Accounting Process

Question 1

Which is the correct order of the following steps in the accounting cycle?
Step 1: Preparation of financial statements
Step 2: Making closing entries in the general journal
Step 3: Posting transaction entries in the general journal
Step 4: Making reversing entries in the general journal
a. 2,3,4,1
b. 2,4,3,1
c. 3,1,2,4
d. 3,1,4,2

Answer 1

c. 3,1,2,4

Question 2

Which accounting process is the recognition or non-recognition of business activities as accountable events?

a. Communicating
b. Identifying
c. Measuring
d. Recording

Answer 2

b. Identifying

Question 3

Which one of these is not among the criteria to consider an event as accountable?

a. It must have already happen
b. Its amount can be measured reliably
c. It must increase or decrease an element of the financial statements
d. It must be classified as an external event rather than an internal event

Answer 3

d. It must be classified as an external event rather than an internal event

Question 4

The recording phase of financial accounting covers the following steps, except

a. Transactions are journalized
b. Financial statements are prepared
c. Transactions are posted to the ledger
d. Business documentations are received/prepared

Answer 4

b. Financial statements are prepared

Question 5

The use of computers in recording business events

a. Is economical only for large business
b. Has made the recording process more efficient
c. Does not use the same principles as manual accounting systems
d. Has greatly impacted the identification stage of the accounting process

Answer 5

b. Has made the recording process more efficient

Question 6

A voucher system is usually used for transactions involving

a. Cash disbursements
b. Cash receipts
c. Cash receipts and disbursements
d. Purchase on account

Answer 6

a. Cash disbursements

Question 7

FOB shipping point and freight prepaid means

a. The seller actually paid the freight charges but is not responsible for the same
b. The buyer actually paid the freight charges but is not responsible for the same
c. The seller actually paid for the freight charges and is responsible for the same
d. The buyer actually paid for the freight charges and is responsible for the same

Answer 7

a. The seller actually paid the freight charges but is not responsible for the same

Question 8

The double entry concept in accounting means which of the following?

a. The debit credit convention must be used
b. Only two accounts are affected by each transaction recording
c. At least two accounts are affected by each transaction recorded
d. For every asset increased, a revenue or liability must also be increased

Answer 8

c. At least two accounts are affected by each transaction recorded

Question 9

Which of the following is an application of the science aspect of accounting?

a. Applying the rules of debit credit
b. Exercise of creative skills and judgment
c. Attesting the fairness of presentation of financial condition and operating results
d. Interpreting the information presented in the financial statements through ratios and trend analysis

Answer 9

a. Applying the rules of debit credit

Question 10

It is an accounting device for accumulating increases and decreases relating to a particular accounting value such as an asset or a liability

a. Account
b. Journal
c. Trial balance
d. Worksheet

Answer 10

a. Account

Question 11

An example of a nominal contra account is

a. Accumulated depreciation
b. Freight in
c. Premium on bond liability
d. Sales return and allowances

Answer 11

d. Sales return and allowances

Question 12

Cash purchases are generally recorded in the

a. Purchase journal
b. Cash disbursement journal
c. Purchase and cash disbursement journal
d. General journal, even if special journal are in use

Answer 12

b. Cash disbursement journal

Question 13

To post in accounting means o copy the information about accounting changes from the

a. Ledger and place it into the journal
b. Journal and place it into the ledger
c. Source documents and record it in the ledger
d. Journal and place it into the ledger and then delete it form the journal

Answer 13

b. Journal and place it into the ledger

Question 14

A control device that helps minimize and localize accounting errors is known as

a. Chart of accounts
b. Subsidiary ledger
c. Trial balance
d. Worksheet

Answer 14

c. Trial balance

Question 15

What is the normal order of accounts in the unadjusted trial balance?

a. Assets, liabilities, equity
b. Assets, equity, income, expense and finally liabilities
c. Assets, liabilities, equity, income and finally expenses
d. All accounts with debit balances and then all accounts with credit balances

Answer 15

c. Assets, liabilities, equity, income and finally expenses

Question 16

Which of the following errors will probably be disclosed by the preparation of a trial balance (ie., would cause it to be out of balance)?

a. Failure to post a part of a journal
b. Failure to post an entire journal entry (ie noting is posted)
c. Failure to record an entry in the journal (ie nothing is entered)
d. Posting the debit of journal entry as accredit, the credit as a debit

