ACCOUNTING BASICS Stockholders' (Owner's) Equity DEBITS AND CREDITS

1. The financial statement that reports the 10. Accounting entries involve a minimum of Use the following information for questions 1 and
revenues and expenses for a period of time how many accounts? 2:
such as a year or a month is the One A company receives $500 of cash as an additional
Balance Sheet Two investment in the company by its owner, Mary
Income Statement Three Smith. The company's Cash account is increased
Statement Of Cash Flows 11. The listing of all of the accounts available and Mary Smith, Capital is increased.
2. The financial statement that reports the for use in a company's accounting system is 1. Should the $500 entry to the Cash account
assets, liabilities, and stockholders' known as the  be a debit?
(owner's) equity at a specific date is the __________. Yes
Balance Sheet 12. Assets minus liabilities equals  No
Income Statement _________. 2. Should the $500 entry to Mary Smith,
Statement Of Cash Flows 13. Which term is associated with "left" or "left- Capital be a debit?
3. Under the accrual basis of accounting, side"? Yes
revenues are reported in the accounting Debit No
period when the Credit Use the following information for questions 3
Cash Is Received 14. Which term is associated with "right" or through 6:
Service Or Goods Have Been Delivered "right-side"? A company using the accrual method of accounting
4. Under the accrual basis of accounting, Debit performed services on account in August. The
expenses are reported in the accounting Credit services were for $2,000 and the company gave the
period when the 15. When cash is received, the account Cash customer credit terms that state the amount is to be
Cash Is Paid  will be paid to the company in September.
Expense Matches The Revenues Or Is Used Up Debited 3. Assuming that the company prepares
5. Revenues minus expenses equals  Credited monthly income statements, what will be
__________. 16. When a company pays a bill, the account the account debited for $2,000 in August?
6. Resources owned by a company (such as Cash will be Cash 
cash, accounts receivable, vehicles) are Debited Accounts Receivable
reported on the balance sheet and are Credited Service Revenue.
referred to as  17. What will usually cause an asset account to 4. Which account should the
__________. increase? company credit for $2,000 in August?
7. Assets are usually reported on the balance Debit Cash 
sheet at which amount? Credit Accounts Receivable
Cost 18. What will usually cause the liability account Service Revenue
Current Market Value Accounts Payable to increase? 5. In September when the company receives
Expected Selling Price Debit the $2,000 from the customer, which
8. Obligations (amounts owed) are reported Credit account should the company debit?
on the balance sheet and are referred to as  19. Entries to expenses such as Rent Expense Cash
__________ are usually Accounts Receivable
Liabilities often have the word  Debits Service Revenue
__________in their account title. Credits 6. In September when the company receives
9. Unearned Revenues is what type of 20. Entries to revenues accounts such as Service the $2,000 from the customer, which
account? Revenues are usually account should the company credit?
Asset Debits Cash 
Liability Credits Accounts Receivable 
Service Revenue 8. To decrease the balance in the following Accounts Payable
7. To increase the balance in the following accounts, would you debit the account or Debit
accounts, would you debit the account or would you credit the account? Credit
would you credit the account? Accounts Payable Cash
Accounts Payable Debit Debit
Debit Credit Credit
Credit Cash Land
Cash Debit Debit
Debit Credit Credit
Credit Land Notes Payable
Land Debit Debit
Debit Credit Credit
Credit Notes Payable Accounts Receivable
Notes Payable Debit Debit
Debit Credit Credit
Credit Accounts Receivable Mary Smith, Capital
Accounts Receivable Debit Debit
Debit Credit Credit
Credit Mary Smith, Capital Supplies
Mary Smith, Capital Debit Debit
Debit Credit Credit
Credit Supplies Supplies Expense
Supplies Debit Debit
Debit Credit Credit
Credit Supplies Expense Prepaid Insurance
Supplies Expense Debit Debit
Debit Credit Credit
Credit Prepaid Insurance Service Revenue
Prepaid Insurance Debit Debit
Debit Credit Credit
Credit Service Revenue Mary Smith, Drawing
Service Revenue Debit Debit
Debit Credit Credit
Credit Mary Smith, Drawing Equipment
Mary Smith, Drawing Debit Debit
Debit Credit Credit
Credit Equipment Unearned Revenue
Equipment Debit Debit
Debit Credit Credit
Credit Unearned Revenue 10. Generally when an expense is involved in a
Unearned Revenue Debit transaction, an expense will be
Debit Credit Debited
Credit 9. What is the normal balance for the Credited
following accounts?
