Principles of Accounting

CHAPTER 1 – ACCOUTING IN ACTION

1/ Which of following actions is NOT belong to accounting activities:
Identification, Purchase, Recording, or Communication? Purchase.
2/ Debtors are the internal users. False.
3/ External users often ask: How much a product price should be to maximize the
company’s profit? False.
4/ Taxing authorities are the information users from. External.
5/ Select the most ethical alternative when it is. Less harmful to stakeholders.
6/ Which statement is incorrect about IASB? Located at New York, USA.
7/ Which statement is correct about FASB? Determine US. GAAP.
8/ “The activities of the entity be kept separate from its owner’s and orther entities
activities” is belong to. Economic entity assumption.
9/ If at the end of the accounting period, the company’s liabilities total $19,000 and
its equity totals $40,000, then what must be the total of assets? $59,000.
10/ Which one is incorrect accounting equation? Assets = Liabilities – Equity.
11/ If during the current accounting period, the company’s assets increased by
$24,000 and equity increased by %5,000, then how did liabilities change?
Increased by $19,000.
12/ The first step of an accouting cycle is. Analyzing transaction effect.
13/ The owner invests a machinery into the business: increase assets, increase
equity.
14/ When cash is received form a customer in payment of an account receivable,
how are the elements of the accounting equation affected? Increase assets (cash)
and decrease assets (accounts receivable).
15/ Assume that a company’s beginning owner’s capital was $20,000. During the
period, withdrawals were $24,000, and the owner made additional investments
during the period of $50,000. The ending capital balance was $90,000. What was
the net income or net loss for the period? Net income, $44,000.
16/ Which of the following financial statements refers to a specific data (point in
time)? Statement of financial position.
17/ Which of the following finalcial statements refers to revenues, expenses and
profit (loss)? Income Statement.
18/ The company pays cash dividends to its shareholders will affect which of the
following? The statement of retained earnings and statement of financial
position only.
19/ The order of preparing financial statements is: income statement, statement of
retained earnings, statement of financial position.

CHAPTER 2 – THE RECORDING PROCESS

1/ Olivia, the propristor, deposited $40,000 in the company’s bank account. She
received the money as the result of a settlement of a class action lawsuit and
decided to invest it in her business to help with expansion. Recording the
transaction on the company books will require which of the following? An asset to
be debited, capital to be credited.
2/ On July 7, 2008, Reethink Enterprises performed cash services of $1,400. The
entry to record this transaction would include. A debit to Cash of $1,400.
3/ The double-entry system requires that each transaction must be recorded. In at
least two different accounts.
4/ The name given to entering transaction date in the journal is: journalizing.
5/ After transaction information has been recorded in the journal, it is transferred to
the: ledger; trial balance; income statement; or book of original entry? Ledger.
6/ The first step in the recording process is to: analyze each transaction for its
effect on the accounts.
7/ Which of the following statements is true? An account shows increases and
decreases and an acount balance.
8/ A list of accounts and their balances at a given time is called a(n): trial balance.
9/ Customarily, a trial balance is prepared: at the end of an accounting period.
10/ The steps in preparing a trial balance include all of the following except:
transferring journal amounts to ledger accounts.
11/ An account is a part of the financial information system and is described by all
except which one of the following: Debit side; Credidi side; Title; Document?
Document.
12/ Expenses are a negative factor in the computation of net income. True
13/ External users often ask: how much a product price should be to maximize the
company’s profit? False.
14/ For the basic accounting equation to stay in balance, each transaction recorded
must: affect two or more accounts.

