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Accounting > Quizez > Flashcards

Quizez Flashcards

1
Q
  1. The amount (portion) of earnings distributed to stockholders can be found in the income statement.
A

False

It can be found in the statement of retained earnings

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2
Q
  1. Every accounting transaction affects both the balance sheet and the income statement.
A

a. False
Some transactions affect only balance sheet accounts. ex. Paying a supplier for goods previously purchased, then we debit accounts payable and credit cash

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3
Q
  1. A company purchases equipment by issuing a note payable, its total assets will not change.
A

a. False

Its total asset will change since you debit the equipment value to the asset’s account.

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4
Q
  1. Depreciation is a non-cash expense that is added back to net income in determining cash provided from operating activities under the indirect method.
A

a. True

Income was reduced, but there was no cash outflow for depreciation

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5
Q
  1. The current maturity of long-term debt is a current liability.
A

a. True

Current maturity of a long-term debt consists of that part of the debt needed to be paid back in given year.

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6
Q
  1. A possible loss, that cannot be reasonably estimated, from lawsuit is not reported on the balance sheet as a current liability.
A

a. True

No, it is reported as a contingent liability on the balance sheet.

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7
Q
  1. An amount that has been incurred as an expense but has not yet been paid should be considered an accrued asset.
A

a. False

It is an accrued liability, not asset.

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8
Q
  1. If accounts receivable turnover is faster, this means that fewer days are required to collect receivables
A

a. True

If the turnover increase it means the accounts receivable faster gets converted to net credit sales.

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9
Q
  1. Lewisburg Corp. had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000. Its accounts receivable turnover ratio is 0.33 times.
A

a. False

The turnover is = net sales / average .. = 3 times

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10
Q
  1. Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.
A

a. True

Kept on hand for making minor disbursements in coin and currency rather than by writing checks

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11
Q
  1. Generally, an increase in a current liability results in an increase in the operating activities category of the cash flow statement.
A

a. True
When looking at the equation of the cash flow: Cash = liability + equity – noncurrent asset – long-term asset it is then clear that a change in liability has a positive effect on the cash flow and current liability is a part of the operating activity.

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12
Q
  1. Estimated liability for product warranties to be paid in the future is a current liability.
A

a. True

Product warranties has to be paid within a year for which reason it is a current liability.

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13
Q
  1. Treasury stock is stock that has been issued, but not currently outstanding.
A

a. True

It is not outstanding since it isn’t held by shareholders but being held within the issuing firm.

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14
Q
  1. Current assets, other than cash, are expected to be sold or consumed beyond a company’s normal operating cycle
A

false

Within a company’s normal operating cycle

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15
Q
  1. In the stockholders’ equity section of a classified balance sheet, a distinction is made between amounts invested by owners and amounts accumulated from business earnings.
A

a. True

The retained earnings is affected by investments and the net income.

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16
Q
  1. Obligations related to operating activities that will be paid within the company’s operating cycle must be reported as current liabilities on a classified balance sheet
A

true

Company’s operating cycle is not long term, but 1 year.

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17
Q
  1. The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets
A

a. False
It is not irrelevant. It is important for every type of business to measures its ability to pay short-term obligations or those due within one year

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18
Q
  1. Payment of a dividend decreases both cash and stockholders’ equity of the distributing business.
A

a. True
Cash decrease since we are giving them away as dividends and the stockholder’s equity decrease because the cash is taken from net income which decrease retained earnings.

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19
Q
  1. There is a universal chart of accounts that is applicable to all businesses
A

false

There are universal guidelines to uphold within accounting but the chart is ‘somewhat’ up to the firm itself.

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20
Q
  1. A debit recognizes decrease of an account.
A

a. False

It depends on the account; on assets it increase the account.

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21
Q
  1. Every business transaction is recorded by a debit to a balance sheet account and a credit to an income statement account.
A

a. False
It is different from account to account. Dividends, expense and assets are all debit accounts, whereas liability, equity revenue are credit accounts.

22
Q
  1. A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger.
A

false
provides proof if the transactions equalize. You might forget adding a transaction, and the balance still equals therefore it does not prove that all transactions were correctly journalized.

23
Q
  1. When plant assets are purchased in a group, each asset increases the respective plant asset account for its fair market value at the time of acquisition
A

a. False

No, it accounts its book value

24
Q
  1. Acquisition cost of property, plant and equipment, should not include expenditures unrelated to the acquisition, like repair costs for damages incurred during installation, or costs incurred after the asset was installed and use begun
A

a. True
Acquisition cost should include all costs that are normal and necessary to acquire the asset and prepare it for the intended use.

