Accounting Exercise (Questions / Test ) 1

1. Which of the following is not a step in the accounting process?

A. identification.

B. verification.

C. recording.

D. communication.

2. Which of the following statements about users of accounting information is incorrect?

A. Management is an internal user.

B. Taxing authorities are external users.

C. Present creditors are external users.

D. Regulatory authorities are internal users.

3. Services provided by a public accountant include:

A. auditing, taxation, and management consulting.

B. auditing, budgeting, and management consulting.

C. auditing, budgeting, and cost accounting.

D. internal auditing, budgeting, and management consulting.

4. The cost principle states that:

A. assets should be initially recorded at cost and adjusted when the market value changes.

B. activities of an entity are to be kept separate and distinct from its owner.

C. assets should be recorded at their cost.

D. only transaction data capable of being expressed in terms of money be included in the accounting records.

5. Which of the following statements about basic assumptions is incorrect?

A. Basic assumptions are the same as accounting principles.

B. The economic entity assumption states that there should be a particular unit of

accountability.

C. The monetary unit assumption enables accounting to measure economic events.

D. An important part of the monetary unit assumption is the stable monetary unit assumption.

6. Net income will result during a time period when:

A. assets exceed liabilities.

B. assets exceed revenues.

C. expenses exceed revenues.

D. revenues exceed expenses.

7. Performing services on account will have the following effects on the components of the basic accounting equation:

A. increase assets and decrease owner's equity.

B. increase assets and increase owner's equity.

C. increase assets and increase liabilities.

D. increase liabilities and increase owner's equity.

8. As of December 31, 2005 Stoneland Company has assets of $3,500 and owner's equity of $2,000. What are the liabilities for Stoneland Company as of December 31, 2005?

A. $1,500.

B. $1,000.

C. $2,500.

D. $2,000.

9. On the last day of the period, Jim Otto Company buys a $900 machine on credit. This transaction will affect the:

A. income statement only.

B. balance sheet only.

C. income statement and owner's equity statement only.

D. income statement, owner's equity statement, and balance sheet.

10. The financial statement that reports assets, liabilities, and owner's equity is the:

A. income statement.

B. owner's equity statement.

C. balance sheet.

D. statement of cash flow.

---------------

1. Which of the following statements about an account is true?

A. In its simplest form, an account consists of two parts.

B. An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items.

C. There are separate accounts for specific assets and liabilities but only one account for owner's equity items.

D. The left side of an account is the credit or decrease side.

2. Debits:

A. increase both assets and liabilities.

B. decrease both assets and liabilities.

C. increase assets and decrease liabilities.

D. decrease assets and increase liabilities.

3. A revenue account:

A. is increased by debits.

B. is decreased by credits.

C. has a normal balance of a debit.

D. is increased by credits.

4. Accounts that normally have debit balances are:

A. assets, expenses, and revenues.

B. assets, expenses, and owner's capital.

C. assets, liabilities, and owner's drawings.

D. assets, owner's drawings, and expenses.

5. Which of the following is not part of the recording process?

A. Analyzing transactions.

B. Preparing a trial balance.

C. Entering transactions in a journal.

D. Posting transactions.

6. Which of the following statements about a journal is false?

A. It is not a book of original entry.

B. It provides a chronological record of transactions.

C. It helps to locate errors because the debit and credit amounts for each entry can be readily compared.

D. It discloses in one place the complete effect of a transaction.

7. A ledger:

A. contains only asset and liability accounts.

B. should show accounts in alphabetical order.

C. is a collection of the entire group of accounts maintained by a company.

D. is a book of original entry.

8. Posting:

A. normally occurs before journalizing.

B. transfers ledger transaction data to the journal.

C. is an optional step in the recording process.

D. transfers journal entries to ledger accounts.

9. A trial balance:

A. is a list of accounts with their balances at a given time.

B. proves the mathematical accuracy of journalized transactions.

C. will not balance if a correct journal entry is posted twice.

D. proves that all transactions have been recorded.

10. A trial balance will not balance if:

A. a correct journal entry is posted twice.

B. the purchase of supplies on account is debited to Supplies and credited to Cash.

C. a $100 cash drawing by the owner is debited to Owner's Drawing for $1,000 and credited

to Cash for $100.

D. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

--------------------------------------------------------------------------------

1. The time period assumption states that:

A. revenue should be recognized in the accounting period in which it is earned.

B. expenses should be matched with revenues.

C. the economic life of a business can be divided into artificial time periods.

D. the fiscal year should correspond with the calendar year.

2. The principle dictating that efforts (expenses) be matched with accomplishments (revenues) is the:

A. matching principle.

B. cost principle.

C. periodicity principle.

D. revenue recognition principle.

3. One of the following statements about the accrual basis of accounting is false. The false statement is:

A. Events that change a company's financial statements are recorded in the periods in which

the events occur.

