accounting 1-10 Flashcards
True or false: a business is an example of a social entity.
False. Social entities = sole proprietorship, partnership, and corporation.
True or false: laws passed by congress in 1933 and 1934 gave the securities and exchange commission (SEC) final say on matters of financial reporting by publicly owned corporations.
True
True or false: the securities and exchange commission (SEC) requires that publicly owned corporations submit financial statements to it each year.
True.
True or false: the death or withdrawal of one partner ends the partnership.
True.
True or false: the financial statements and the auditor’s report must be made available to stockholders of publicly owned corporations.
True.
True or false: the separate entity assumption applies only to the corporation form of business.
False.
True or false: As the first step in the development of generally accepted accounting principles, the FASB writes an exposure draft, which explains the topic under consideration. List the steps.
False. The steps are as follows: (1) write discussion memorandum (2) public hearing (3) exposure draft (4) receives and evaluates public comments (5) vote (6) if 4/5 members agree then the statement is issued.
The financial accounting standards board is responsible for…
Developing generally accepted accoutning principles and they issue Statements of Financial Accounting Standards
The government agency that has final authority over the financial reporting of publicly owned corporations is…
The securities and exchange commission (SEC)
The financial affairs of a business and the financial affairs of the owners should be…
Kept totally separate.
All financial statements submitted to the SEC by publicly owned corporations must include an auditor’s report prepared by…
An independent certified public accountant.
The area of accounting that involves the preparation of internal reports for a firm’s executives and the analysis of the data in these reports to aid in decision making is known as…
Managerial accounting.
The group of accounting educators who offer their opinions about proposed FASB statements, after research has been done to determine the possible effects on financial reporting and the economy, is…
American accounting association (AAA)
The owners are not held responsible for the debts of the form of business organization referred to as…
Corporation.
Accounting is often referred to as the language of…
Business
The results of the accounting process are summarized in periodic reports called financial…
Statements.
The three major legal forms of business entity are the…
Sole proprietorship, partnership, and corporation.
A form of business entity owned by one person is called a…
Sole proprietorship.
The people, companies, or governmental agencies to whom a firm owes money are called…
Creditors.
The owners of a corporation are called…
Stockholders.
True or false: the entire process of analyzing, recording, and reporting business transactions is based on the fundamental accounting equation.
True. (Assets = liabilities + owner’s equity)
True or false: Changes in owner’s equity can result from revenue and expenses.
True.
True or false: when cash is paid to a creditor, the firm’s liability increases.
False. It decreases.
True or false: Revenue is recorded when cash is collected from charge-account clients.
False. Revenue, or income, is the inflow of money or other assets that results from the sales of goods or services or from the use of money or property.
True or false: a net loss for the period decreases owner’s equity.
True.
Amounts that a business must pay in the future are known as…
Accounts payable.
Examples of assets are…
Cash, accounts receivable, supplies, equipment, accumulated depreciation, prepaid insurance/rent/etc., etc.
The income statement shows…
The result of operations over a period of time
If the income statement covered a six-month period ending November 30, 2014, the third line of the income statement heading would read…
Six-Month Period Ended November 30, 2014.
When the owner invests cash in a business…
Assets and owners equity increase
The statement of _______ reports the changes that have occurred in the owners financial interest during the reporting period.
Owners equity
When revenue is greater than expenses, the result is a net…
Income
When revenue and expenses are equal, the firm is said to…
Break even
True or false: owners equity = assets + liabilities
False. Assets = liabilities + owners equity
True or false: Increases in assets and expenses are both recorded with debits.
True.
True or false: Debit is the word used in referring to the left side of asset accounts and to the right of liability and owners equity.
False. right for assets; Left for liability and owners equity.
True or false: the accounts in a chart of accounts are normally arranged in the order that they appear on financial statements.
True
True or false: the normal balance side of the owners drawing account is the credit side.
False. It is the debit side.
True or false: accountants use revenue and expense accounts to classify and summarize changes in owners equity during a period.
True.
True or false: an increase in an expense results in an increase in owners equity.
False. It results in a decrease in assets
True or false: permanent accounts are used to account for the change in owners equity during the accounting period.
False. Statement of owners equity accounts for the changes in owners equity for a period. Permanent accounts transfer from one period to the next.
Debits are used to record…
Increase in assets. Decrease in owners equity, liability, revenue, and expense
A firm paid cash to apply against a debt. To record this transaction, the accountant would…
Debit accounts payable and credit cash
The total of the figures on the left side of a cash account is $25800. The total of the figures on the right side is $14100. The balance of this account is…
$11700 recorded on the left side
Which of the following increase owners equity?
Expenses; revenue; withdrawals; receiving cash from customers.
Revenue
Credits are used to record…
Decrease in assets; increase in liabilities and owners equity.
