Module 1 Summative Assessment Flashcards
- Which of the following would not be considered valid documentation when the accounting department of a firm prepares a journal entry?
Sales invoice
Customer phone log
Purchase order
Bank statement
A customer phone log is not a valid document for an accounting group to prepare a journal entry as it would not provide enough financial details to be relevant.
- Deluxe Glass Inc. generated net income of $31,000,000 and declared cash dividends of $4,500,000 for the year ended December 31, 2022. The company had current liabilities of $22,000,000 and long-term liabilities of $74,000,000 as well as common stock of $40,000,000 at fiscal 2022 year-end. Assuming retained earnings of $80,000,000 at the beginning of 2022, what is the total assets of Deluxe Glass on December 31, 2022?
$202,500,000
$242,500,000
$247,000,000
$216,000,000
Remember not to excluded the cash dividend from the equity calculation.
- The double-entry accounting system requires that for each journal entry the debit amount should equal the credit amount, but each side can have multiple accounts affected.
True
False
This represents an accurate statement since all debit amounts must equal all credit amounts on every journal entry, even though one or both sides of a journal entry may contain multiple accounts.
- Which of the following account activities would be improperly reflected in the chart of accounts of a firm?
Increase expenses, credit-related accounts.
Decrease liabilities, debit-related accounts.
Increase assets, debit-related accounts.
Decrease equities, debit-related accounts.
Decrease liabilities, debit-related accounts. - This is properly reflected in the chart of accounts.
- The accountants use the trial balance they prepare to close income statement accounts at period end.
True
False
True
Another purpose of the trial balance, besides using it to prepare the financial statements, is to close income statement accounts at period end. Income statement accounts are temporary accounts and are closed to zero at the end of each period.
- XYZ Company’s administrative staff get paid on the 30th day of each month with all administrative employees earning a daily total amount of $9,000. Assuming October 31st falls on a Wednesday, how would the company’s accounting department treat the above?
Salary expenses would be recognized along with the cash impact for the additional day.
No accounting entry recorded.
Salary expenses would be recognized along with salary payable for the additional day.
Salary payable would be recognized for the additional day.
The salaries expenses must also be recognized for the additional day.
- Receiving timely financial statements is associated with which qualitative characteristic of financial information?
Reliability
Comparability
Relevance
Understandability
To have relevance, financial statements must be prepared and be issued to the public on a timely basis.
8, On October 31, 2022, a local newspaper signed a one-year agreement with an advertising agency where they will print retail advertisements in their daily newspaper and receive a monthly fee of $10,000 payable the first week of the following month. Assuming the advertisements will be posted in the daily newspaper at the start of November, what is the journal entry recorded by the newspaper at October month end?
Debit accounts receivable $10,000, credit advertising revenue $10,000
Debt account receivable $10,000, credit unearned revenue $10,000
Footnote transaction
Debit advertising revenue $10,000, credit accounts receivable $10,000
Nothing is recorded by the company at October month-end.
- In the accounting transaction flow process, after the accounting department prepares all journal entries for the period, what happens next?
Journal entries are posted to the chart of accounts.
A trial balance is prepared.
Source documentation to support transaction is obtained.
Financial statements are prepared.
The trial balance (incorrect) is prepared at the end of the period when all transaction activity is completed.
- A decrease in the accounts receivable asset account pertaining to the firm being paid by one of its customers would accurately be reported as which of the following in the chart of accounts?
Debit retained earnings
Debit account receivable
Credit accounts receivable
Credit cash
Credit accounts receivable
If the accounts receivable account declines from the prior period, it indicates that some customers have paid the company cash to remove the account receivable amount that was owed. Since accounts receivable is an asset, if it is paid down there is a credit recorded to reduce the accounts receivable balance.
- Which of the following U.S. GAAP principles indicates that a transaction should only be recorded when it has actually incurred?
Going concern
Objectivity
Business entity
Conservatism
The U.S. GAAP principle conservatism indicates that a transaction should be recorded when it has actually incurred. This does not include possible or probable transactions.
- A firm used $27,000 in cash to pay the principal off on its bank notes payable. The accounting equation for the firm is in balance.
True
False
The accounting equation is Assets = Liabilities + Equity. The accounting equation is in balance because cash (assets) decreased and the bank notes payable (liability) decreased by the same amount.
- Galveston Inc. purchased raw materials for $75,000 on credit from its supplier. Which of the following demonstrates the proper treatment of this transaction when creating a journal entry?
Debit accounts payable - $75,000; credit inventory - $75,000
Debit miscellaneous - $75,000, credit cash pending - $75,000
Debit current assets - $75,000, credit inventory payable - $75,000
Debit inventory - $75,000, credit accounts payable - $75,000
Debit inventory - $75,000, credit accounts payable - $75,000
This is the correct journal entry for this transaction as the current asset is recognized along with the current liability.
- For most recorded transactions by a firm, the accounting equation should be in balance.
True
False
The above statement does not accurately reflect the accounting equation.
- All of the following are accurate regarding the accrual process with the exception for:
Expenses are recorded if incurred.
The matching principle does not apply.
Cash does not need to be received or paid.
Revenues are recorded if incurred.
The matching principle is a premise of the accrual process as all related expenses have to be recorded in the same period as when the revenues are recorded.
