test 1 Flashcards by Prince Ndahiriwe

Which of the following is not a classification on a classified balance sheet?

Revenues

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Current assets are listed in order of liquidity on the balance sheet. (T/F)

True

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Which of the following is a common type of current asset?

Accounts receivable

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Intangible assets have no physical substance and include patents, copyrights, and goodwill. (T/F)

True

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Equipment would be classified under:

Property, plant, and equipment

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Accounts payable is an example of a current liability. (T/F)

True

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Which of the following is a long-term liability?

Mortgage payable (due in 10 years)

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Unearned service revenue is classified as:

Current liability

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Working capital is calculated as Current Assets – Current Liabilities. (T/F)

True

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If current liabilities exceed current assets, working capital is:

Negative

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The current ratio is a measure of:

Liquidity

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A higher current ratio indicates stronger short-term liquidity. (T/F)

True

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Which of the following is not a standard-setting body?

Federal Reserve Board (FRB)

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The IASB develops standards known as:

IFRS

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Debits increase assets and decrease liabilities. (T/F)

True

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Which of the following accounts normally has a credit balance?

Accounts payable

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The double-entry system requires that debits equal credits. (T/F)

True

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Which of the following is part of the accounting cycle?

All of the above

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The ledger contains:

All asset, liability, equity, revenue, and expense accounts

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Posting is the process of transferring journal entry amounts to ledger accounts. (T/F)

True

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Which financial statement assumption divides the life of a business into artificial periods?

Periodicity assumption

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Revenue is recognized when:

Services are performed

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Under accrual-basis accounting, companies record events in the periods in which they occur. (T/F)

True

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Which type of adjusting entry would be used for rent collected in advance?

Unearned revenue

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Interest is calculated as Face Value × Annual Rate × Time in Years. (T/F)

True

Which body oversees U.S. financial markets and accounting standard-setting bodies?

SEC

The PCAOB determines auditing standards in the U.S. and reviews auditing firms. (T/F)

True

Which of the following accounts would appear under stockholders’ equity?

Common stock

Retained earnings is classified under:

Stockholders’ equity

Cash-basis accounting is in accordance with GAAP. (T/F)

False

Which basis of accounting often produces misleading financial statements?

Cash-basis

Which of the following is an example of an adjusting entry?

Recording depreciation

Adjusting entries are required every time a company prepares financial statements. (T/F)

True

Which type of adjusting entry is 'supplies used during the period'?

Prepaid expense

Accrued revenues are revenues earned but not yet recorded. (T/F)

True

A company earns interest of $200 but has not yet received payment. What type of adjusting entry is this?

Accrued revenue

A fiscal year is defined as:

Any accounting period one year in length

The five-step revenue recognition process begins with identifying the contract with customers. (T/F)

True

Which step of the revenue recognition process involves determining the transaction price?

Step 3

CBS sells advance advertising services on May 1 for services provided in June. When should revenue be recognized?

End of June

In the Conrad Window Cleaners example, when cleaning is performed June 30 and cash is received July 5, revenue is recognized June 30. (T/F)

True

Which of the following best describes accrued expenses?

Expenses incurred but not yet paid

The normal balance of an asset is a debit. (T/F)

True

Which of the following accounts normally has a debit balance?

Dividends

Which account would not appear on the balance sheet?

Service revenue

The ledger proves the balance in each account and tracks changes in balances. (T/F)

True

The formula for interest expense is:

Face Value × Annual Interest Rate × Time in Years

Which timing concept states that companies record transactions in the period they occur?

Accrual-basis accounting

Rent collected in advance is an example of unearned revenue. (T/F)

True

Which of the following is a prepaid expense?

Supplies purchased but not yet used

Which of the following is an intangible asset?

Land is classified as a current asset. (T/F)

False

Accumulated depreciation—equipment is classified as:

Contra asset

Bonds payable due in 20 years are classified as long-term liabilities. (T/F)

True

Which of the following is a profitability ratio?

Earnings per share (EPS)

Liquidity ratios measure short-term ability to pay obligations. (T/F)

True

Solvency ratios measure:

Ability to meet long-term obligations

Which ratio uses the formula Net Income ÷ Average Common Shares Outstanding?

Earnings per share

Debits decrease stockholders’ equity. (T/F)

True

Which account normally has a credit balance?

Retained earnings

Which of the following would be considered an accrued expense?

Salaries payable

Prepaid rent is classified as a liability. (T/F)

False

Unearned revenue is:

A liability

Expenses decrease stockholders’ equity. (T/F)

True

Which of the following is considered an operating activity?

Paying salaries

The income statement reports revenues and expenses for a specific period. (T/F)

True

Which financial statement shows assets, liabilities, and equity at a point in time?

Balance sheet

Retained earnings are reported on both the retained earnings statement and the balance sheet. (T/F)

True

Which financial statement explains where cash came from and how it was used?

Statement of cash flows

Revenues increase stockholders’ equity. (T/F)

True

The normal balance of revenue accounts is:

Credit

Dividends are considered an expense of the business. (T/F)

False

If revenues exceed expenses, the result is:

Net income

The periodicity assumption allows business activities to be divided into months, quarters, or years. (T/F)

True

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Expense recognition principle

Which assumption states that every economic entity can be separately identified?

Economic entity assumption

The going concern assumption assumes that a company will remain in operation for the foreseeable future. (T/F)

True

Which assumption requires that only things that can be expressed in money be included in accounting records?

Monetary unit assumption

GAAP requires the use of the accrual basis of accounting. (T/F)

True

Which principle requires that companies disclose all circumstances and events that would make a difference to financial statement users?

Full disclosure principle

Historical cost principle requires that assets be recorded at their fair market value. (T/F)

False

Which of the following accounts is a liability?

Accounts payable

Accounts receivable is the right to receive money in the future from a customer. (T/F)

True

Which account is an asset?

Supplies

Expenses are the cost of assets consumed or services used in the process of earning revenue. (T/F)

True

Which of the following decreases stockholders’ equity?

Expenses

Liabilities are creditors’ claims on total assets. (T/F)

True

Dividends reduce:

Retained earnings

Service revenue is an expense account. (T/F)

False

The accounting equation is:

Assets = Liabilities + Stockholders’ Equity

Increases in assets are recorded as credits. (T/F)

False

Which account normally has a debit balance?

Cash

Notes payable is an example of a liability. (T/F)

True

Which financial statement would show net income or net loss for a period?

Income statement

The retained earnings statement reports changes in retained earnings over a period. (T/F)

True

Which of the following is not a component of stockholders’ equity?

Accounts receivable

Adjusting entries always affect one balance sheet account and one income statement account. (T/F)

True

If total assets are $100,000 and total liabilities are $40,000, what is stockholders’ equity?

$60,000

The trial balance proves that debits equal credits. (T/F)

True

Which of the following is prepared first in the accounting cycle?

Journal entries

test 1 Flashcards

(100 cards)