Debits are used to record increase in…
Assets and expenses
When charge customers pay cash to apply against their accounts, the amount is recorded…
On the left side (Debit) of the cash account and the right side (Credit) of accounts receivable.
When the trial balance totals are not equal, the error may have been caused by recording a debit as a credit if the difference is divisible by…
2
Which of the following accounts is not a permanent account?
Cash; accounts payable; salaries expense; Thomas Bernard, capital.
Salaries expense
The net income or net loss from the income statement is transferred to the…
Statement of owners equity.
Separate written records called _______ are kept for each asset and liability and for the owners equity of a business.
Accounts
A chart of accounts is a list of accounts that makes it possible to easily identify account _______ and names
Numbers.
A(n) __________ account is used to record increase in owners equity from the sale of goods or services.
Revenue
The increase side of an account represents the ___________ balance of the account.
Normal
The error that occurs when the number $5 is written as $50 is called a(n)…
Slide.
True or false: a ledger is sometimes referred to as a record of original entry.
False. That is a journal
True or false: transactions are recorded in either a journal or a ledger but not both.
False. It is recorded in the journal then transferred to the ledger.
True or false: the balance ledger form always shows the current balance of an account.
True.
True or false: the general journal can accommodate all kinds of transactions that a business may have.
True
True or false: a firm should be able to trace amounts through the accounting records and back to their source documents.
True
When an entry is made in the general journal what should be indented?
The accounts to be credited
If a transaction is properly analyzed and recorded….
The total amount debited will equal the total amount credited
A firm purchased telephone equipment for cash. By mistake, the person who recorded the transaction debited utilities expense instead of office equipment. The error was discovered after the data posted. The correcting entry should contain…
A debit to office equipment and a credit to utilities expense.
The accounts payable account has a $3000 credit balance. An entry for the payment of $1000 on the amount owed is recorded and posted. The new balance of the accounts payable account is recorded as…
A $2000 credit balance
The process of transferring data from a journal to a ledger is known as…
Posting
The ____ is a chain of references that makes it possible to trace information about transactions through the accounting process.
Audit trail
Posting is the _______ step in the accounting cycle. What are all the steps?
Third. (1) analyze transactions (2) journalize transactions (3) post to ledger (4) prepare worksheet (5) prepare financial statements (income statement, statement of owners equity, balance sheet) (6) record adjusting entries (7) record closing entries (8) prepare post closing trial balance (9) interpret the financial information
The process of recording transactions in a journal is referred to as…
Journalizing
The number of the _________ is recorded in the posting reference column of the journal.
Ledger account
True or false: the cost of a long-term asset, such a equipment, is transferred to expense as it is used during the month.
True
True or false: Net income is recorded on the worksheet in the Income Statement Debit column and the Balance Sheet Credit column.
True
True or False: If an adjustment for expired rent is not recorded, the firm’s expenses will be overstated.
False
True or False: Generally accepted accounting principles require that the original cost of a long-term asset continue to appear in the asset account until the disposition of the asset.
True
True or false: The balance of the owner’s drawing account is extended to the Income Statement Debit column of the worksheet.
False. It is extended to the Balance Sheet Debit column of the worksheet
On a worksheet, the adjusted balance of the revenue account Fees Income would be extended to…
The Income Statement Credit column
On a worksheet, the adjusted balance of a contra asset account would be extended to…
the Income Statement Debit column
If long-term assets are not adjusted, expenses on the income statement…
will be understated
On November 25, the company paid $24,000 rent in advance for a six-month period (December 20X5 through May 20X6). On December 31, 20X5, the adjustment for expired rent would include…
A $4000 debit to rent expense and a $4000 credit to prepaid rent
When a trial balance is in balance…
The debit accounts balance equals the credit accounts balance.
The process of updating accounts at the end of an account period for previously unrecorded items that belong to the period is referred to as making…
Adjustments (or adjusting entries)
Expense items that are acquired and paid for in advance of their use are called _______ expenses.
Prepaid
If equipment has ________ value, it can be sold for additional use or for scrap.
Salvage
When the ______ method of depreciation is used, an equal amount of depreciation is charged to each accounting period during the asset’s useful.
Straight-line
An accumulated depreciation account has a normal ________ balance.
Credit
True or false: After closing entries are posted, the revenue and expense accounts will have zero balances.
True
True or False: One of the purposes of closing entries is to transfer net income or net loss for the period to the Capital account.
True
True or False: The entry to close the revenue account Fees Income requires a debit to that account.
True
True or False: At the end of each accounting period, asset and liability account balances are reduced to zero.
False
True or False: The Balance Sheet section of the worksheet contains the data that is used to make closing entries.
False- that is the income statement
True or False: The Income Summary account is used only at the end of an accounting period to help with the closing procedure.
True
True or False: Withdrawals by the owner for personal use do not affect net income or net loss of the business.
True
True or False: Interpreting the financial statements is the last step in the accounting cycle.
