALSE

Page 1-1Accounting 1 – Test 1 - September 2015

15 Cash withdrawn by the owner of a proprietorship for personal expenses, should be treated as an expense of the business.

TRUE FALSE

16 The right side of an account is called the debit side. TRUE FALSE

17 In a double-entry accounting system, the total dollar amount debited must always equal the total dollar amount credited.

TRUE FALSE

18 Increases in liability accounts are recorded as debits. TRUE FALSE

19 Debits increase asset and expense accounts. TRUE FALSE

20 Credits always increase account balances. TRUE FALSE

21 Debit means increase and credit means decrease for all accounts. TRUE FALSE

22 An owner's withdrawal account normally has a debit balance. TRUE FALSE

23 The accounting process begins with: (Indicate order 1-5)

1. Analysis of business transactions and source documents.

2. Preparing financial statements and other reports.

3. Summarizing the recorded effect of business transactions.

4. Presentation of financial information to decision-makers.

5. Preparation of the trial balance.

24 All of the following statements regarding a sales invoice are true except: --------->

1. A sales invoice is a type of source document.

2. A sales invoice is used by sellers to record the sale and for control.

3. A sales invoice is used by buyers to record purchases and monitor purchasing activity.

4. A sales invoice gives rise to an entry in the accounting process.

5. A sales invoice does not provide objective evidence about a transaction.

25 A business's source documents may include all of the following except: ----------->

1. Sales tickets.


2. Ledgers.

3. Checks.

4. Purchase orders.

5. Bank statements.

26 A business's source documents: (Check all that apply)

1. include the ledger.

2. Provide objective evidence that a transaction has taken place.

3. must be in electronic form.

4. are prepared internally to ensure accuracy.

5. include the chart of accounts.

27

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n): Indicate by number

1. Journal.

2. Posting.

3. Trial balance.

4. Account.

5. Chart of accounts.

28

Wiley Consulting purchased $7,000 worth of supplies and paid cash immediately. Which of the following general journal entries will Wiley Consulting make to record this transaction?

Accounts Payable 7,000

Supplies 7,000

Cash 7,000

Supplies 7,000

Supplies 7,000

Cash 7,000


Supplies 7,000


Supplies Expense 7,000


Chapter Adjusting Accounts and Preparing Financial Statements

29 A company's fiscal year must correspond with the calendar year. TRUE FALSE

30 Interim financial statements report a company's business activities for a one-year period. TRUE FALSE

31 A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

TRUE FALSE

32

The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except:

1. Months.

2. Quarters.

3. Fiscal years.

4. Calendar years.

5. Days.

33

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

1. Operating cycle of a business.

2. Time period assumption.

3. Going-concern assumption.

4. Matching principle.

5. Accrual basis of accounting.

34

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

1. Fiscal cycle.


2. Natural business year.

3. Accounting period.

4. Business cycle.

5. Operating cycle.

35 The accounting principle that requires revenue to be recorded when earned is the:

1. Matching principle.

2. Revenue recognition principle.

3. Time period assumption.

4. Accrual reporting principle.

5. Going-concern assumption.

Chapter Completing the Accounting Cycle

36 Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

TRUE FALSE

37 The closing process takes place before financial statements have been prepared. TRUE FALSE

38 Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.

TRUE FALSE

39 Which of the following accounts are permanent (real) accounts? ---------- >

1. Fees earned.

2. Office supplies expense.

3. Interest revenue.

4. Accounts payable.

5. Salaries expense.

40 When closing entries are made:

1. All ledger accounts are closed to start the new accounting period.


2. All temporary accounts are closed but permanent accounts are not closed.

3. All real accounts are closed but nominal accounts are not closed.

4. All permanent accounts are closed but nominal accounts are not closed.

5. All balance sheet accounts are closed.

41 Which of the following statements is incorrect?

1. Permanent account is another name for nominal account.

2. Temporary accounts carry a zero balance at the beginning of each accounting period.

3. The Income Summary account is a temporary account.

4. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.

5. The closing process applies only to temporary accounts.

Chapter Accounting for Merchandising Operations

42 Merchandise inventory refers to products that a company owns and intends to sell to customers. TRUE FALSE

43 A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers. TRUE FALSE

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days. TRUE FALSE

44 The current period's ending inventory is:

1. The next period's beginning inventory.

2. The current period's cost of goods sold.

3. The prior period's beginning inventory.

4. The current period's net purchases.

5. The current period's beginning inventory.

45 Beginning inventory plus net purchases is:

1. Cost of goods sold.


2. Merchandise (goods) available for sale.

3. Ending inventory.

4. Sales.

5. Shown on the balance sheet.

46 All of the following statements related to U.S. GAAP and IFRS are true except:

1. Accounting for basic inventory transactions is the same under the two systems.

2. The closing process for merchandisers is the same under both systems.

3. U.S. GAAP offers little guidance about the presentation order of expenses.

4. Neither system requires separate disclosure of items when their size, nature, or frequency are important.

5. Neither system defines operating income.

47 Describe the key attributes of inventory for a merchandising company.

Narrative Answer:

Chapter Inventories and Cost of Sales

48 Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

TRUE FALSE

49 An advantage of the weighted average inventory method is that it tends to smooth out erratic changes in costs.

TRUE FALSE

50 A company made the following merchandise purchases and sales during the month of May:

There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of the ending inventory?


Purchased 380 units at $15 each


Sold 400 units at $50 each


Sold 400 units at $50 each