Answer 16

a. Failure to post a part of a journal

Question 17

D equals the sum of the debit column of a firm’s unadjusted trial balances, and C equals the sum of the credit column. Which of the following statements is correct?

a. If D does not equal C, it is possible that no errors were committed
b. D does not equal the sum of all account increases during the period
c. If D equal C, there is no chance that the company committed a recording error
d. D typically does not equal C because the adjusting entries have not yet been recorded

Answer 17

b. D does not equal the sum of all account increases during the period

Question 18

In the accounting cycle, a worksheet is prepared

a. As a substitute for financial statements
b. Only for the purpose of preparing reversing entries
c. After adjusting entries are entered in the journal and posted to the ledger
d. Before adjusting entries are entered in the journal and posted to the ledger

Answer 18

d. Before adjusting entries are entered in the journal and posted to the ledger

Question 19

Adjusting entries are primarily based on the accounting principles of

a. Matching and historical cost
b. Matching and monetary unit
c. Revenue realization and matching
d. Revenue realization and materiality

Answer 19

c. Revenue realization and matching

Question 20

Adjusting entries are needed because an entity

a. Has expenses
b. Uses the accrual basis of accounting
c. Uses the cash basis of accounting rather than the accrual basis
d. Has earned revenue during the period by selling products from its central operations

Answer 20

b. Uses the accrual basis of accounting

Question 21

Adjusting entries are needed

a. Whenever expenses are not paid in cash
b. Whenever the revenue are not received in cash
c. Primarily to correct errors in the initial recording of business transactions
d. Whenever the transactions affect the revenues or expenses or more than one accounting period

Answer 21

d. Whenever the transactions affect the revenues or expenses or more than one accounting period

Question 22

Adjusting entries are needed because in reporting financial data an entity
I. Adopts the accrual assumption
II. Reports on transactions that overlap accounting periods and records
III. Accepts the going concern assumption
a. I only
b. I and II only
c. II and III only
d. I, II and III

Answer 22

d. I, II and III

Question 23

Which one of the following concepts is least related to adjusting entries?

a. Accrual
b. Approximation
c. Matching of cost against revenue
d. Materiality

Answer 23

d. Materiality

Question 24

Which one of the following items least resembles a typical adjusting entry

a. Debit an asset and credit liability
b. Debit an asset and credit revenue
c. Debit an expense and credit liability
d. Debit revenue and credit liability

Answer 24

a. Debit an asset and credit liability

Question 25

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for

a. A prepaid expense
b. An accrued expense
c. An accrued income
d. An unearned revenue

Answer 25

a. A prepaid expense

Question 26

Which of the following is an example of deferral?

a. Recognizing prepaid rent
b. Accruing year-end wages
c. Recognizing revenues earned but not yet recorded
d. Recognizing expenses incurred but not yet recorded

Answer 26

a. Recognizing prepaid rent

Question 27

The adjusting entry at the end of the accounting year to reflect revenues but not yet collected or recorded will

a. Increase assets
b. Not affect assets
c. Decrease liabilities
d. Not affect income for the current period

Answer 27

a. Increase assets

Question 28

Which of the following is an example of a closing entry?

a. Transferring the balance in a temporary account to a contra asset
b. Posting the ending inventory balance in a perpetual inventory system
c. Transferring an amount entered in a wrong account to the appropriate account
d. Transferring the balance in the bad debt expense account to the income summary account

Answer 28

d. Transferring the balance in the bad debt expense account to the income summary account

Question 29

The effect of closing entry is to

a. Change assets
b. Change liabilities
c. Change retained earnings
d. Change debit balances of all accounts into credits and vice versa

Answer 29

c. Change retained earnings

Question 30

An appropriate reversing entry

a. Is dated the first day of the next accounting period
b. Is usually made for adjusting entries that affect deferred items only
c. Must be made because they are required by accounting standards
d. Is often used to correct entries which were initially based on estimates

Answer 30

a. Is dated the first day of the next accounting period

Question 31

Which of the following adjusting entries cannot be subject to reversing entries?

a. Accrual of income
b. Accrual of expense
c. Deferral of expense under the asset method
d. Deferral of income under the income method

Answer 31

c. Deferral of expense under the asset method

Question 32

As a general rule, which of the following is not subject to reversal?

a. Accrued expenses
b. Accrued revenues
c. Prepaid expenses recorded as assets upon payment
d. Deferred revenues recorded as revenue upon payment

Answer 32

c. Prepaid expenses recorded as assets upon payment