True
True or False: The postclosing trial balance contains permanent balance sheet accounts only.
True
The entry to close the Income Summary account includes…
(1) debit to Fees Income, credit Income Summary (2) debit to Income Summary, credit to all expenses (3) a debit to Income Summary, credit Capital account.
Which of the following accounts will not normally have a zero balance after the closing entries have been posted?
Income Summary; Fees Income; Capital; Rent Expense
Capital
One purpose of closing entries is to…
transfer results of operations to Owner’s Equity
Which of the following accounts is a permanent account?
Supplies; Supplies Expense; Drawing; Fees Income
Supplies
After the Worksheet had been completed, the next step in the accounting cycle is to…
prepare financial statments
True or False: The capital account is an owner’s equity account.
True
True or False: If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance.
False
True or False: A business that performs an activity for a fee is a service business.
True
True or False: A proprietorship is also known as a sole proprietorship.
True
True or False: A business has two types of equities.
True
True or False: When an owner withdraws cash from the business, the transaction affects both assets and owner’s equity.
True
True or False: When cash is paid to the owner for personal use, assets decrease and owner’s equity decreases.
True.
True or False: The right side of a balance sheet present liabilities and assets.
False
True or False: Sandra Stern, Drawing is increased with a credit.
False
True or False: The source document for cash payments is a check.
True
True or False: The Objective Evidence accounting concept requires that there be proof that a transaction did occur.
True.
True or False: A journal shows in one place all the changes in a single account.
False.
True or False: A chart of accounts is a list of account titles and numbers showing the location of each account in a ledger.
True
True or False: If a bank does not receive payment from the person who signed the check, each endorser of the check is individually liable for payment.
True
True or False: Blank endorsements should be used when sending checks through the mail.
False.
True or False: Most banks will accept postdated checks.
False
True or False: Anytime a payment is made from the petty cash fund, a petty cash slip is prepared showing proof of a petty cash payment.
True
True or False: The petty cash slip is the source document for the entry to replenish petty cash.
False- that is the Petty Cash Voucher
True or False: All general ledger account titles are listed on a trial balance even if some accounts do not have a balance.
True
True or False: Making adjustments to general ledger accounts is an application of the Matching Expenses with Revenue accounting concept.
True
True or False: When the Income Statement Credit column total is greater than the Income Statement Debit column total on a work sheet, the business has a net income.
True
True or False: Information needed to prepare the liabilities section of a balance sheet is obtained from the work sheet’s Account Title column and the Balance Sheet Credit column.
True
True or False: The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business’s financial condition.
True
True or False: Only revenue accounts and expense accounts are used in preparing the income statements.
True
The net income on an income statement is verified by checking the balance sheet.
False
True or False: An amount written in parentheses on a financial statement indicates an estimate.
False- It makes the number a negative amount to be subtracted
True or False: A balance sheet reports information about the elements of the accounting equation.
True
True or False: A cash sale is a sale in which a credit card is used for the total amount of the sale at the time of the transaction.
False
True or False: A listing of customer accounts, account balances, and total amount due from all customers is a schedule of accounts receivable.
True
True or False: Medicare is funded by the federal government but not under the social security law.
False- it is under the social security law
True or False: Employers in many states are required to withhold state, city, or county income tax from employee earnings.
True
True or False: The information used to prepare payroll checks is taken from a payroll register.
True
True or False: Employers must pay to the government the taxes withheld from employee earnings.
True
True or False: The employer social security tax rate is not the same as the employee social security tax rate.
False
True or False: Work sheets for service and merchandising businesses are very different.
False
True or False: The inventory of supplies at the end of a fiscal period is determined by actually counting the amount of supplies on hand.
True
True or False: Data needed to prepare the liabilities section of a balance sheet are obtained from a work sheet’s Balance Sheet Debit column.
False
True or False: Indicating a source document is not necessary when journalizing adjusting entries.
True
True or False: Amounts needed for the closing entries are obtained from the Trial Balance columns of a work sheet.
False
True or False: Expense accounts are closed by debiting the expense accounts and crediting Income Summary.
False
True or False: Only one type of accounting system can be used to record, summarize, and report a business’s financial information.
False
True or False: The amount on each line of a purchases journal is posted as a credit to the named vendor account in the accounts payable ledger.
True
True or False: When several journals are used, an abbreviation is used in the Post. Ref. column of a ledger to show the journal from which the posting is made.
True
True or False: Purchases on account are recorded in a purchases journal at list price.
False
True or False: A schedule of accounts receivable is prepared before financial statements are prepared to prove the accounts receivable ledger.
True
True or False: A sales invoice is the source document for journalizing a sales on account transaction.
True
True or False: When the allowance account has a previous credit balance, this previous balance is subtracted from the amount of the adjustment for uncollectible accounts expense.