 11. Generally when revenues are involved in a
transaction, a revenue account will be
Debited
Credited
12. The accountant's word to indicate that an
entry will be recorded on the left-side of an
account is
Debit
Credit
13. A contra-asset account such as
Accumulated Depreciation will likely have
which balance?
Debit
Credit
14. A contra-liability account such as Discount
on Notes Payable will likely have which
balance?
Debit
Credit
CHARTS OF ACCOUNTS
1. The chart of accounts is a listing of the
accounts presently having balances in the
general ledger.
True
False
2. Some accounting software will classify some
accounts as "income" accounts, while
accountants might refer to these accounts
as "revenue" accounts.
True
False
3. The digits of the account numbers assigned
to general ledger accounts often have
significance. For example, an account
number beginning with a "1" might signify
that the account is an asset account, a "6"
might signify an operating expense, etc.
True
False
4. The accounts shown in the chart of
accounts can be broadly classified into two
categories: balance sheet accounts and  9. The bookkeeping or accounting equation is
__________accounts.
5. Every transaction will affect how many 10. The book of original entry is the definition
accounts? of a __________.
Only One  Journal
Only Two Ledger
Two Or More 11. When a sale is made on credit, the seller
6. In addition to the standard chart of will debit the asset account Accounts 
accounts for a specific industry, you will __________.
likely want to expand and/or modify the 12. Asset, __________, and stockholders'
chart of accounts to fit your business. One equity accounts are known as balance sheet
tool that would be helpful in determining accounts.
the accounts for your company would be 13. Large corporations should report revenues
your company's __________chart. on their income statements when the
BOOKKEEPING __________.
1. The two main methods of bookkeeping and Cash Is Received
accounting are 1) the cash method, and 2) the  Revenues Are Earned
__________ method. 14. The difference between the balance in a
2. __________-entry bookkeeping means that every company's cash account and its bank statement
transaction will affect two or more accounts. is documented in the __________of the bank
3. A __________ amount will appear on the left side statement.
of a T-account. 15. Accrued expenses are likely to pertain to
Debit  transactions that have __________ been paid.
Credit Already
4. A listing of the balances in the accounts in order to Not Yet
determine whether debits are equal to credits is 1. Deferred revenues likely involve cash
a _________ balance. amounts that have __________ been
5. The listing of accounts that are available for received.
posting transactions is the  Already
_________ of accounts. Not Yet
6. When a check is written, a cash account should be 2. A __________ entry typically removes an
__________. accrual-type adjusting entry that had been
Debited recorded in the preceding accounting
Credited period.
7. Liability accounts will normally have 3. Cash and Accounts Receivable are two
__________ balances. examples of accounts that are reported on
Debit the classified balance sheet under the
heading __________assets.
Credit 4. A supplier of goods or services is known as a
8. Revenue accounts will normally have __________.
__________ balances. Debtor
Debit Vendor
Credit 5. The separation of duties is part of the
internal __________ for safeguarding
Assets = Liabilities + Owner's  assets.
__________.
ACCOUNTING EQUATIONS No Effect Decrease
1. The basic accounting equation is Assets = Liabilities
Liabilities + __________. Increase No Effect
For each of the transactions in items 2 through Owner's (or Stockholders') Equity
13, indicate the two (or more) effects on the Decrease Increase
accounting equation of the business or
company. No Effect Decrease
2. The owner invests personal cash in the Owner's (or Stockholders') Equity
business. Increase No Effect
Assets 7.The owner contributes his/her personal truck
Increase Decrease to the business.
Decrease Assets
No Effect No Effect Increase
Liabilities 5.The company repays the bank that had lent
Increase money to the company. Decrease
Decrease Assets
No Effect Increase No Effect
Owner's (or Stockholders') Equity Liabilities
Increase Decrease Increase
Decrease
No Effect No Effect Decrease
3.The owner withdraws cash from the business Liabilities
for personal use. Increase No Effect
Assets Owner's (or Stockholders') Equity
Increase Decrease Increase
Decrease
No Effect No Effect Decrease
Liabilities Owner's (or Stockholders') Equity
Increase Increase No Effect
Decrease 8.The company purchases a significant amount
Decrease of supplies on credit.
