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Principles of Accounting, Volume 1: Financial Accounting

Multiple Choice

Principles of Accounting, Volume 1: Financial AccountingMultiple Choice
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1.

LO 3.1That a business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally, is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
2.

LO 3.1That companies can present useful information in shorter time periods such as years, quarters, or months is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
3.

LO 3.1The system of using a monetary unit, such as the US dollar, to value the transaction is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
4.

LO 3.1Which of the following terms is used when assuming a business will continue to operate in the foreseeable future?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
5.

LO 3.1The independent, nonprofit organization that sets financial accounting and reporting standards for both public- and private-sector businesses that use generally accepted accounting principles (GAAP) in the United States is which of the following?

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
6.

LO 3.1The standards, procedures, and principles companies must follow when preparing their financial statements are known as which of the following?

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
7.

LO 3.1These are used by the FASB, and it is a set of concepts that guide financial reporting.

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
8.

LO 3.1This is the independent federal agency protecting the interests of investors, regulating stock markets, and ensuring companies adhere to GAAP requirements.

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
9.

LO 3.1Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
10.

LO 3.1Which of the following is the principle that a business must report any business activities that could affect what is reported on the financial statements?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
11.

LO 3.1Also known as the historical cost principle, ________ states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition.

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
12.

LO 3.1Which of the following principles matches expenses with associated revenues in the period in which the revenues were generated?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
13.

LO 3.2Which of the following does not accurately represent the accounting equation?

  1. Assets – Liabilities = Stockholders’ Equity
  2. Assets – Stockholders’ Equity = Liabilities
  3. Assets = Liabilities + Stockholders’ Equity
  4. Assets + Liabilities = Stockholders’ Equity
14.

LO 3.2Which of these statements is false?

  1. Assets = Liabilities + Equity
  2. Assets – Liabilities = Equity
  3. Liabilities – Equity = Assets
  4. Liabilities = Assets – Equity
15.

LO 3.2Which of these accounts is an asset?

  1. Common Stock
  2. Supplies
  3. Accounts Payable
  4. Fees Earned
16.

LO 3.2Which of these accounts is a liability?

  1. Accounts Receivable
  2. Supplies
  3. Salaries Expense
  4. Accounts Payable
17.

LO 3.2If equity equals $100,000, which of the following is true?

  1. Assets exceed liabilities by $100,000.
  2. Liabilities exceed equity by $100,000.
  3. Assets + liabilities equal $100,000.
  4. None of the above is true.
18.

LO 3.3Which process of the accounting cycle often requires the most analytical thought?

  1. making a journal entry
  2. posting transactions to accounts
  3. summarizing the trial balance
  4. preparing the financial statements
19.

LO 3.3The step-by-step process to record business activities and events to keep financial records up to date is ________.

  1. day-to-day cycle
  2. accounting cycle
  3. general ledger
  4. journal
20.

LO 3.3One operating cycle of a business, which could be a month, quarter, or year, is commonly referred to as which of the following?

  1. period
  2. round
  3. tally
  4. mark
21.

LO 3.3 ________ takes all transactions from the journal during a period and moves the information to a general ledger (ledger).

  1. Hitching
  2. Posting
  3. Vetting
  4. Laxing
22.

LO 3.4Which of these events will not be recognized?

  1. A service is performed, but the payment is not collected on the same day.
  2. Supplies are purchased. They are not paid for; the company will be billed.
  3. A copy machine is ordered. It will be delivered in two weeks.
  4. Electricity has been used but has not been paid for.
23.

LO 3.4A company purchased a building twenty years ago for $150,000. The building currently has an appraised market value of $235,000. The company reports the building on its balance sheet at $235,000. What concept or principle has been violated?

  1. separate entity concept
  2. recognition principle
  3. monetary measurement concept
  4. cost principle
24.

LO 3.4What is the impact on the accounting equation when a current month’s utility expense is paid?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
25.

LO 3.4What is the impact on the accounting equation when a payment of account payable is made?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
26.

LO 3.4What is the impact on the accounting equation when an accounts receivable is collected?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. the total of neither side changes
27.

LO 3.4What is the impact on the accounting equation when a sale occurs?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
28.

LO 3.4What is the impact on the accounting equation when stock is issued, in exchange for assets?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
29.

LO 3.5Which of the following accounts is increased by a debit?

  1. Common Stock
  2. Accounts Payable
  3. Supplies
  4. Service Revenue
30.

LO 3.5Which of the following accounts does not increase with a debit entry?

  1. Retained Earnings
  2. Buildings
  3. Prepaid Rent
  4. Electricity Expense
31.

LO 3.5Which of the following pairs increase with credit entries?

  1. supplies and retained earnings
  2. rent expense and unearned revenue
  3. prepaid rent and common stock
  4. unearned service revenue and accounts payable
32.

LO 3.5Which of the following pairs of accounts are impacted the same with debits and credits?

  1. Cash and Unearned Service Revenue
  2. Electricity Expense and Office Supplies
  3. Accounts Receivable and Accounts Payable
  4. Buildings and Common Stock
33.

LO 3.5Which of the following accounts will normally have a debit balance?

  1. Common Stock
  2. Fees Earned
  3. Supplies
  4. Accounts Payable
34.

LO 3.5What type of account is prepaid insurance?

  1. Stockholders’ Equity
  2. Expense
  3. Liability
  4. Asset
35.

LO 3.5Unearned service revenue occurs when which of the following occurs?

  1. company receives cash from a customer before performing the service
  2. company pays cash before receiving a service from a supplier
  3. company pays cash after receiving a service from a supplier
  4. company receives cash from a customer after performing a service
36.

LO 3.5Which set of accounts has the same type of normal balance?

  1. Cash, accounts payable
  2. Prepaid rent, unearned service revenue
  3. Dividends, common stock
  4. Accounts payable, retained earnings
37.

LO 3.5Which of these transactions requires a debit entry to Cash?

  1. paid balance due to suppliers
  2. sold merchandise on account
  3. collected balance due from customers
  4. purchased supplies for cash
38.

LO 3.5Which of these transactions requires a credit entry to Revenue?

  1. received cash from services performed this month
  2. collected balance due from customers
  3. received cash from bank loan
  4. refunded a customer for a defective product
39.

LO 3.5Which of these accounts commonly requires both debit and credit entries?

  1. Sales Revenue
  2. Utilities Expense
  3. Accounts Receivable
  4. Common Stock
40.

LO 3.5Which of the following accounting records is the main source of information used to prepare the financial statements?

  1. journal entries
  2. T-accounts
  3. trial balance
  4. chart of accounts
41.

LO 3.5Which of the following financial statements should be prepared first?

  1. Balance Sheet
  2. Income Statement
  3. Retained Earnings Statement
  4. Statement of Cash Flows
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