False
True or False: The Realization of Revenue accounting concept explains why failing to collect an account at a later date than the original sale cancels the sale and reduces revenue.
False
True or False: Canceling the balance of a customer account because the customer does not pay a called writing off an account.
True
True or False: When an account is written off, the account balance is transferred to Allowance for Uncollectible Accounts.
False
A business has total cash of $30,000. Then the business pays $1,000 on the account, buys insurance coverage of $750, buys supplies for $1,200, and pays $300 more on account. The balance of the cash account is now____.
$26,750
A business has total cash of $30,000. Then the business pays $1,000 on the account, buys insurance coverage of $750, buys supplies for $1,200, and pays $300 more on account. Total assets are now _____.
$28,700
When the owner withdraws cash for personal use, ____.
assets decrease and owner’s equity decreases.
When the owner invests cash in a business, the owner’s capital account is _____.
increased by a credit.
When a business receives revenue, Sales is ____.
increased by a credit.
Debits must equal credits ______.
in all transactions
The normal balance side of any revenue account is _____.
the credit side
A sale on account ____.
increases an owner’s equity account and increases an asset account
If an error is discovered in a general journal entry, ______.
you should cancel the error by drawing a a neat line through the error, correct the entry by writing the correct item above the canceled error, and do not erase the incorrect item.
When the previous balance of an account is zero and a credit amount is posted to the account, the new balance is ______.
a credit
When the previous balance of an account is a debit amount and a debit amount is posted to the account, the new balance is _____.
a debit
A business form ordering a bank to pay cash from a bank account is _____.
a check
An endorsement on the back of a check consisting only of a signature is _____.
a blank endorsement.
A lost check with a blank endorsement on it can be cashed by _____.
anyone who has the check
On a work sheet, the balance of Cash is extended to the _____.
Balance Sheet Debit column
If the Trial Balance columns are not equal and the difference is 1, the error often is ______.
in addition.
If the Trial Balance columns are not equal and the difference can be divided evenly by 9, the error most likely is _____.
in transposed numbers or a “slide”
The sections of an income statement are _____.
heading, revenue, expenses, and net income or net loss.
After the adjusting entry for Prepaid Insurance has been posted, Insurance Expense has an up-to-date balance, which is the ______.
value of insurance premiums used during the fiscal period.
Temporary accounts begin each new fiscal period with a _____.
zero balance.
When the total expenses are greater than the total revenue, _____.
the income summary account has a debit balance.
The journal entry to close the expense accounts is ______.
debit Income Summary for the total expenses; credit each expense account.
Information needed to journalize a closing entry for the owner’s drawing account is obtained from the ______.
work sheet’s Balance Sheet Debit column
The last step in the accounting cycle is _____.
to interpret the financial information.
Keeping the reports and financial records of a business separate from the personal records of the partners is an application of the accounting concept ______.
Business Entity
The entry to journalize a purchase of merchandise on account is _____.
debit Purchases; credit Accounts Payable.
An increase in revenue resulting from a sale on account should be recorded ______.
at the time of the sale
A sale for which cash will bee received at a later date is a _____.
sale on account
A subsidiary ledger containing only accounts for vendors from whom items are purchased or bought on account is ______.
an accounts payable ledger
An account in a general ledger that summarizes all accounts in a subsidiary ledger is _____.
a controlling account.
The special amount column totals of the cash receipts journal are _____.
posted to the general ledger controlling account at the end of each month.
A general ledger sorts and summarizes all information affecting _____.
income statement and balance sheet accounts.
The period covered by a salary payment is a _____.
pay period
A business form used to record payroll information is ______.
a payroll register
When a semimonthly payroll is paid, the credit to Cash is equal to the _____.
net pay of all employees.
To record the total federal tax payment for employee income tax, social security tax and Medicare tax, the account credited is ____.
Cash
To record the payment of federal unemployment tax, the account debited is ____.
a liability account
Preparing a worksheet at the end of each fiscal period is an application of the accounting concept _____.
Accounting Period Cycle
The amount of goods on hand for sale to costumers is _____.
a merchandise inventory
On a work sheet, Accounts Payable is extended to the _____.
Balance Sheet Credit column
When a work sheet is completed, a net loss will appear in the ______.
Income Statement Credit and Balance Sheet Debit columns
Acceptable component percentages should be determined _____.
based on industry standards and comparisons with prior fiscal periods.
The two types of journal entries needed to change general ledger account balances at the end of the fiscal period are ____.
adjusting and closing entries.
To close the revenue account, the revenue account balance for the fiscal period is transferred into _______.
the income summary account
Each unit of ownership in corporation is ______.
a share of stock
Total shares of ownership in a corporation is _____.
capital stock
Using a copy of the sales invoice as a source document for recording a sale on account transaction is an application of the accounting concept _____.
Objective Evidence.
When the percentage of total sales on account method is used, the estimated uncollectible accounts expense is calculated by ______.
multiplying total sales on account times the percentage.