No Effect Assets
Owner's (or Stockholders') Equity No Effect Increase
Increase 6.The company purchases equipment with its
cash. Decrease
Decrease Assets
Increase No Effect
No Effect Liabilities
4.The company receives cash from a bank loan. Decrease Increase
Assets
Increase No Effect Decrease
Liabilities
Decrease Increase No Effect
Owner's (or Stockholders') Equity
Increase Increase Liabilities
Increase
Decrease Decrease
Decrease
No Effect No Effect
9.The company purchases land by paying half in Owner's (or Stockholders') Equity No Effect
cash and signing a note payable for the other Increase Owner's (or Stockholders') Equity
half. Increase
Assets Decrease
Increase Decrease
No Effect
Decrease 11.In June, Company X receives the $5,000. No Effect
What is the effect on the accounting 13.What is the effect on Client Q's accounting
No Effect equation and which accounts are affected equation in June when Client Q remits the
Liabilities at Company X? $5,000? Also, which accounts will be involved?
Increase Assets Assets
Increase Increase
Decrease
Decrease Decrease
No Effect
Owner's (or Stockholders') Equity No Effect No Effect
Increase Liabilities Liabilities
Increase Increase
Decrease
Decrease Decrease
No Effect
Information for Items 10 through 13 No Effect No Effect
Company X provides consulting services to Client Owner's (or Stockholders') Equity Owner's (or Stockholders') Equity
Q in May. Company X bills Client Q in May for Increase Increase
the agreed upon amount of $5,000. The sales
invoice shows that the amount will be due in Decrease Decrease
June.
10.In May, Company X records the transaction No Effect No Effect
by a debit to Accounts Receivable for $5,000 and 12.What is the effect on Client Q's accounting 14.
a credit to Service Revenues for $5,000. What is equation in May when Client Q records the Which of the following will cause owner's equity
the effect of this entry upon the accounting transaction as a debit to Consultant Expense for to increase?
equation for Company X? $5,000 and a credit to Accounts Payable for Expenses
Assets $5,000?
Increase Assets Owner Draws
Increase
Decrease Revenue
Decrease 15.
No Effect Which of the following will cause owner's equity
Liabilities No Effect to decrease?
 Net Income   enough to carry out its objectives and
Monetary Unit commitments?
Net Loss 2. 2. Economic Entity
Which principle/guideline requires a company's  
Revenue balance sheet to report its land at the amount the Going Concern
16. company paid to acquire the land, even if the land  
The accounting equation should remain in could be sold today at a significantly higher amount? Time Period
balance because every transaction affects how Cost 7. 7.
many accounts?   A very large corporation's financial statements have
Only One Economic Entity the dollar amounts rounded to the nearest $1,000.
  Which accounting principle/guideline justifies not
Only Two Monetary Unit reporting the amounts to the penny?
3. 3. Full Disclosure
Two Or More Which principle/guideline allows a company to  
17.A corporation's net income is eventually ignore the change in the purchasing power of the Materiality
recorded in the following stockholders' equity dollar over time?  
account:  Cost Monetary Unit
__________   8. 8.
. Economic Entity Accountants might recognize losses but not gains in
18.A corporation's quarterly    certain situations. For example, the company might
__________ Monetary Unit write-down the cost of inventory, but will not write-
will cause a reduction in the corporation's 4. 4. up the cost of inventory. Which principle/guideline is
retained earnings, which in turn reduces the Which principle/guideline requires the company's associated with this action?
corporation's stockholders' equity. However, financial statements to have footnotes containing Conservatism
this will not reduce the corporation's net information that is important to users of the  
income. financial statements? Materiality
19.The financial statement with a structure that Conservatism  
is similar to the accounting equation is the    Monetary Unit
__________ Economic Entity 9. 9.
.   Which principle/guideline directs a company to show
20.The financial statement that reports the Full Disclosure all the expenses related to its revenues of a specified
portion of change in owner's equity resulting 5. 5. period even if the expenses were not paid in that
from revenues and expenses during a specified Which principle/guideline justifies a company period?
time interval is the  violating an accounting principle because the Cost
__________ amounts are immaterial?  
. Conservatism Matching
ACCOUNTING PRINCIPLES    
1. 1. Full Disclosure Monetary Unit
The personal assets of the owner of a company   10. 10.
will not appear on the company's balance sheet Materiality When the accountant has to choose between two
because of which principle/guideline? 6. 6. acceptable alternatives, the accountant should select
Cost Which principle/guideline is associated with the the alternative that will report less profit, less asset
  assumption that the company will continue on long amount, or a greater liability amount. This is based
Economic Entity upon which principle/guideline?