25
Q
  1. External users of accounting information include present and potential stockholders, bankers and other creditors, and management.
A

false

stockholders, investors, creditors and government agencies – not company management (internal)

26
Q
  1. An entity’s liabilities come from three primary sources: creditors, investors, and profits retained in the business.
A

false
Liabilities, money you borrow from others – investors invest in shares as shareholders and therefore don’t provide liabilities.
Profit seen as Retained earnings when not given to shareholders are a part of the equity

27
Q
  1. The time period assumption not necessarily assumes a company prepares financial statements every month.
A

true
The time period assumption is an artificial segment on the calendar used as the basis for preparing financial statements.

28
Q
  1. The primary objective of external auditors is to provide assurance to stockholders and other users that the statements are fairly presented.
A

a. True

An external auditor, or public accountant, is involved to raise the reliability of the economic reports.

29
Q
  1. With few exceptions, the balance of all accounts should be on the side of the T account that causes the increase.
A

a. True

We have Liability, Equity and Revenue that increase on the credit side

30
Q
  1. Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of the date of the invoice.
A

a. True
The set-up of n/30 is given to the customers or received by suppliers to inform that if a given discount were given it would say so at ‘n’ and it would be valid and had to be paid before ‘/xx’ the value, representing days, had passed.

31
Q
  1. Gross margin as a percentage of sales is a common analytical tool for service companies.
A

false

Profit margin is reported as a percentage of each revenue dollar.

32
Q
  1. Cost of goods sold is the difference between costs available for sale and beginning inventory.
A

false

It’s ending not beginning inventory.

33
Q
  1. Bad Debts expense is debited and Accounts Receivable is credited at the end of the period to recognize bad debts under the allowance method.
A

false

Under the allowance method you would credit: Allowance for Doubtful Accounts (asset) and not Accounts Receivable

34
Q
  1. Fortune Company has 10 delivery trucks that became fully depreciated in the prior year. Fortune will continue charging the same amount of depreciation as before so that there will be no decrease in expenses.
A

a. False

If done with fully depreciation, then it is done with its timeline to register expenses.

35
Q
  1. Under FIFO, the units in the ending inventory represent the most recent purchase(s).
A

a. True

The units in the ending inventory represents the goods which was last purchased and brought to the warehouse.

36
Q
  1. A debit is an entry made to the right side of an account and always increases an account balance
A

a. False

it depends on the account if its left or right

37
Q
  1. Asset accounts normally have a credit balance
A

a. False

They have a debit account

38
Q
  1. Which changes describes the sale for cash of $1,000 of 100 shares of stock?
A

a. Assets and owners’ equity increase by $1,000

b. Get more assets and get more equity within the company

39
Q
  1. An expense is an inflow of assets resulting from the sale of goods and services.
A

a. False

Because an expense is an outflow, meaning money leaves the company.

40
Q
  1. The balance in the account, Rent Collected in Advance, is reported as an asset on the balance sheet of the landlord
A

a. False

Collect cash as payment for rent of building but this is not sales revenue but liabilities.

41
Q
  1. Adjusting entries are recorded at the end of an accounting period so that, for example, net income is accurately reflected in the financial statements for the period
A

a. True

They convert a company’s accounting records to the accrual basis of accounting

42
Q
  1. Income summary does appear on the income statement.
A

a. False
Closing entries, transfer all revenue and expenses into income summery then into the retained earnings. From new year: January 1: 0 revenue, 0 expenses, 0 dividends. All is in retained earnings.

43
Q
  1. Unethical behavior can include that companies use aggressive accounting practices to misrepresent, for example, earnings.
A

a. True

Conservatism: potential gains and losses

44
Q
  1. The accrual accounting method records revenue in the period earned and expenses in the period incurred.
A

a. False
Revenue recognition – you are not getting cash but make agreement the money later arrive
Matching expenses with sales revenue

45
Q
  1. When initially recording the cost of land purchased, most companies use market value.
A

a. False

Historical cost/value. There are multiple models to valuate land.

46
Q
  1. Depreciation does not describe the increase or decrease in the market value of the asset.
A

a. True

Recognize the cost over a time period of the asset. Recognize Historical cost, not the market cost

47
Q
  1. Because plant and equipment are reported as long-term assets on the balance sheet, they have no impact on income statement until the period they are sold
A

a. False

Depreciation expenses will decrease the net income statement.

48
Q
  1. Long-term assets and land have to be depreciated.
A

a. False

Land does not depreciate.

49
Q
  1. Accumulated depreciation is a(an)
    a. expense account (no expenses)
    b. liability account (assets)
    c. contra account
    d. revenue account
    e. none of the above
A

c. contra account

50
Q
  1. A trial balance is the listing of each account and its balance at a specific point in time *
A

a. True

It gives an overview is the transactions are equalizing.

51
Q
  1. Expenditures made for advertising are recorded in revenue account
A

a. False

No, increases in revenue accounts are recorded as debits because they increase the owner’s capital account

52
Q
  1. If a company purchases equipment by issuing a note payable, its total assets will NOT change *
A

a. false

Assets and liability will increase

Accounting (7 decks)

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