Estimating uncollectible accounts expense at the end of a fiscal period is an application of the accounting concept _____.
Matching Expenses with Revenue.
The journal entry to reopen an account that has been written off is debit Accounts Receivable and credit ______.
Allowance for Uncollectible Accounts.
True or False: A sales return or a sales allowance is usually recorded in the sales journal.
False
True or False: The balance of the Sales Returns and Allowances account is subtracted from the balance of the Accounts Receivable account in the Assets section of the balance sheet.
False.
True or False: To provide an adequate audit trail, sales on credit should be recorded in both the sales journal and the general journal.
False.
True or False: The individual amounts in the Accounts Receivable Debit column of a sales journal should be posted to the accounts receivable subsidiary ledger, and the column total should be posted to the Accounts Receivable account in the general ledger.
True.
True or False: When a business makes a sale on a bank credit card, the business is responsible for collecting from the customer.
False.
In a firm that uses special journals, credit sales of merchandise are recorded in
the sales journal.
The Sales account is classified as
a revenue account.
A firm that sells goods that it purchases for resale is a
merchandising business.
In a firm that uses special journals, cash collected from credit customers is
recorded in the cash receipts journal.
A wholesale business sells goods with a list price of $800 and a trade discount of 40 percent. The net price is
$480
The source document for an entry in the sales journal is a(n) _______.
sales slip (or sales invoice)
A list of all unpaid balances in the accounts receivable subsidiary ledger is called a(n) ________ of accounts receivable.
schedule
A(n) _________ is a business form that is issued to a credit customer upon acceptance of the return of damaged goods.
credit memorandum
To indicate that an amount has been posted from the sales journal to the accounts receivable subsidiary ledger, a(n) ______ is placed in the Posting Reference column of the journal.
check mark.
A business that sells goods and services directly to individual customers is called a(n) _________ business.
retail.
List the accounts used in recording the transaction and indicate whether they will be debited or credited: Sold merchandise on credit. The transaction involved a sales tax.
Debit Accounts Receivable; credit Sales and Sales Tax Payable.
List the accounts used in recording the transaction and indicate whether they will be debited or credited: Sold merchandise for cash. The transaction involved sales tax.
Debit Cash; credit Sales and Sales Tax Payable.
Calculate the amount the firm will use to record each sales in the sales journal: List price of $800 and trade discount of 45 percent.
$800-$360=$440
Calculate the amount the firm will use to record each sales in the sales journal: List price of $2,000 and trade discount of 40 percent.
$2,000-$800=$1,200
Calculate the amount the firm will use to record each sales in the sales journal: List price of $3,000 and trade discounts of 30 and 15 percent.
$3,000-$900=$2,100-$315=$1,785
List price of $1,400 and trade discounts of 25 and 15 percent.
$1,400-$350=$1,050-$157.50=$892.50
True or False: A credit purchase of equipment for use in the business would be recorded in the purchases journal.
False
True or False: At the end of the accounting period, the Purchases and Freight In accounts are closed to the Income Summary account.
True
True or False: The Purchases Returns and Allowances account has a normal debit balance.
False
True or False: A firm’s accounts payable ledger may include accounts for creditors who are not suppliers of merchandise.
True
True or False: To show that the totals of the amount columns in the purchases journal were posted, the appropriate account numbers are written in parentheses below the totals.
True
After a supplier of merchandise is selected, the purchasing department issues a form called
a purchase order.
Freight charges on merchandise purchases should be debited to
the Freight In account.
To record a return of merchandise purchased on credit, the accountant would
debit Accounts Payable and credit Purchases Returns and Allowances.
Purchases of merchandise on credit should be recorded in
the purchases journal.
The amount of the purchases for a period is presented in
the Cost of Goods Sold section of the income statement.
A firm had purchases of $114,800, freight charges of $200, and purchases returns and allowances of $1,000 during one month. Its net delivered cost of purchases was
$114,000
Posting to the accounts payable ledger should be made
daily.
Whenever a sales department needs goods, it sends the purchasing department a form called a(n) ______.
Purchase requisition
The Freight In account should have a(n) _______ balance.
Debit
A list of creditors and the balances owed to them is called a schedule of _______.
Accounts Payable
Purchases of merchandise on credit should be recorded in the ______ journal.
Purchases
Credit terms of 2/10, n/30 indicate a maximum allowable credit period of ______ days.
30
After damaged goods are returned, the supplier issues a(n) ______ memorandum.
Credit
In a small firm, the creditor accounts are placed in _____ order in the accounts payable ledger.
alphabetical
True or False: The entry to replenish petty cash includes a debit to Petty Cash Fund and a credit to Cash.
False
True or False: The endorsement on each canceled check should be examined to make sure that it agrees with the name of the payee.
True
True or False: If the cash is over, it is entered in the Other Account Credit column of the cash receipts journal and the figure is circled.