CHAPTER 3 – Adjusting Accounts

1/ Accounts often need to be adjusted because: many transactions affect more
than one time period.
2/ Adjusting entries are: usually required before financial statements are
prepared
3/ Alpha Company collected £180,000 from customers in 2018. Of the amount
collected, £20,000 was for services performed in 2017. In addition, Alpha
performed services worth £80,000 in 2018, which will not be amount paid, £10,000
was for expenses incurred on account in 2017. In addition, Alpha incurred £60,000
of expenses in 2018, which will not be paid until 2019. 2018 accrual-basis net
income is: £50,000
4/ Adjuting entries are required: every time financial statements are prepared
5/ A company purchased a two-year fire insurance policy on May 1, 2011. It paid
the $2,400 premium in cash on the same date and recorded the entry with a debit to
Prepaid Insurance for $2,400. The company has adopted a 12-month accounting
period ending on January 31 of each year. If the company uses the accrual basic of
accounting, how much insurance expenses will be recorded for the periods ended
January 31,2012, and January 31,2013, respectively? $900 and $1,200
6/ Accumulated Depreciation is: a contra asset account
7/ Expenses paid and recorded as assets before they are used are called: prepaid
expenses
8/ If the adjusting entry for depreciation is not made: expenses will be understated
9/ Accrued revenues are: earned but not yet received or recorded
10/ Failure to prepare an adjusting entry at the end of the period to record an
accrued expense would cause: an understatement of expenses and an
understatement of liabilities
11/ If an adfusting entry is not made for an accrued revenue: owner’s equity will
be understated
12/ The accounts of bsiness before an adjusting entry is made to record an accrued
revenua reflect an to prepare an adjusting entry at the end of the period to record an
accrued expense would cause: understated asset and an understated revenua
13/ Can financial statements be prepared directly from the adjusted trial balance?
Yes, adjusting entries have been recorded in the general journal and posted to
the ledger accounts.
14/ The adjusted trial balance is prepared: after adjusting entries have been
journalized and posted.
15/ Which of the statements below is not true? An adjusted trial balance is
prepared before all transactions have been journalize

CHAPTER 4 – COMPLETING THE ACCOUNTING

CYCCLE
1/ A post – closing trial balance is prepared after closing entries have been
journalized and posted
2/ All of the following statements about the post – closing trial balance are correct
except it proves that all transactions have been recorded
3/ Closing entries are necessary for temporary accounts only
4/ Which of the following accounts is a temporary account? - Dividends
5/ Which of the following statements about the accounting cycle is false?
Financial statements are prepared before preparing the adjusted trial balance
6/ The final step in the accounting cycle is to prepare – a post closing trial balance
7/ The first required step in the accounting cycle is - analyzing transactions
8/ If errors occur in the recording process, they should be corrected as soon as
they are discovered
9/ A current asset is an asset that a company excepts to convert to cash or use
up within one year
10/ The current assets should be listed on Cerner’s statement of financial position
in the following order: cash, accounts receivable, prepaid insurance, equipment
11/ Liabilities are generally classified on a statement of financial position as
current liabilities and non current liabilities
12/ All of the following are property, plant, and equipment except supplies

CHAPTER 5: ACCOUNTING FOR MERCHANDISE

OPERATIONS
1/ Cost of goods sold is recorded with each sale

2/ Which of the following expressions is incorrect? Operating expenses - Cost of

goods sold = Gross profit.
3/ If net sales are $500,000, cost of goods sold is $430,000 and operating expenses
are $50,000, the gross profit is $70,000 ( 500,000 – 430,000 )
4/ Company A is taking the end-of-the-year physical inventory. Its accounting
period ends on December 31. Which of the following items would not be counted
in the ending inventory count?
Items sold on December 29 and shipped the same day where the purchaser is
responsible for paying the freight charge. The item arrived at its destination
on January 3.
5/ In a perpetual inventory system

6/ A retailer who uses a perpetual inventory system purchases $8,000 of

merchandise on credit. The credit terms were 2/10, n/30, FOB destination. The
freight costs were $130. What was the journal entry to record the purchase?
Merchandise Inventory, debit, $8,130; Accounts Payable, credit, $8,130.
7/ Bryan Company purchased merchandise from cates Company with freight terms
of FOB shipping point. The freight costs will be paid by the buyer
8/ A company uses the perpetual inventory system and makes a purchase of
inventory on open account. Which of the following is the corect journal entry to
record this purchase? A debit to Merchandise Inventory and a credit to
Accounts Payable
9/ When merchandise is purchased for resale, the Merchandise Inventory account
would be debited for such acquisition costs as the cost of the item itself and any
freight charges for which the purchaser is responsible. This procedure is an
application of which accounting principle? Historical cost principle.
10/ A sales invoice is a source document that provides evidence of credit Sales.

