REVIEW OF ACCOUNTING PROCESS AND STANDARD SETTING PROCESS ASSESSMENT

DIAGNOSTIC TEST_PART 2

1. Which of the following steps in the accounting cycle c. Is normally prepared three times in the accounting
are listed in a logical order? cycle.
a. Post the closing entries, take a post-closing trial d. All of these.
balance, and journalize the closing entries.
b. Post the journal entries to the general ledger 11. Making insurance payments in advance is an example
accounts, prepare a worksheet, and then take a of:
trial balance. a. An accrued receivable transaction.
c. Take a trial balance, prepare a worksheet, then b. An accrued liability transaction.
prepare financial statements. c. An unearned revenue transaction.
d. Prepare the income statement, prepare the d. A prepaid expense transaction.
balance sheet and then prepare a trial balance.
12. Recording revenue earned from a customer, but not
2. The debit and credit analysis of a transaction normally yet collected, is an example of:
takes place a. A prepaid expense transaction.
a. Before an entry is recorded in a journal. b. An unearned revenue transaction.
b. When the entry is posted to the ledger. c. An accrued liability transaction.
c. When the trial balance is prepared. d. An accrued receivable transaction.
d. At some other point in the accounting cycle.
13. Prepayments occur when:
3. The accounting equation can be stated as: a. Cash flow precedes expense recognition.
a. A + L-OE = 0. b. Sales are delayed pending credit approval.
b. A-L + OE = 0. c. Customers are unable to pay the full amount due
c. -A + L-OE = 0. when goods are delivered.
d. A-L-OE = 0. d. Manufactured goods await quality control
inspections.
4. Which of the following accounts has a debit balance?
a. Accounts payable. 14. Failure to record the unexpired portion of insurance
b. Accrued taxes. premium paid would
c. Accumulated depreciation. a. Understate expense
d. Bad debt expense. b. Understate profit
c. Overstate owner’s equity
5. An example of a contra account is: d. Overstate total liabilities
a. Depreciation expense.
b. Accounts receivable. 15. Failure to record the unearned portion of rent received
c. Sales revenue. in advance would
d. Accumulated depreciation. a. Understate income
b. Understate profit
6. A sale on account would be recorded by: c. Overstate owner’s equity
a. Debiting revenue. d. Overstate total liabilities
b. Crediting assets.
c. Crediting liabilities. 16. Which of the following would most likely be found in an
d. Debiting assets. adjusting entry?
a. Prepaid expenses
7. Entries in the purchase journal are posted to the b. Accounts receivable
a. Accounts receivable ledger and the accounts c. Cash dividend paid
payable ledger. d. Sales on account
b. General ledger only.
c. General ledger and the accounts payable ledger. 17. Why are certain costs of doing business capitalized
d. General ledger and the accounts receivable ledger. when incurred and then depreciated or amortized over
subsequent accounting cycles?
8. At the date of purchase of a service which is not a. To reduce the income tax liability
immediately used up, the cost of such unused service b. To aid management in cash-flow analysis
is a(n): c. To match the costs of production with revenues as
a. Revenue c. Liability earned
b. Asset d. Expense d. To adhere to the accounting constraint of
conservatism
9. Incurring an expense for advertising on account would
be recorded by: 18. X Company prepares reversing entries. Which of the
a. Debiting liabilities. following adjustments will be reversed by X?
b. Crediting assets. a. The entry to record depreciation expense.
c. Debiting an expense. b. The entry to provide uncollectible accounts
d. Debiting assets. expense.
c. The entry to record the earned portion of rent
received in advance.
10. A trial balance d. The entry to record the unused supplies at the end
a. Proves that debits and credits are equal in the of the accounting period.
ledger.
b. Supplies a listing of open accounts and their 19. Choose the correct statement.
balances that are used in preparing financial
statements.

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 a. No adjusting entries should be necessary for the
inventory account if the periodic inventory system 25. First statement: In general, debits refer to increases
is used. in account balances, and credits refer to decreases.
b. Examples of accrued expenses include wages
payable and depreciation expense. Second statement: All liability and equity accounts are
c. Accrued items are those for which recognition of increased on the credit side and decreased on the debit
the related revenue or expense occurs in an side.
accounting period after the entity pays or receives a. True, True c. False, True
cash, respectively. b. True, False d. False, False
d. A worksheet is not a part of the basic accounting
records of the entity. 26. First statement: The first step in the accounting cycle
is the journalizing of transactions and selected other
20. Which of the following statements is false? events.
a. Depreciation expense, bad debt expense, and
warranty expense are estimated expense because Second statement: Basic steps in the recording
they all depend upon future events. process include transferring the journal information to
b. The balance sheet is also called the statement of the appropriate account in the statement of financial
financial position. position.
c. Depreciation expense and accrued revenues are a. True, True c. False, True
example of deferred items. b. True, False d. False, False
d. When a company records reversing entries,
adjusting entries for deferred expenses recorded 27. First statement: The trial balance uncovers any errors
initially as assets upon payment of cash generally in journalizing and posting prior to preparation of the
are not reversed. statement of financial position.

21. First statement: A ledger is where the company Second statement: The trial balance is a listing of all
initially records transactions and selected other events. the accounts and their balances in the order the
accounts appear on the statement of financial position.
Second statement: Nominal (temporary) accounts are a. True, True c. False, True
revenue, expense, and dividend accounts and are b. True, False d. False, False
periodically closed.
a. True, True c. False, True 28. First statement: One purpose of a trial balance is to
b. True, False d. False, False prove that debits and credits of an equal amount are in
the general ledger.
22. First statement: The dividends account is considered a
real account. Second statement: A general journal chronologically
lists transactions and other events, expressed in terms
Second statement: The "book of original entry" is also of debits and credits to accounts.
known as the journal. a. True, True c. False, True
a. True, True c. False, True b. True, False d. False, False
b. True, False d. False, False
29. First statement: An adjusted trial balance that shows
23. First statement: On the income statement, debits are equal debit and credit columnar totals proves the
used to increase account balances, whereas on the accuracy of the adjusting entries.
statement of financial position, credits are used to
increase account balances. Second statement: Reversing entries are made at the
end of the accounting cycle to correct errors in the
Second statement: The rules for debit and credit and original recording of transactions.
the normal balance of Share Capital–Ordinary are the a. True, True c. False, True
same as for liabilities. b. True, False d. False, False
a. True, True c. False, True
b. True, False d. False, False 30. First statement: Each adjusting entry affects one
statement of financial position account and one income
24. First statement: On the income statement, revenues statement account.
are increased by a debit whereas on the statement of
financial position retained earnings is increased by a Second statement: The accrual basis recognizes
credit. revenue when earned and expenses in the period when
cash is paid.
Second statement: Both a corporation and a a. True, True c. False, True
proprietorship commonly use the share capital b. True, False d. False, False
account.
a. True, True c. False, True - END -
b. True, False d. False, False

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