False
True or False: Purchases Discount is a contra cost account.
True
True or False: Grouping all transactions involving cash payments together in the cash payments journal strengthens the audit trail.
True
The entry to record an additional cash investment by the owner is recorded in
the cash receipts journal.
On the bank reconciliation statement, you would find all of the following except: (a) a list of canceled checks. (b) a list of NSF checks. (c) a list of outstanding checks. (d) the bank service charge.
(a) a list of canceled checks.
After a bank reconciliation statement is completed, a firm may have to make an entry in its accounting records for
NSF checks.
Which of the following would not be shown as an adjustment to the book balance on a bank reconciliation statement: (a) bank service charges. (b) NSF checks. (c) deposits in transit. (d) a charge for printing new checks.
(c) deposits in transit.
If a check written by a firm is not canceled by the bank and returned with the month’s bank statement, the firm should
consider this check as outstanding when preparing the bank reconciliation.
A(n) _______ is a written promise to pay a specified amount of money at a specified time.
promissory note
If the amount of cash available for deposit is _____ than the amount listed on the audit tape taken from the cash register, the Cash Short or Over account is debited.
less
The entry to record the issuance of a check in settlement of an interest-bearing promissory note includes a debit to Notes Payable, a debit to _______, and a credit to Cash.
Interest Expense
To record payment of sales tax owed, the accountant would debit Sales Tax _______ and credit Cash.
Payable
The person or firm that issues a check is called the ________, or payor.
drawer
A(n) _______ check is a check dated some time in the future.
postdated
Determine the accounts to be debited and credited: Collected cash in settlement of a $300 promissory note plus interest of $6.
debit Cash; credit Notes Receivable and Interest Income.
Determine the accounts to be debited and credited: Judy Wilson, the owner, made an additional cash investment of $9,000.
debit Cash; credit Judy Wilson, Capital.
Determine the accounts to be debited and credited: Sold merchandise for $2,000 in cash plus sales tax of $120. There was a cash overage of $3.
debit Cash; credit Sales, Sales Tax Payable, and Cash Short or Over.
Determine the accounts to be debited and credited: Issued a check for $5,125 to pay a $5,000 note plus interest of $125.
debit Notes Payable and Interest Expense; credit Cash.
Determine the accounts to be debited and credited: Issued a check for $900 to pay the monthly rent.
debit Rent Expense; credit Cash.
Which of the following is not a service typically provided by a public accounting firms? (a) Tax accounting (b) Management advisory services (c) Auditing (d) Investing services
Investing services
The entity that has final authority over the financial reporting of publicly owned corporations is the
Securities and Exchange Commission (SEC)
An independent accountant who performs financial audits is a
Certified Public Accountant (CPA)
The business entity that is separate from its owners is a
corporation
The following are all government agencies except: (a) Securities and Exchange Commission (SEC) (b) Internal Revenue Service (IRS) (c) American Institute of Certified Public Accountants (AICPA) (d) Federal Bureau of Investigation (FBI)
(c) American Institute of Certified Public Accountants (AICPA)
The group of accounting educators who perform research to determine the possible effects on financial reporting and the economy and then offer their opinions about proposed FASB statements is the
American Accounting Association (AAA)
An act passed in response to the wave of corporate accounting scandals is the
Sarbanes-Oxley Act.
The review of financial statements to assess their fairness and adherence to GAAP is
auditing
True or False: When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner’s equity.
True
True or False: Changes in owner’s equity can result from revenue and expenses.
True
True or False: When cash is collected from accounts receivable, the total amount of assets increases.
False
True or False: When cash is paid to a creditor, the firm’s liabilities decrease.
True
True or False: Revenue is recorded when cash is collected from charge-account clients.
False
The balance sheet shows
The financial position of a business at a given time.
The rent paid for future months is a(n)
asset
The review of financial statements to assess their fairness and adherence to GAAP is
auditing
True or False: When using the fundamental accounting equation, an accountant must make sure that total assets are always equal to total liabilities and owner’s equity.
True
True or False: Changes in owner’s equity can result from revenue and expenses.
True
True or False: When cash is collected from accounts receivable, the total amount of assets increases.
False
True or False: When cash is paid to a creditor, the firm’s liabilities decrease.
True
True or False: Revenue is recorded when cash is collected from charge-account clients.
False
The balance sheet shows
The financial position of a business at a given time.
The rent paid for future months is a(n)
asset
Which of the following is NOT part of the process of accounting for financial information? Recording; Classifying; Communicating; Identifying
Identifying
True or False: The SEC uses financial information to determine a company’s tax base.
