Test your Financial Accounting knowledge on the following multiple choice questions. No one is looking over your shoulder. See if you can answer all correctly the first time through. If not, go back to the text, review questions, then try them again until you can answer all questions completely. These questions are for students preparing to take NACM Certification exams or who have the completed CAP FACM course.
A profit making business operating as a separate legal entity and in which ownership is divided into shares of stock is known as a:
Proprietorship
Service Business
Partnership
Corporation
The resources owned by a business are called:
Assets
Liabilities
The accounting Equation
Owner's Equity
A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is:
a balance sheet
an income statement
a statement of owner's equity
a statement of cash flows
If total assets increased $20,000 during a period and total liabilities increased $12,000 during the same period, the amount and direction (increase or decrease) of the change in owner's equity for that period is:
a $32,000 increase
a $32,000 decrease
an $8,000 increase
an $8,000 decrease
If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the amount of net income or net loss would be:
$45,000 net income
$7,500 net income
$37,500 net loss
$2,500 net loss
A debit may signify:
an increase in an asset account
a decrease in an asset account
an increase in a liability account
an increase in the owner's capital account
The type of account with a normal credit balance is:
an asset
drawing
a revenue
an expense
A debit balance in which of the following accounts would indicate a likely error?
accounts receivable
cash
fees earned
miscellaneous expense
The receipt of cash from customers in payment of their accounts would be recorded by a:
debit to cash; credit to accounts receivable
debit to accounts receivable; credit to cash
debit to cash; credit to accounts payable
debit to accounts payable; credit to cash
The form listing the titles and balances of the accounts in the ledger on a given date is the:
income statement
balance sheet
statement of owner's equity
trial balance
Which of the following items represents a deferral?
prepaid insurance
wages payable
fees earned
accumulated depreciation
If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and supplies on hand at May 31 totaled $950, the adjusting entry would be:
The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and income statement for December is:
assets understated $600; net income overstated $600
liabilities understated $600; net income understated $600
liabilities overstated $600; net income understated $600
liabilities overstated $600; net income overstated $600
If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to record depreciation would be:
If the equipment account has a balance of $22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the equipment is:
$36,500
$22,500
$14,000
$8,500
Which of the following accounts in the adjusted trial balance columns of the work sheet would be extended to the balance sheet columns:
Utilities expense
Rent revenue
Owner Drawing
Miscellaneous expense
Which of the following accounts would be classified as a current asset on the balance sheet?
office equipment
land
accumulated depreciation
accounts receivable
Which of the following entries closes the owner's drawing account at the end of the period?
debit the drawing account, credit income summary account
debit the owner's capital account, credit the drawing account
debit the income summary account, credit the drawing account
debit the drawing account, credit the owner's capital account
Which of the following accounts would not be closed to the income summary account at the end of a period?
fees earned
wages expense
rent expense
accumulated depreciation
Which of the following accounts would not be included in a post-closing trial balance?
cash
fees earned
accumulated depreciation
owner's equity
The policies and procedures used by management to protect assets from misuse, ensure accurate business information, and ensure compliance with laws and regulations re called:
internal controls
systems analysis
systems design
systems implementation
A payment of cash for the purchases of services should be recorded in the:
purchases journal
cash payments journal
revenue journal
cash receipts journals
When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called:
a subsidiary ledger
a creditors ledger
an accounts payable ledger
an accounts receivable ledger
If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing:
a debit memorandum
a credit memorandum
an invoice
a bill
If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early payment would be:
$0
$5.00
$10.00
$10.50
The income statement in which the total of all expenses is deducted from the total of all revenues is terms:
multiple-step form
single-step form
account form
report form
On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called:
operating income
income from operations
gross profit
net income
Which of the following expenses would normally be classified as Other or Non Operating expense on a multiple-step income statement?
depreciation expense - office equipment
sales salaries expense
insurance expense
interest expense
A petty cash fund is:
used to pay relatively small amounts
established by estimating the amount of cash needed for disbursement of relatively small amounts during a specified period
reimbursed when the amount of money in the fund is reduced to a predetermined minimum amount
All of the proposed answers
At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible accounts expense is:
$2,500
$6,000
$8,500
$11,000
At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable is:
$7,000
$93,000
$100,000
$107,000
What is the maturity value of a 90-day, 12% note for $10,000?