 Conservatism Full Disclosure Going Concern
     
Cost Monetary Unit Materiality
     
Materiality Revenue Recognition Revenue Recognition
11. 11. 15. 15. 19. 19.
Public utilities' balance sheets list the plant assets Accrual accounting is based on this A retailer wishes to report its merchandise inventory
before the current assets. This is acceptable under principle/guideline. on its balance sheet at its retail value. This would
which accounting principle/guideline? Cost violate which accounting principle/guideline?
Conservatism   Cost
  Full Disclosure  
Cost   Full Disclosure
  Matching  
Industry Practices 16. 16. Monetary Unit
12. 12. The creative chief executive of a corporation who is 20. 20.
A large company purchases a $250 digital camera personally responsible for numerous inventions and A company borrowed $100,000 in December and will
and expenses it immediately instead of recording it innovations is not reported as an asset on the make its only payment for interest when the note
as an asset and depreciating it over its useful life. corporation's balance sheet. The accounting comes due six months later. The total interest for the
This practice may be acceptable because of which principle/guideline that prevents the corporation for six months will be $3,600. On the December income
principle/guideline? reporting this person as an asset is statement the accountant reported Interest Expense
Cost Conservatism of $600. This action was the result of which
    accounting principle/guideline?
Matching Cost Cost
     
Materiality Going Concerns Matching
13. 13. 17. 17.  
A corporation pays its annual property tax bill of An asset with a cost of $120,000 is depreciated over Revenue Recognition
approximately $12,000 in one payment each its useful life of 10 years rather than expensing the FINANCIAL ACCOUNTING
December 28. During the year, the corporation's entire amount when it is purchased. This complies 1. 1.
monthly income statements report Property Tax with which principle/guideline? Financial accounting is focused on the __________
Expense of $1,000. This is an example of which Cost financial statements of a company.
accounting principle/guideline?   External
Conservatism Full Disclosure  
    Internal
Matching Matching 2. 2.
  18. 18. Financial statements report the fair market value of
Monetary Unit Near the end of the current year, a company a company.
14. 14. required a customer to pay $200,000 as a deposit for True
A company sold merchandise of $8,000 to a work that is to begin in the following year. At the  
customer in December. The company's sales terms end of the current year the company reported the False
require the customer to pay the company in 30 days. $200,000 as a liability on its balance sheet. Which 3. 3.Large corporations must follow the 
The company's income statement reported the sale accounting principle/guideline prevented the __________
in December. This is proper under which accounting company from reporting the $200,000 on its income  basis of accounting.
principle/guideline? statement for the current year?
4. 4.Corporations whose stock is publicly 12. 12.Every transaction will have one account the amount owed as of the balance sheet date for a
traded must have their financial statements  being credited and one account being  company's accrued expenses?
__________ __________ Debit
 by independent certified public accountants. .  
5. 5. 13. 13.The accounting equation is Assets =  Credit
The U.S. government agency with authority over the __________ 3. 3.
financial reporting requirements of publicly traded  + Stockholders' (or Owner's) Equity. What type of entry will increase the normal balances
corporations is the __________. 14. 14.Matching, cost, and full disclosure are of the general ledger accounts Electricity Expense,
AICPA examples of the fundamental or basic accounting  Insurance Expense, Interest Expense, and Repairs
  __________ Expense?
FASB . Debit
  15. 15.The profitability of a company for a  
IRS specified period of time is reported on the  Credit
  __________ 4. 4.
SEC  statement. What type of accounts are Interest Receivable and
6. 6. 16. 16.The main components or elements of Fees Receivable?
The non-government organization that researches the income statement are  Asset
and develops new accounting standards is the __________  
__________. , expenses, gains, and losses. Liability
AICPA 17. 17.Prepaid insurance is reported as an   
  __________ Equity
FASB  on a company's balance sheet.  
  18. 18.The word " Revenue
IRS __________  
  " is often in the title of liability accounts. Expense
SEC 19. 19.The statement of cash flows explains the 5. 5.
7. 7.The acronym for the common rules and changes in cash and cash  What type of entry will decrease the normal
standards that companies must follow when __________ balances of the general ledger accounts Interest
preparing its external financial statements is   during the specified time interval. Receivable and Fees Receivable?