False
Tax planning includes
suggesting actions to reduce tax liability
The Sarbanes-Oxley Act includes rules on
auditor rotation
An example of an economic entity is
a business
A form of the partnerships business entity is
LLP
The FASB develops Statements of Financial Accounting Standards in what order?
issues a discussion memorandum, obtains responses to the discussion memorandum, issues an exposure draft, obtains responses to the exposure draft, issues a statement of principle
A special journal used to record all transactions involving cash receipts or increases is called…
Cash receipts journal
What is the second step in the closing process?
close debit balances in expense accounts to income summary.
Expenditures that add to the utility of fixed assets for more than one accounting period are called…
capital expenditures
Those things that one wants to accomplish are called…
financial goals.
The _______ is a multiple step procedure that results in the preparation and analysis of the major financial statements.
accounting cycle
Owner’s equity is the amount remaining after…
the amount of liabilities is subtracted from the amount of assets.
When the perpetual inventory system is used, the inventory sold is shown on the income statement as…
cost of merchandise sold.
A trial balance is prepared to…
summarize the account balances to help prepare financial statements.
When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at…
a discount.
The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is called…
declining-balance.
True or False: Payroll accounting relates only to earnings of those individuals classified as employees.
True
A(n) _____ is hired by and works under the control and direction of the ______.
Employee; Employer
True or False: examples of employees are the company president, the bookkeeper, the sales clerk, and the warehouse worker.
True
In contrast to an employee, a(n) ________ is paid by the company to carry out a specific task or job, but is not under the direct supervision or control of the company.
independent contractor
True or False: many employers do not pay time and a half for overtime if the federal law does not apply to them.
False- Even if the federal law doesn’t apply to them, many employers pay time and a half for overtime because of union contracts or simply as good business practice.
The Federal Insurance Contributions Act (FICA) is commonly referred to as the _______.
Social Security Act.
What benefits does the Social Security Act provide?
Retirement benefits, or pension, when a worker reaches age 62. Benefits for the dependents of the retired worker. Benefits for the worker and the worker’s dependents when the worker is disabled.
Retirement and disability benefits are paid by the ______, sometimes calld the ______.
social security tax; FICA tax.
True or False: both the employer and the employee pay an equal amount of social security tax.
True
The _______ is a tax levied equally on employees and employers to provide medical care for the employee and the employee’s spouse after each has reached 65.
Medicare tax
True or False: The Medicare tax has an earnings bas limit, but the social security tx does not.
False- social security tax does, Medicare tax doesn’t.
True or False: The Medicare tax applies to all earnings paid during the year.
True
True or False: State and Local taxes require seperate general ledger accounts in the firm’s accounting system.
True
The ______ provides benefits for employees who become unemployed.
Federal Unemployment Tax Act (FUTA)
Taxes levied by the federal government against employers to benefit unemployed workers are called_____.
federal unemployment taxes (FUTA)
True or False: Employees pay all of the state unemployment taxes (SUTA)
False- Employers do
True or False: The Net FUTA tax is the FUTA tax rate minus the SUTA tax.
True
______ is not a tax, but insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment.
Workers’ compensation insurance
True or False: Many companies outsource payrool duties to professional payroll companies.
True
_____ is the world’s largest provider of payroll services and employee information systems.
ADP, Inc.
For each employee the employer must keep a record of…
the employee’s name, address, social security number, and date of birth; hours worked eahc day and week, and wages paid at the regular and overtime rates; cumulative wages paid throughout the year; amount of taxes withheld for each pay period, proof of emplyee’s citizenship or valid work permit.
_______ workers earn a stated rate per hour.
Hourly rate basis
______workers earn an agreed-upon amount for each week, month, or other period.
Salary basis
_______ workers, usually ______, earn a percentage of net sales.
Commission basis; sales people.
_________ manufacturing workers are paid based on the number of units produced.
Piece-rate basis
Martinez (an hourly employee) worked 40 hours. She earns $6 an hour. her gross pay is what?
$240
The way to determine the gross pay of an employee who works overtime is what? Determine the gross pay of an employee who earns $9 an hour and works 40 hours and 5 hours at time and a half. (use the method that determines how much the employee earned by working overtime.
Gross Pay = (Regular hours x regular rate) + (Overtime hours x (regular rate x 1.5)); $427.5
What are the three deductions from employee’s gross pay that are required by federal law?
FICA (social security) tax, Medicare tax, and fedral income tax withholding.
True or False: the social security tax is levied on employee only.
False- it is levied on both employer and employee
_______ are earnings in excess of the base amount set by the Social Security Act and are not subject to FICA withholding.
Tax-exempt wages
Define Purchase requisition. Who is it signed by?
lists items to be ordered; signed by someone with authority to approve requests for merchandise, usually the manager/sales department.
Define Purchase Order. Who is it signed by?
specifies the exact items, quantity, price, and credit terms for purchases; signed by someone with authority to approve purchases, usually the purchasing agency.
True or False: If an employee works for more than one employer during the year, the FICA tax is deducted and matched by each employer
True
True or False: When a firm records its payroll, the amount of federal income tax withheld from employees is entered as a liability.
