Final Exam Flashcards
The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:
Going-concern assumption.
The rule that ( 1 ) requires revenue to be recognized at the time it is earned, ( 2 ) allows the inflow of assets associated with revenue to be in a form other than cash, and ( 3 ) measures the amount of revenue as the cash plus the cash equivalent value of any non cash assets received from customers in exchange for goods and services, is called the:
Revenue recognition principle.
A partnership:
has unlimited liability for its partners.
Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?
Matching principle.
Revenue is properly recognized:
upon the completion of the sale or when services have been performed and the business obtains the right to collect the sales price.
If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:
one asset increases $1,300 and another asset decreases $1,300, causing no effect.
If a company receives $12,000 from the stockholders to establish a corporation, the effect on the account equation would be:
assets increase $12,000 and equity increases $12,000.
If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:
assets increase $4,500 and liabilities increase $4,500.
Net Income:
is the excess of revenues over expenses.
If equity is $300,000 and liabilities are $192,000, then assets equal:
$492,000.
Resources a company owns or controls that are expected to yield future benefits are:
assets.
Increases in equity from a company’s sales of products or services are:
revenues.
The difference between a company’s assets and its liabilities, or net assets is:
equity.
Creditors’ claims on the assets of a company are called:
liabilities.
Distributions of cash or other resources by a business to its stockholders are called:
dividends.
The basic financial statements include all of the following:
- Statement of Cash Flows
- Statement of Retained Earnings
- Balance Sheet
- Income Statement
The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:
Income Statement.
A balance sheet lists:
the types and amounts of assets, liabilities, and equity of a business as of a specific date.
The financial statement that shows the beginning balance of retained earnings; the changes in retained earnings that resulted from, net income (or net loss); dividends; and the ending balance, is the:
Statement of Retained Earnings.
Accounts payable appear on which of the following statements?
Balance Sheet.
A business’s source documents:
provide objective evidence that a transaction has taken place.
A business’s record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
account.
An account used to record the stockholders’ investments in a business is called a(n):
common stock account.
Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:
the dividends account.
Unearned revenues are generally:
liabilities created when a customer pays in advance for products or services before the revenue is earned.
Prepaid expenses are generally:
assets that represent prepayments of future expenses.
The record of all accounts and their balances used by a business is called a:
ledger.
A company’s list of accounts and the identification numbers assigned to each account is called a:
Chart of Accounts.
A debit:
is the left-hand side of a T-account.
The right side of a T-account is a(n):
credit.
Identify the statement below that is incorrect.
The normal balance of an expense account is a credit.
A credit is used to record an increase in all of the following accounts except:
wages expense.
A debit is used to record an increase in all of the following accounts except:
accounts payable.
Identify the account below that is classified as an asset in a company’s chart of accounts:
accounts receivable.
A business uses a credit to record:
a decrease in an asset account.
An account balance is:
the difference between the total debits and total credits for an account including the beginning balance.
A debit is used to record which of the following?
an increase in the dividends account.
Richard Redden contributed $70,000 in cash and land worth $130,000 to open a new business, RR Consulting, Inc. Which of the following general journal entries will RR Consulting, Inc. make to record this transaction?
Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000.
Identify the correct formula below used to calculate the debt ratio.
total liabilities/total assets.
The process of transferring general journal entry information to the ledger is called:
posting.
Which of the following accounts are permanent (real) accounts?
accounts payable
Another name for a temporary account is a(n):
nominal account.
When closing entries are made:
all temporary accounts are closed but permanent accounts are not closed.
Revenues, expenses, and dividends accounts, which are closed at the end of each accounting period are:
temporary accounts.
Assets, liabilities, and equity accounts are not closed; these accounts are called:
permanent accounts.
Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividend accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:
closing entries.
The closing process is necessary in order to:
ensure that net income or net loss and dividends for the period are closed into the retained earnings account.
The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:
accounting cycle.
Which of the following is the usual final step in the accounting cycle?
preparing a post-closing trial balance.
A classified balance sheet:
organizes assets and liabilities into important subgroups that provide more information.
Two common subgroups for liabilities on a classified balance sheet are:
current liabilities and long-term liabilities.
Which of the following is classified as current assets?
office supplies
The current ratio:
is used to help assess a company’s ability to pay its debts in the near future.
K. Canopy, the stockholder of Canopy Services, Inc., The company paid $5,700 cash in dividends to the owner (sole stockholder). The entry to close the dividends account at the end of the year is:
Debit Retained Earnings $5,700; credit dividends $5,700.
The Income Summary account is used to:
close the revenue and expense accounts.
