Reviewer in Accounting

Lesson 1: A Review
1. Owner's equity is often referred to as: residual equity.
2. Which of the following events is not a business transaction? Hired employees
3. As of December 31, 2020, Anders Company has assets of $35,000 and owner's equity of $20,000.
What are the liabilities for Anders Company as of December 31, 2020? $15,000
4. If the owner's equity account increases from the beginning of the year to the end of the year, then
- net income is greater than owner drawings.
5. Joan and Sara met at law school and decide to start a small law practice after graduation. They
agree to split revenues and expenses evenly. The most common form of business organization for
a business such as this would be a. partnership.
6. Which of the following is not an advantage of the corporate form of business organization?
- Unlimited personal liability for stockholders
7. Communication of economic events is the part of the accounting process that involves
- preparing accounting reports.
8. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the
accounting process? Recording
9. Owner's equity is best depicted by the following: Residual Equity
10. The Ryder’s Uptown Grill received a bill of $400 from the Erml Advertising Agency. The owner,
John Ryder, is postponing payment of the bill until a later date. The effect on specific items in the
basic accounting equation is:
- an increase in Accounts Payable and a decrease in J. Ryder, Capital.
11. The partnership form of business organization
- is a common form of organization for service-type businesses.
12. The process of recording transactions has become more efficient because.
- computers are used in processing business events.
13. The basic accounting equation cannot be restated as: Assets + Liabilities = Owner's Equity.
14. GAAP stands for Generally Accepted Accounting Principles.
15. When recording the financial transactions of Smitty's, Deb does not record an entry for a car she
purchased for personal use. Deb took out a personal loan to pay for the car. What accounting
concept guides Deb's behavior in this situation? Economic entity assumption
16. The primary purpose of the statement of cash flows is to report
-  information about cash receipts and cash payments of a company.
17. Collection of a $500 Accounts Receivable increases an asset $500; decreases an asset $500.
18. The origins of accounting are generally attributed to the work of Luca Pacioli.
19. Owner's equity can be described as ownership claim on total assets.
20. A basic assumption of accounting assumes that the peso is
- the common unit of measure for all business transactions.
21. All of the following are advantages cost has over other valuations except that it  is relevant.
22. A business organized as a corporation is owned by its stockholders.
23. The proprietorship form of business organization
- represents the largest number of businesses in the Philippines.
24. Liabilities of a company would not include cash.
25. An income statement presents the revenues and expenses for a specific period of time.
26. Owner's capital at the end of the period is equal to
- The correct answer is: owner's capital at the beginning of the period plus net income minus
drawings.
27. Revenues would not result from initial investment of cash by owner.
28. The economic entity assumption requires that the activities
- of an entity be kept separate from the activities of its owner.
29. The basic accounting equation may be expressed as
- Assets = Liabilities + Owner's Equity. Assets = Equities.
30. A balance sheet shows assets, liabilities, and owner's equity.
31. Liabilities are existing debts and obligations.
32. James Company purchases $600 of equipment from Mundelein Inc. for cash. The effect on the
components of the basic accounting equation of James Company is no change in total assets
33. Which of the following would not be considered an external user of accounting data for the XYZ
Company? Management
34. A business that enjoys limited liability is a  corporation.
35. Financial accounting provides economic and financial information for all of the following except
managers.
36. If services are rendered for credit, then owner's equity will increase.
37. The balance sheet is frequently referred to as the statement of financial position.
38. Which of the following events cannot be quantified into peso and cents and recorded as an
accounting transaction? The appointment of a new CPA firm to perform an audit.
39. Liabilities of a company are owed to creditors.
40. Owner's equity is decreased by all of the following except owner's investments.
41. The common characteristic possessed by all assets is future economic benefit.
42. Which of the following would not be considered an internal user of accounting data for the XYZ
Company? President of the employees' labor union
43. When an owner withdraws cash or other assets from a business for personal use, these
withdrawals are termed drawings.
44. A net loss will result during a time period when expenses exceed revenues.
45. A small neighborhood barber shop that is operated by its owner would likely be organized as a
-  proprietorship.
46. The accounting process involves all of the following except
- recording non-quantifiable economic events.