__________ 20. 20.The first section of the statement of cash Debit
. flows is the   
8. 8.SEC is the acronym for  __________ Credit
__________  activities. 6. 6.
. What type of accounts are Deferred Revenues and
9. 9.FASB is the acronym for  ADJUSTING ENTRIES Unearned Revenues?
__________ 1. 1. Asset
. What type of entry will increase the normal balance  
10. 10.GAAP is the acronym for  of the general ledger account Service Revenues? Liability
__________ Debit  
.   Equity
11. 11. Credit  
__________ 2. 2. Revenue
 entry bookkeeping will result in at least two What type of entry will increase the normal balance 7. 7.
accounts being involved in every transaction. of the general ledger account that reports
 What type of entry will decrease the normal 12. 12. A Debit To Interest Receivable
balances of the accounts Deferred Revenues and In the case of a company's accrued interest expense, 18. 18.
Unearned Revenues? which of the following occurs first? The adjusting entry that reduces the balance in
Debit Incurring The Interest Expense Prepaid Insurance will also include which of the
    following?
Credit Paying The Interest To The Lender A Credit To Cash
8. 8. 13. 13.  
What type of accounts are Prepaid Insurance, In the case of a bank's accrued interest revenues, A Credit To Insurance Expense
Prepaid Advertising, and Prepaid Expenses? which occurs first?  
Asset Earning The Interest Revenues A Debit To Insurance Expense
     
Liability Receiving The Interest From The Borrower A Debit To Insurance Payable
  14. 14. 19. 19.
Equity In the case of a company deferring insurance The adjusting entry that reduces the balance in
  expense, which occurs first? Deferred Revenues or Unearned Revenues will also
Revenue Incurring The Insurance Expense include which of the following?
    A Debit To Cash
Expense Paying The Insurance Company  
9. 9. 15. 15. A Credit To Fees Earned
What type of entry will decrease the normal In the case of a company's deferred revenues, which  
balances of the accounts Prepaid Insurance and occurs first? A Debit To Fees Earned
Prepaid Expenses, and Insurance Expense? Earning The Revenues  
Debit   A Credit To Fees Receivable
  Receiving The Money From The Customer 20. 20.
Credit 16. 16. The ending balance in the account Prepaid Insurance
10. 10. Which of the following will be included in the is expected to report which of the following?
What type of accounts are Accumulated adjusting entry to accrue interest expense? The Accrued Amount Of Insurance Expense
Depreciation and Allowance for Doubtful Accounts? A Debit To Cash  
Contra Asset   The Original Amount Of The Insurance Premiums
  A Credit To Interest Payable Paid
Equity    
  A Debit To Interest Payable The Expired Portion Of The Insurance Premiums Paid
Expense    
  A Debit To Prepaid Interest The Unexpired Portion Of The Insurance Premiums
Liability 17. 17. Paid
  Which of the following will be included in the 21. 21.
Revenue adjusting entry to accrue interest income or interest The ending balance in the account Deferred
11. 11. revenues? Revenues (or Unearned Fees) should report which of
What type of entry will increase the balances that A Debit To Cash the following?
are normally found in the accounts Accumulated   The Accrued Amount Of Fees That Have Been Earned
Depreciation and Allowance for Doubtful Accounts? A Debit To Interest Income  
Debit   The Original Amount Of Fees Received In Advance
  A Credit To Interest Receivable From A Customer
Credit    
 The Fees Received In Advance Which Are Not Yet 28. 27. What would be the effect on the financial
Earned What is the name of the account that will be statements if the company fails to make the
  credited? adjusting entry on December 31?
The Amount Of Fees Received In Advance And Which Answer Answer
Are Now Earned 29. 28. 38. Use the following information to answer
22. 22. What is the amount of the debit and the credit? questions 36 - 41:
Which type of adjusting entry is often reversed on Answer On December 1, your company paid its insurance
the first day of the next accounting period? 30. 29. agent $2,400 for the annual insurance premium
Accrual What would be the effect on the financial covering the twelve-month period beginning on
  statements if the company fails to make the December 1. The $2,400 payment was recorded on
Deferral adjusting entry on December 31? December 1 with a debit to the current
  Answer asset Prepaid Insurance and a credit to the current
Depreciation 31. Use the following information to answer asset Cash. Your company prepares monthly
23. 23. questions 30 - 35: financial statements at the end of each calendar
Typically an adjusting entry will include which of the A bank lent $100,000 to a customer on December 1 month. The following questions pertain to
following? that required the customer to pay an annual the adjusting entrythat should be written by
One Balance Sheet Account And One Income percentage rate (APR) of 12% on the amount of the the company.