B. Revenue is recognized in the period in which it is earned.

C. This basis is in accord with generally accepted accounting principles.

D. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

4. Adjusting entries are made to ensure that:

A. expenses are recognized in the period in which they are incurred.

B. revenues are recorded in the period in which they are earned.

C. balance sheet and income statement accounts have correct balances at the end of an accounting period.

D. all of the above.

5. Each of the following is a major type (or category) of adjusting entries except:

A. prepaid expenses.

B. accrued revenues.

C. accrued expenses.

D. earned revenues.

6. The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

A. Supplies 600

Supplies Expense 600

B. Supplies 750

Supplies Expense 750

C. Supplies Expense 750

Supplies 750

D. Supplies Expense 600

Supplies 600

7. Adjustments for unearned revenues:

A. decrease liabilities and increase revenues.

B. have an assets and revenues account relationship.

C. increase assets and increase revenues.

D. decrease revenues and decrease assets.

8. Adjustments for accrued revenues:

A. have a liabilities and revenues account relationship.

B. have an assets and revenues account relationship.

C. decrease assets and revenues.

D. decrease liabilities and increase revenues.

9. Kathy Siska earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Kathy's employer at September 30 is:

A. No entry is required.

B. Salaries Expense 400

Salaries Payable 400

C. Salaries Expense 400

Cash 400

D. Salaries Payable 400

Cash 400

10. Which of the following statements is incorrect concerning the adjusted trial balance?

A. An adjusted trial balance proves the equality of the total debit balances and the total credit

balances in the ledger after all adjustments are made.

B. The adjusted trial balance provides the primary basis for the preparation of financial statements.

C. The adjusted trial balance lists the account balances segregated by assets and liabilities.

D. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

11. The trial balance shows Supplies $0 and Supplies Expense $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is:

A. Debit Supplies $800 and credit Supplies Expense $800.

B. Debit Supplies Expense $800 and credit Supplies $800.

C. Debit Supplies $700 and credit Supplies Expense $700.

D. Debit Supplies Expense $700 and credit Supplies $700.

--------------------------------------------------------------------------------

1.	Gross profit will result if: A. operating expenses are less than net income. B. sales revenues are greater than operating expenses. C. sales revenues are greater than cost of goods sold. D. operating expenses are greater than cost of goods sold.

2.

Under a perpetual inventory system, when goods are purchased for resale by a company: A. purchases on account are debited to Merchandise Inventory. B. purchases on account are debited to Purchases. C. purchase returns are debited to Purchase Returns and Allowances. D. freight costs are debited to Freight-out.

3.	The sales accounts that normally have a debit balance are: A. Sales Discounts. B. Sales Returns and Allowances. C. both (a) and (b). D. neither (a) nor (b).

4.	A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is: A. $700. B. $686. C. $685. D. $650.

5.	Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system? A. Purchases. B. Freight-in. C. Cost of Goods Sold. D. Purchase Discounts.

6.	The multiple-step income statement for a merchandiser shows each of the following features except: A. gross profit. B. cost of goods sold. C. a sales revenue section. D. investing activities section.

7.	If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is: A. $30,000. B. $90,000. C. $340,000. D. $400,000.

8.	In a single-step income statement: A. gross profit is reported. B. cost of goods sold is not reported. C. sales revenues and “other revenues and gains” are reported in the revenues section of the income statement. D. operating income is separately reported.

9.	Which of the following appears on both a single-step and a multiple-step income statement? A. sales. B. gross profit. C. income from operations. D. cost of goods sold.

10.	In determining cost of goods sold: A. purchase discounts are deducted from net purchases. B. freight-out is added to net purchases. C. purchase returns and allowances are deducted from net purchases D. freight-in is added to net purchases.

11.	If beginning inventory is $60,000, cost of goods sold purchased is $380,000, and ending inventory is $50,000, cost of goods sold is: A. $390,000. B. $370,000. C. $330,000. D. $420,000.

12.

When goods are purchased for resale by a company using a periodic inventory system: A. purchases on account are debited to Merchandise Inventory. B. purchases on account are debited to Purchases. C. purchase returns are debited to Purchase Returns and Allowances. D. freight costs are debited to purchases.

13.	In a work sheet, Merchandise Inventory is shown in the following columns: A. Adjusted trial balance debit and balance sheet debit. B. Income statement debit and balance sheet debit. C. Income statement credit and balance sheet debit. D. Income statement credit and adjusted trial balance debit.