True
True or False: The amount of social security tax withheld depends on an employee’s gross earnings, marital status, and number of withholding allowances.
False
True or False: Federal law requires that social security, Medicare, and federal income taxes be deducted from the gross pay of most employees.
True
True or False: Medicare taxes are levied in an equal amount on both employers and employees.
True
True or False: Once an employee’s year-to-date wages reach a certain amount prescribed by law, social security tax is no longer withheld.
True
True or False: The gross pay of an hourly employee is determined by subtracting the overtime premium from the regular earnings.
False
True or False: The net amount due employees for their wages is recorded as a debit to Salaries and Wages Payable.
False
True or False: Employees submit Form W-4 to their employers to show the number of withholding allowances they claim for federal income tax withholding purposes.
True
True or False: Publication 15, Circular E contains federal income tax withholding tables.
True
True or False: A company is required to withhold various employee taxes from amounts paid independent contractors.
False
True or False: The accountant who performs the independent audit for a company is an employee of the company.
False
True or False: All employees must be paid at the minimum wage rate set by the Fair Labor Standards Act.
False
True or False: Disability benefits for the worker and the worker’s dependents are provided by the Federal Insurance Contributions Act.
True
True or False: The Medicare tax is levied to provide medical care for the employee and the employee’s spouse after they reach age 65.
True
True or False: The maximum base for the sociial security tax is the same as that for the medicare tax.
False
True or False: The employee’s marital status is one factor that determines the amount of federal income tax withheld by the employer.
True
True or False: The FUTA tax is used to finance benefits for employees who become unemployed.
True
True or False: The federal unemployment tax rate can be reduced by the state unemployment tax rate an employer must pay.
True
True or False: Time sheets or time cards are used to keep a record of hours worked each day by each employee paid on an hourly basis.
True
True or False: The overtime rate is one and one-half times the regular hourly rate.
True
True or False: If an employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate works 42 hours in one week, the employee’s gross pay is $378.
False
True or False: Earnings in excess of the social security base amount are not taxed.
True
True or False: If an employee works for more than one employer during the year, the social security tax is deducted and matched by only one employer.
False
True or False: Withholding for federal income taxes places employees on pay-as-you-go basis.
True
True or False: Salaried employees who hold supervisory or managerial positions generally are not subject to wage and hour laws.
True
The employer records the amount of federal income tax withheld from employees as…
Employee Income Tax Payable.
Which of the following is a factor in the determination of the amount of social security tax to withhold from an employee’s pay? (a) hours worked during the pay period (b) marital status (c) withholding allowances claimed on Form W-4 (d) gross wages
Gross Wages
Lisa Ramos has a regular hourly rate of $10.75. In a week when she worked 40 hours and had deductions of $55 for federal income tax, $26.75 for social security tax, and $6.25 for Medicare tax, her net pay was…
$342
All details related to an employee’s earnings, deductions, and net pay throughout the year would be found in…
the individual earnings record.
An employee whose regular hourly rate is $10 and whose overtime is 1.5 times the regular rate worked 44 hours in one week. In the payroll register, the emlpoyer should record an overtime premium of…
$20
The column totals in a payroll register are used in the ______ to record the payroll.
journal entry
The amount debited to Wages Expense when a payroll is recorded is the…
total gross earning
When checks are issued to employees after the entry to record the payroll has been made, the accountnat would…
debit Salaries and Wages Payable and credit Cash
Publication 15, Circular E contains withholding information…
for federal income taxes only
Assuming a Medicare tax rate of 1.45% and monthly gross wages of $2,500, the entry to record in Medicare Tax Payable for one quarter is…
a credit for $108.75
Salespeople who are paid a percentage of net sales are paid on…
the commission basis
An employee whose regular hourly rate is $9 and whose overtime rate is 1.5 times the regular rate worked 44 hours one week. The employee’s gross pay was…
$414
Each type of deduction made from the employees’ earnings is recorded in a separate…
liability account
It is best not to pay wages and salaries by…
cash
Federal law requires that the employer withhold from the employee’s pay…
federal income tax, social security tax, and Medicare tax.
True or False: The frequency of deposits of federal income taxes withheld and social security and Medicare taxes is determined by the amount owed.
True
True or False: A business pays the social security tax at the same rate and on the same taxable wages as its employees.
True
True or False: The entry to record the social security and Medicare taxes levied on a business includes a debit to Payroll Taxes Expense.
True
True or False: Form 941, which is used to report employee earnings, the federal income taxes withheld, and the social security and Medicare taxes payable, must be filed each time a firm makes a required deposit of the taxes due.
False
True or False: FUTA tax, like social security tax, is levied on both the employer and the employee and so is withheld from employee’s pay.
False
True or False: For the purpose of internal control, only the person who prepared them should distribute payroll checks.
False
