1. An account
a. is a record of increases and decreases to a specific item.
b. consists of two parts.
c. is where transactions are originally recorded.
d. always has a debit balance.
2. The left side of an account is
b. a description of the account.
c. the debit side.
d. the balance of the account.
3. The double-entry system requires that each transaction must be recorded
a. in at least two different accounts.
b. in two sets of books.
c. in a journal and in a ledger.
d. first as a revenue and then as an expense.
4. Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Common Stock + Dividends– Revenue – Expenses.
b. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues.
c. Assets – Liabilities –Dividends = Common Stock + Revenues – Expenses.
d. Assets = Revenues + Expenses – Liabilities.
5. Dawson’s Delivery Service purchased equipment for $2,500. Dawson paid $500 in cash and signed a note for the balance. Dawson debited the equipment account, credited cash and
a. Nothing further must be done.
b. Debit the Retained Earnings account for $2,000.
c. Credited another asset account for $500.
d. Credited a liability account for $2,000.
a. decrease both assets and liabilities.
b. decrease assets and increase liabilities.
c. increase both assets and liabilities.
d. increase assets and decrease liabilities.
7. On January 14, Franco Industries purchased supplies of $500 on account. The entry to record the purchase will include
a. a debit to supplies and a credit to accounts payable.
b. a debit to supplies expense and a credit to accounts receivable.
c. a debit to supplies and a credit to cash.
d. a debit to accounts receivable and a credit to supplies.
8. Which of the following are in accordance with generally accepted accounting principles?
a. Accrual basis accounting
b. Cash basis accounting
c. Both accrual basis and cash basis accounting
d. Neither accrual basis nor cash basis accounting
9. Adjusting entries are
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
10. An adjusted trial balance
a. is prepared after the financial statements have been prepared.
b. proves the equality of the debits and the credits of the ledger accounts.
c. is required by GAAP.
d. is prepared after the post-closing trial balance.
11. The first required step in the accounting cycle is
a. reversing entries.
b. journalizing transactions in the book of original entry.
c. analyzing transactions.
d. posting transactions
12. If errors occur in the recording process, they
a. should be corrected as adjustments at the end of the period.
b. should be corrected as soon as they are discovered.
c. should be corrected when preparing closing entries.
d. cannot be corrected until the next accounting period.
13. A correcting entry
a. must involve one balance sheet account and one income statement account.
b. is another name for a closing entry.
c. may involve any combination of accounts.
d. is a required step in the accounting cycle.
14. Income from operations is gross profit less
a. administrative expenses.
b. operating expenses.
c. other expenses and losses.
d. selling expenses.
Use the following information to answer questions 15-17.
During 2006, Salon Enterprises generated revenues of $60,000. Their expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.
15. Salon’s gross profit is
16. Salon’s operating income is
17. Salon’s net income is
18. A perpetual inventory system would likely be used by a(n)
a. automobile dealership.
b. hardware store.
d. convenience store.
19. A purchaser, dissatisfied with merchandise received, may return goods to the seller for credit. From the standpoint of the seller, this transaction is known as a:
a. purchase return.
b. sales return.
c. sales allowance.
d. purchase allowance
20. Which of the following accounts has a normal credit balance?
a. Sales Returns and Allowances
b. Sales Discounts
d. Selling Expense
21. Which of the following events is not an accounting transaction?
a. Purchasing an office building.
b. Selling a delivery truck.
c. Paying income taxes.
d. Hiring a payroll clerk.
22. Which of the following would be considered an external user of accounting data for the Raintree Company?
a. Internal Revenue Service Agent
b. Vice-president of finance
c. Production supervisor
d. Cost accountant
23. Internal users of accounting information include all of the following except
a. company officers.
c. marketing managers.
d. production supervisors.
24. A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.
25. A credit is not the normal balance for which account listed below?
a. Supplies Expense
b. Service Revenue
c. Notes Payable
d. Common Stock
26. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Stockholders’ equity Credit
b. Assets Debit
Stockholders’ equity Credit
c. Assets Credit
Stockholders’ equity Debit
d. Assets Debit
Stockholders’ equity Credit
27. The matching principle matches
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
28. A company spends $10 million dollars for an office building. Over what period should the cost be written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned
29. Under accrual-basis accounting
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
30 Which of the following statements concerning accrual-basis accounting is incorrect?
a. Accrual-basis accounting follows the revenue recognition principle.
b. Accrual-basis accounting is the method required by generally accepted accounting principles.
c. Accrual-basis accounting recognizes expenses only when they are paid.
d. Accrual-basis accounting follows the matching principle.