11/ In a perpetual inventory system, the Cost of Goods Sold account is used
whenever there is a sale of merchandise or a return of merchandise sold

12/ Sales revenues are usually considered EARNED when: goods have been
transferred from the seller to the buyer

13/ On June 7, N&N Company sold $2,600,000 ò merchandise on account to JMM

Company, The cost of the merchandise sold was $2,350,000. The journal entries to
record this transaction on W.B. Reind N&N Company’s books under a perpetual
inventory system as following Debit Accounts Receivable, $2,600,000; Credit
Sales Revenue $2,600,000 and Debit Cost of Goods Sold, $2,350,000; Credit
Inventory $2,350,000

14/ A merchandising company using a perpetual system will make one more
adjusting entry than a service company does.

15/ In preparing closing entries for a merchandising company, the Income

Summary account will be credited for the balance of sales

16/ A company understates its ending inventory by $5,000. It never discovers this
error. The company is a sole proprietorship. Which statement accurately describes
the company's permanent situation? Net income for the current year is
understated. Net income for the next year will be overstated by $5,000, but the
balance in the owner's equity account will be correct at the end of year 2.
17/ At the beginning of September 2008, RFI Company reported Merchandise
Inventory of $4,000. During the month, the company made purchases of $7,800. At
September 31, 2008, a physical count of inventory reported $3,200 on hand. Cost
of goods sold for the month is $8,600
18/ Cost of Goods available for sale is computed bt adding beginning inventory
to the cost of goods purchased

19/ Which of the following expenses would not generally be found in the General
and Administrative Expenses section of a multi-step income statement?
Advertising Expense

CHAPTER 6: INVENTORIES
1/ FOB Shipping Point means that the: Buyer pays the freight
2/ NJ CO. completed its inventory count. It arrived at a total inventory value of
$240,000. However, you have been given the information as follow: The physical
count of the inventory did not include goods costing $20,000 that were shipped to
AC FOB Shipping point on December 29th and were still in transit at year-end.
Besides, AC sold goods costing $35,000 to BB CO., FOB destination, on
December 31st. The goods were received at BB on January 2nd. They were not
included in BB's physical inventory. The correct inventory amount on December
31st is: $275,000
3/ When the weighted average method of perpetual inventory tracking is used, at
what point is the new average cost calculated, except? only at the end of the year
4/ Merchandise inventory is: reported as a current asset on the statement of
financial position
5/ The cost flow method that often parallels the actual physical flow of
merchandise is the: FIFO method
6/ A company's ending inventory amount is overstated by 10,000. What will be the
effect of this overstatement on COGS and Net income? COGS is understated by
10,000 and Net income is overstated by 10,000
7/ At March 1st, 2019, XYZ Company had beginning inventory consisting of 80
units with an unit cost of $120. During March. the company purchased inventory as
follows: (1) 50 units at $115 (2) 100 units at $120 (3) 120 units at $125. At the end
of the month, XYZ had 180 units in ending inventory. XYZ uses a periodic
inventory system. The COGS under FIFO is: $20,150
8/ Beginning Inventory plus the cost of goods purchased equals cost of goods
available for sale
9/ In periods of rising prices, the inventory method which results in the inventory
value on the statement of financial position that is closest to current cost is the:
FIFO method
10/ If beginning inventory is understated by $15,000, the effect of this error in the
current period is: COGS is understated by $15,000, Net income is overstated by
$15,000
11/ Overstating ending inventory will overstate all of the following except: COGS
12/ Sam's Used Cars uses the specific identification method of costing inventory.
During March, Sam purchased three cars for $6,000, $7,500, $9,750, respectively.
During March, two cars are sold for $9,000 each. Sam determines that at March
31st, the $9,750 car is still on hand. What is Sam's gross profit for March? $4,500
Ending Inventory=$9,750 [reality]
Ending Inventory = ($6,000+$7,500+$9,750) - ($9,000+$9,000) = $14,250
so, Gross Profit = $14,250 - $9,750 = $4,500
13/ Understating beginning inventory will understate: COGS
14/ A company purchased inventory as follows: 200 units at $10, 300 units at $12.
The average unit cost for inventory is: $11,2 [(200$10)+(300$12)]/500
15/ Disclosures about inventory should include each of the following except:
quantity of inventory
16/ In a perpetual inventory system: FIFO cost of goods sold will be the same as
in a periodic inventory system