Statement Account loan. The loan is due in six months and no payment 39. 36.
  of interest or principal is to be made until the note is What date should be used to record the December
Two Balance Sheet Accounts due on May 31. The bank prepares monthly financial adjusting entry?
  statements at the end of each calendar month. The Answer
Two Income Statement Accounts following questions pertain to the adjusting entry 40. 37.
24. Use the following information to answer that the bank will be making for its accounting How many accounts are involved in the adjusting
questions 24 - 29: records. entry?
A company borrowed $100,000 on December 1 by 32. 30. Answer
signing a six-month note that specifies interest at an What date should be used to record the December 41. 38.
annual percentage rate (APR) of 12%. No interest or adjusting entry? What is the name of the account that will be
principal payment is due until the note matures on Answer debited?
May 31. The company prepares financial statements 33. 31. Answer
at the end of each calendar month. The following How many accounts are involved in the adjusting 42. 39.
questions pertain to theadjusting entry that should entry? What is the name of the account that will be
be entered in the company's records. Answer credited?
25. 24. 34. 32. Answer
What date should be used to record the December What is the name of the account that should be 43. 40.
adjusting entry? debited? What is the amount of the debit and the credit?
Answer Answer Answer
26. 25. 35. 33. 44. 41.
How many accounts are involved in the adjusting What is the name of the account that should be What would be the effect on the financial
entry? credited? statements if the company fails to make the
Answer Answer adjusting entry on December 31?
27. 26. 36. 34. Answer
What is the name of the account that will be What is the amount of the debit and the credit? 45. Use the following information to answer
debited? Answer questions 42 - 47:
Answer 37. 35. On December 1, your company paid its insurance
 agent $2,400 for the annual insurance premium of each calendar month. The following questions 61. 55.
covering the twelve-month period beginning on pertain to the adjusting entry that should be written How many accounts are involved in the adjusting
December 1. The $2,400 payment was recorded on by the XYZ Insurance Co. entry?
December 1 with a debit to the income statement 53. 48. Answer
account Insurance Expense and a credit to the What date should be used to record the December 62. 56.
current asset Cash. Your company prepares monthly adjusting entry? What is the name of the account that will be
financial statements at the end of each calendar Answer debited?
month. The following questions pertain to 54. 49. Answer
the adjusting entry that should be written by How many accounts are involved in the adjusting 63. 57.
the company. entry? What is the name of the account that will be
46. 42. Answer credited?
What date should be used to record the December 55. 50. Answer
adjusting entry? What is the name of the account that will be 64. 58.
Answer debited? What is the amount of the debit and the credit?
47. 43. Answer Answer
How many accounts are involved in the adjusting 56. 51. 65. 59.
entry? What is the name of the account that will be What would be the effect on the financial
Answer credited? statements if the company fails to make the
48. 44. Answer adjusting entry on December 31?
What is the name of the account that will be 57. 52. Answer
debited? What is the amount of the debit and the credit? 66. Use the following information to answer
Answer Answer questions 60 - 65:
49. 45. 58. 53. On December 1, your company began operations. On
What is the name of the account that will be What would be the effect on the financial December 4 it purchased $1,500 of supplies and
credited? statements if the company fails to make the recorded the transaction with a debit to the income
Answer adjusting entry on December 31? statement account Supplies Expense and a credit to
50. 46. Answer the current liability Accounts Payable. Your company
What is the amount of the debit and the credit? 59. Use the following information to answer prepares monthly financial statements at the end of
Answer questions 54 - 59: each calendar month. At the end of the day on
51. 47. On December 1, your company began operations. On December 31, your company estimated that $700 of
What would be the effect on the financial December 3 it purchased $1,500 of supplies and the supplies were still on hand in the supply room.
statements if the company fails to make the recorded the transaction with a debit to the current The following questions pertain to the adjusting
adjusting entry on December 31? asset Supplies and a credit to the current entry that should be entered by your company.
Answer liability Accounts Payable. Your company prepares 67. 60.
52. Use the following information to answer monthly financial statements at the end of each What date should be used to record the December
questions 48 - 53: calendar month. At the end of the day on December adjusting entry?
