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Accounting Ch 1 Exam Questions And
Suitable Correct Answers
The definition of revenues includes which of the following statements?
a) Revenues are creditor's claims against the company.
b) Revenues increase equity
c) Revenues are the sales of products or services to customers by a business
d) Revenues are resources owned or controlled by a company - ANSWER b & c
Bakery Company receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation - ANSWER Increase expenses and decrease cash
Expenses - ANSWER Decrease equity and are the cost of assets or services used to earn revenue
Revenues - ANSWER Increase equity and are the assets earned from a company's earning activities
Withdrawals - ANSWER Decrease equity and are the assets removed from the company for personal use
Investments - ANSWER Increase equity and are assets an owner puts into the business
Given the list of accounts below, identify which of them would appear on a balance sheet:
Utilities Expense, Rent Expense, Equipment, Cash, Rental Revenue, Accounts Payable, Retained Earnings, Supplies - ANSWER Equipment, Cash, Accounts Payable, Retained Earnings, Supplies
Which of the following correctly depicts the accounting equation? - ANSWER Assets = Liabilities + Equity
To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to _________ and a decrease to ________. - ANSWER supplies; cash
Jackson's Catering Company provided cookies worth $3,000 to the local college. The college paid immediately. Record this transaction in Jackson's Catering Company accounting equation by: - ANSWER Increasing cash; increasing revenues
Johna's Plant Nursery pays the salaries of its two employees. How will this transaction affect the accounting equation? - ANSWER Salaries expense will be increased; Equity will be decreased
Given the following list of accounts, identify which are classified as assets:
Wages Payable, Land, Dividends, Building, Cash, Accounts Receivable, Common Stock, Supplies - ANSWER Land, Building, Cash, Accounts Receivable, Supplies
On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: Supplies would be increased by $_______; Cash would be decreased by $______; and Accounts Payable would be increased by $_______.
Select the account that would be decreased if the owner of H Hair Salon Company decides to pay $40 cash dividends to its shareholders. - ANSWER Cash
The four major types of transactions that effect equity in a business are.... - ANSWER revenues, expenses, common stock, and dividends
Which of the following statements explain how the accounting equation applies to businesses? - ANSWER -The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners
-The equation applies to all monetary business transactions
-The equation states the Assets = Liabilities + Equity
-The relation of assets, liabilities and equity is reflected in the equation
Define equity. - ANSWER Equity refers to the claims of the business's owners on the assets of a business
The expanded accounting equation is defined as: - ANSWER Assets = Liabilities
- Common Stock + Revenues - Expenses - Dividends
When recording transactions into the accounting equation, which of the following statements are correct?
a) cash must always equal Owner's Equity
b) the accounting equation must always remain in balance
c) at least two accounts will be affected when recording a transaction
d) after recording the transaction, total assets will always equal total liabilities plus equity
e) expenses are listed on the right side of the accounting equation and will increase the equity account - ANSWER b, c, d
Define a liability. - ANSWER -A creditor's claims against the assets of a business
-The company obligations to provide assets, products, or services to others
-An amount owed to a creditor
Define owner investments. - ANSWER Cash or other assets an owner puts into the business
Describe the effect of expenses on equity. - ANSWER Expenses cause equity to decrease
ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this transaction in the accounting equation:
ABC Co. would increase the Accounts _______ account and increase the _______ account in the accounting equation. - ANSWER receivable; revenue
A customer of Landen Consulting makes $400 payment of cash on a bill for services provided last month. Record this transaction into the accounting equation of Landen Consulting by: - ANSWER -Increasing cash, $
-Decreasing Accounts Receivable, $
The Accounts Payable account is a(n) _________ account. - ANSWER liability
Given the list of accounts, identify which are classified as liabilities:
Owner's Withdrawals, Accounts Payable, Cash, Wages Payable, Notes payable, Accounts Receivable, Taxes Payable, Owner's Capital - ANSWER Accounts
When using the accounting equation, recording the purchase of equipment for cash would include an increase to the ________ account and a decrease to the ________ account. - ANSWER equipment; cash
On May 1, Morsels Company provided catering services at a wedding. The bride is billed $4000 and will pay during the following month. Record this transaction on May 1 in the accounting equation - ANSWER increasing Accounts Receivable and increasing Revenue
A corporation's equity has two main parts: - ANSWER -Contributed capital
-Retained earnings
Buying and selling of long-term assets such as land and equipment would be included in the ________ activities section of the Statement of Cash Flows - ANSWER investing
What statements are true regarding the revenue recognition principle? - ANSWER -The earnings process is complete when the services are performed or product is sold
-The principle guides a business as to when it should recognize revenue
-Revenue is to be recorded when it is earned
Russell's Consulting Services provided $1000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation - ANSWER increasing both cash and accounts receivable; and increasing revenues
Net income is calculated using what formula - ANSWER Revenues - expenses = net income
Define equity. - ANSWER -Equity is equal to assets minus liabilities
-It is the accumulated revenues and owner's investments less the accumulated expenses and dividends since the company began
-It is an amount owed to the owner of the business
The equity of a corporation consists of retained earnings and _______ capital - ANSWER contributed
What is the meaning of the measurement principle? - ANSWER The recorded cost of a purchased item will be based on the actual cost
Why is accounting important? - ANSWER -Accounting info identifies, records and communicates info about a business
-Accounting info summarizes or conveys info about an organization's business activities
-Managers, creditors, investors and owners need reliable financial info ignorer to make decisions
Why does a business need accounting information? - ANSWER Accounting records business transactions and communicates financial information
What is the expense recognition principle? - ANSWER The principle states that expenses are recorded in the same period the were incurred to generate revenue
The heading of every financial statement contains several line items. Identify those items - ANSWER -The company name
-The date or time period the financial statement covers
-The title of the statement
Identify which would belong on the statement of retained earnings - ANSWER Retained earnings,1/31; Dividends; Retained earnings, 1/1; Net Income(loss)
All of the following are part of the FASB conceptual framework EXCEPT:
recognition, objectives, measurement, qualitative characteristics, principles, elements - ANSWER principles
The three factors that must exist for a person to commit fraud include: - ANSWER -opportunity
-rationalization
-pressure
The full disclosure principle can be summarized by which of the following statements? - ANSWER A company must report the details behind financial statements that would impact users' decisions
A __________ is a business entity owned by one person - ANSWER proprietorship
Financial accounting provides external users with - ANSWER general-purpose financial statements
Who are internal users of accounting information? - ANSWER -Officers
-Managers
The Dodd-Frank Act was passed to: - ANSWER -Protect the taxpayer
-Promote accountability and transparency
-protect consumers
Identify some of the reasons why Congress passed the Sarbanes-Oxly Act - ANSWER -To require public companies to apply both accounting oversight and stringent internal controls
-To improve the transparency, accountability and truthfulness in reporting transactions
-To help curb financial abuses at companies that issue their stock to the public
Which organization has the ultimate authority to create Generally Accepted Accounting Principles? - ANSWER SEC
In every financial statement, there exists single and double underlines. What are these and when do you use them? - ANSWER A single-ruled line denotes an addition or subtraction and double lines indicate the final totals
An income statement reports a company's net income or net loss during a period. What would appear on an income statement? - ANSWER -Wages Expense
-Rent Revenue
-Rent Expense
-Service Revenue
What is a shareholder? - ANSWER An owner of a corporation