$8,800
$10,000
$10,300
$11,200
What is the due date of a $12,000, 90-day, 8% note receivable dated August 5?
October 31
November 2
November 3
November 4
When a note receivable is dishonored, Accounts receivable is debited for what amount?
the face value of the note
the maturity value of the note
the maturity value of the note less accrued interest
the maturity value of the note plus accrued interest
If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:
understatement of cost of merchandise sold for the year by $7,500
overstatement of gross profit for the year by $7,500
overstatement of merchandise inventory for the year by $7,500
understatement of net income for the year by $7,500
The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is:
FIFO
LIFO
average cost
perpetual inventory
The following units of a particular item were purchased and sold during the period: Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 First sale 110 units Third purchase 50 units at $23 Second sale 45 units
What is the cost of the 35 units on hand at the end of the period as determined under the perpetual inventory system by the LIFO costing method?
$715
$705
$700
$805
The following units of a particular item were available for sale during the period:
Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 Third purchase 50 units at $23
What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the FIFO costing method?
$20
$21
$22
$23
If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is:
LIFO
FIFO
average
periodic
Which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account?
Freight
Installation costs
Both
Neither one
An example of an accelerated depreciation method is:
Straight-line
Declining-balance
Units-of-production
Depletion
Which of the following is an example of an intangible asset?
Patents
goodwill
copyrights
all possible answers
A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is:
$4,900
$5,000
$5,100
$5,600
The three forms business organizations are single proprietorship, partnership, and trust
True
False
The three most common types of business activity are service, merchandising, and manufacturing.
True
False
The income statement shows the profitability of the company and is dated as of a particular date, such as December 31, 2010.
True
False
The statement of equity shows both the net income for the period and the beginning and ending balances of equity.
True
False
The balance sheet contains the same major headings as appear in the accounting equation.
True
False
All of the steps in the accounting cycle are performed only at the end of the accounting period.
True
False
A transaction must be journalized in the journal before it can be posted to the ledger accounts.
True
False
The left side of any account is the credit side.
True
False
Revenues, liabilities and equity accounts are increased by debits.
True
False
If the trial balance has equal debit and credit totals, it cannot contain any errors.
True
False
Every adjusting entry affects at lease one income statement account and one balance sheet account.
True
False
All calendar years are also fiscal years, but not all fiscal years are calendar years.
True
False
The accumulated depreciation account is an asset account that shows the amount of depreciation for the current year only.
True
False
The Unearned Fees account is a revenue account.
True
False
If all of the adjusting entries are not made, the financial statements are incorrect.
True
False
At the end of the accounting period, three trial balances are prepared.
True
False
The amounts in the Adjustments columns are always added to the amounts in the Trial Balance columns to determine the amounts in the Adjusted Trial Balance columns.
True
False
If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit column.
True
False
After the closing process is complete, no balance can exist in any revenue, expense, or income summary account.
True
False
The post-closing trial balance may contain revenue and expense accounts.
True
False
All accounting systems currently in use are computerized.
True
False
To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross sales.
True
False
Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale.
True
False
Purchase discounts and purchase returns and allowances are recorded in contra accounts to the purchases account.
True
False
In taking a physical inventory, consigned goods are usually not included in the ending inventory, but merchandise in transit is included.
True
False
A multi-step income statement consists of only two categories of items, revenues and expenses
True
False
Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross profit and net income.
True
False
In a period of rising prices, FIFO results in the lowest cost of goods sold.
True
False
Under Lower of Cost or Market, inventory is written down to market value when the market value is less than the cost, and inventory is written up to market value when the market value is greater than the cost.
True
False
Under perpetual procedure, cost of goods sold is determined as a result of the closing entries made at the end of the period.
True
False
The percentage-of-sales method estimates the uncollectible accounts from the ending balance in accounts receivable.
True
False
Under the allowance method, uncollectible accounts expense is recognized when a specific customer's account is written off.
True
False
Liabilities result from some future transaction.
True
False
Current Liabilities are classified as clearly determinable, estimated and contingent.
True
False
The purchase price of land includes its purchase price and other related costs, including the cost of removing an old unusable building that is on the land.
True
False
Depreciation is the process of valuation of an asset to arrive at its market value.
True
False
The purpose of depreciation accounting is to provide the case required to replace plant assets.