On December 1, XYZ Insurance Co. received $2,400 31, your company estimated that $700 of the Answer
from your company for the annual insurance supplies were still on hand in the supply room. The 68. 61.
premium covering the twelve-month period following questions pertain to the adjusting How many accounts are involved in the adjusting
beginning on December 1. XYZ Insurance Co. entry that should be entered by your company. entry?
recorded the $2,400 receipt as of December 1 with a 60. 54. Answer
debit to the current asset Cash and a credit to the What date should be used to record the December 69. 62.
current liability Unearned Revenues. XYZ Insurance adjusting entry? What is the name of the account that will be
Co. prepares monthly financial statements at the end Answer debited?
 Answer 4. 4. should be recorded in the general ledger
70. 63. Which financial statement will allow you to account Sales?
What is the name of the account that will be determine the gross margin for a retailer or True
credited? manufacturer?  
Answer Balance Sheet False
71. 64.   9. 9.
What is the amount of the debit and the credit? Income Statement Is it true or false that the total amount of
Answer   stockholders’ equity reported on the balance
72. 65.
Statement Of Cash Flows sheet is intended to show the fair market value of
What would be the effect on the financial
  the corporation?
statements if the company fails to make the
Statement Of Comprehensive Income True
adjusting entry on December 31?
Answer
   
FINANCIAL STATEMENTS Statement Of Stockholders’ Equity False
1. 1. 5. 5. 10. 10.
Which accounting method will result in financial Does the heading of a balance sheet indicate a Comprehensive income is defined as
statements that report a more complete picture period of time or a point in time? _______________ plus other comprehensive
of a corporation’s financial position and a better Period Of Time income.
measure of profitability during a recent   Extraordinary Items
accounting year? Point In Time  
Accrual Method 6. 6. Gains And Losses
  A corporation's net income will cause a change in  
Cash Method which component of stockholders' equity? Net Income
2. 2. Accumulated Other Comprehensive Income 11. 11.
Which type of journal entries are made at the end   Which financial statement reports the
of each accounting period so that the financial Paid-in Capital adjustments for changes in the market value
statements better reflect the accrual method of   of available-for-sale investment securities and
accounting? Retained Earnings adjustments for foreign currency translation?
Adjusting 7. 7. Statement Of Cash Flows
  Which financial statement's structure is closest to  
Closing that of the basic accounting equation? Statement Of Comprehensive Income
  Balance Sheet  
Reversing   Statement Of Income
3. 3. Income Statement 12. 12.
The generally accepted accounting principles used   Ten years ago, a corporation started a new brand
in the financial statements of U.S corporations are Statement Of Cash Flows name that is now considered to be its most
researched and developed by which organization?   valuable asset. On which financial statement and
American Accounting Association (AAA) Statement Of Comprehensive Income at what amount will you see the brand name
    reported?
Financial Accounting Standards Board (FASB) Statement Of Stockholders’ Equity Balance Sheet At Its Present Value
  8. 8.  
Internal Revenue Service (IRS) Is it true or false that a grocery store’s sale of its Statement Of Comprehensive Income With No
old delivery van to one of its employees for $2,000 Value
   An Increase In Accounts Receivable 1. 1.
Not Reported On A Financial Statement   Another name for the balance sheet is
13. 13. Depreciation Expense Statement Of Operations
A corporation's working capital is calculated using 17. 17.  
which amounts? Which of the following will appear as a positive Statement Of Financial Position
Total Assets and Total Liabilities amount on a statement of cash flows that was 2. 2.
  prepared using the indirect method? The balance sheet heading will specify a
Total Assets and Current Liabilities An Increase In Accounts Receivable Period Of Time
     
Current Assets and Current Liabilities An Increase In Inventory Point In Time
14. 14.   3. 3.
The changes that occurred during a recent year in A Decrease In Accounts Payable Which of the following is a category or element of
the accounts Retained Earnings and Treasury Depreciation Expense the balance sheet?
Stock will be found in which financial statement? 18. 18. Expenses
Balance Sheet What is usually presented first in the notes to the  
  financial statements? Gains
Income Statement Accumulated Other Comprehensive Income  
    Liabilities
Statement Of Cash Flows Commitments And Contingencies  
    Losses
Statement Of Comprehensive Income Significant Accounting Policies 4. 4.
  19. 19. Which of the following is an asset account?
Statement Of Stockholders’ Equity Which is the annual report to the SEC that Accounts Payable
15. 15. contains the financial statements of a publicly-  
The amount spent for capital expenditures will be traded corporation? Prepaid Insurance
reported in which section of the statement of cash Form 1040  
flows?   Unearned Revenue
Cash Provided/used In Financing Activities Form 10-K 5. 5.
    Which of the following is a contra account?
Cash Provided/used In Investing Activities Form 10-Q Accumulated Depreciation
     
Cash Provided/used In Operating Activities Schedule C Mary Smith, Capital
  20. 20. 6. 6.
Supplemental Information Important disclosures regarding likely losses that What is the normal balance for an asset account?
16. 16. could not be estimated are found where? Debit
Which of the following will appear as a negative General Ledger Accounts  
amount on a statement of cash flows that was   Credit
prepared using the indirect method? Income Statement 7. 7.
A Decrease In Inventory   What is the normal balance for liability accounts?
  Notes To The Financial Statements Debit
An Increase In Accounts Payable  
  BALANCE SHEETS Credit
8. 8. ABC Co. follows the accrual basis of accounting December 31. What is the effect of the cleanup
What is the normal balance for stockholders' and performs a service on account (on credit) in service on the December balance sheet of ABC?
equity and owner's equity accounts? December. The service was billed at the agreed Assets Decreased
Debit upon amount of $3,500. ABC Co. debited Accounts  
  Receivable for $3,500 and credited Service Liabilities Increased
Credit Revenue for $3,500. The effect of this entry on the  
9. 9. balance sheet of ABC is to increase assets by No Effect On Owner's Equity
What is the normal balance for contra asset $3,500 and to 17. 17.
accounts? Decrease Assets By $3,500 Deferred credits will appear on the balance sheet
Debit   with the
  Increase Owner's (Stockholders') Equity By $3,500 Assets
Credit 13. 13.  
10. 10. Which of the following would not be a current Liabilities
Client Jay pays ABC Co. $1,000 in December for asset?  
ABC to perform services for Jay in 45 days. ABC Accounts Receivable Owner's/Stockholders' Equity
uses the accrual basis of accounting. In December   18. 18.
ABC will debit Cash for $1,000. What will be the Land Notes Payable could not appear as a line on the
other account involved in the December   balance sheet in which classification?
accounting entry prepared by ABC (and what type Prepaid Insurance Current Assets
of account is it)?    
Accounts Receivable (asset) Supplies Current Liabilities
  14. 14.  
Prepaid Services (asset) Which of the following would normally be a Long-term Liabilities
  current liability? 19. 19.
Service Revenues (revenue) Note Payable Due In Two Years On December 1, ABC Co. hired Juanita Perez to
    begin working on January 2 at a monthly salary of
Unearned Revenues (liability) Unearned Revenue $4,000. ABC's balance sheet of December 31 will
11. 11. 15. 15. show a liability of
ABC Co. performed services for Client Kay in When an owner draws $5,000 from a sole $4,000
December and billed Kay $4,000 with terms of net proprietorship or when a corporation declares and  
30 days. ABC follows the accrual basis of pays a $5,000 dividend, the asset Cash decreases $48,000
accounting. In January ABC received the $4,000 by $5,000. What is the other effect on the balance  
from Kay. In January ABC will debit Cash, since sheet? No Liability
cash was received. What account should ABC Owner's/Stockholders' Equity Decreases 20. 20.
credit in the January entry?   ABC Co. has current assets of $50,000 and total
Accounts Receivable None assets of $150,000. ABC has current liabilities of
  16. 16. $30,000 and total liabilities of $80,000. What is
Service Revenue ABC Co. incurs cleanup expense of $500 on the amount of ABC's owner's equity?
  December 30. The supplier's invoice states that $20,000
Owner's Equity the $500 is due by January 10 and ABC will pay the  
12. 12. invoice on January 9. ABC follows the accrual basis $30,000
of accounting and its accounting year ends on  
$70,000
 
$120,000
21.
The amount reported on the balance sheet for
Property, Plant and Equipment is the company's
estimate of the fair market value as of the balance
sheet date.
True
False
22.The total amount reported for stockholders'
equity is the approximate fair value or net worth
of the corporation as of the balance sheet date.
True
False
23.The book value of a corporation is the total
amount of stockholders' equity reported on the
balance sheet.
True
False
24.The third line of the balance sheet at the end
of the year should begin with "For the Year
Ended".
True
False