47. The accounting process is correctly sequenced as  identification, recording, communication.
48. Accountants refer to an economic event as a  transaction.
49. During the year 2020, Toronto Enterprises earned revenues of $45,000, had expenses of $25,000,
purchased assets with a cost of $5,000 and had owner drawings of $3,000. Net income for the
year is $20,000.
50. A basic assumption of accounting that requires activities of an entity be kept separate from the
activities of its owner is referred to as the economic entity assumption.
Lesson 2: The Recording Process
1. In accounting the terms debit and credit mean left and right respectively. 'True'.
2. The double-entry system is a logical method for recording transactions and results in equal
debits and credits for each transaction. 'True'.
3. Revenue accounts normally have debit balances.  'False'.
4. The normal balance of an expense is a credit.  'False'.
5. The expanded basic equation is:  Assets = Liabilities + Owner’s Capital + Owner’s Drawing  +
Revenues - Expenses.  'False'.
6. The journal discloses in one place the complete effect of a transaction.  'True'.
7. The journal provides a chronological record of transactions.  'True'.
8. Separate journal entries are made for each transaction.  'True'.
9. The general journal is the most basic form of journal. 'True'.
10. A ledger is a list of accounts and their balances at a given time. 'False'.
11. The ledger is merely a bookkeeping device and therefore does not provide much useful data for
management.  'False'.
12. The standard form of ledger account has three money columns for debit, credit, and balance
-  'True'.
13. Posting is the procedure of entering transaction data in the general journal.  'False'.
14. The chart of accounts is a listing of the accounts and the account numbers which identify their
location in the ledger.  'True'.
15. The purpose of transaction analysis is to first identify the type of account involved and then
identify whether a debit or a credit to the account is required.  'True'.
16. A trial balance lists the accounts and their location in the ledger.  'False'.
17. The primary purpose of a trial balance is to prove the mathematical equality of the debits and
credits after posting.  'True'.
18. A trial balance is usually prepared daily. 'False'.
19. A trial balance does not prove that all transactions have been recorded or that the ledger is
correct.  'True'.
20. The trial balance will not balance when incorrect account titles are used in journalizing or
posting. 'False'.
21. An account is an individual accounting record of increases and decreases in specific:
- assets, liabilities, and owner’s equity items
22. Credits: decrease assets and increase liabilities.
23. An account which is increased by a credit is: a liability account.
24. Which of the following rules is incorrect? Debits increase the capital account.
25. An account which is increased by a debit is a: drawing account.
26. An account which is increased by a credit is a(n): revenue account.
27. Which of the following is the correct sequence of steps in the recording process?
- Analyzing, journalizing, posting.
28. The column in the general journal which is not used during journalizing is the:
- reference column.
29. Which of the following is a false statement?
- A compound entry is when two or more accounts are required in one journal entry.
30. Which of the following is not considered a significant contribution of the journal to the recording
process?
- The journal provides a means of accumulating in one place all the information about changes in
account balances.
31. McClory Company purchases equipment for $900 and supplies for $300 from Rudnicky Co. for
$1,200 cash.  The entry for this transaction will include a:
- debit to Equipment $900 and a debit to Supplies $300 for McClory.
32. Laventhol Company sells $300 of equipment to Reiner Company on credit.  Reiner will enter
the transaction in the journal with a: credit to Accounts Payable and a debit to Equipment.
33. Szykowny Co. buys a machine from Scott Company paying half in cash and putting the balance
on account.  The journal entry for this transaction by Szykowny will include a:
- credit to Accounts Payable and a credit to Cash.
-
 34. Hrubec Company pays $900 cash for a one-year insurance policy on July 1, 2020.  The
policy will expire on June 30, 2005.  The entry on July 1, 2020 is:
- Debit Insurance Expense $900; credit Cash $900., Debit Prepaid Insurance $900; credit Cash
$900.
35. Kevin Walsh withdraws $300 cash from his business for personal use.  The entry for this
transaction will include a debit of $300 to: Kevin Walsh, Drawing.
36. Vicki Wagner Dance Studio bills a client for dancing lessons earned during the past week. 
The journal entry will include a credit to: Dance Fees Earned.
37. Golden Pork Company receives $400 from a customer on October 15 in payment of
balance due for services billed on October 1.  The entry by Golden Pork Company will
include a credit of $400 to: Accounts Receivable.
38. On October 3, Mike Baker, a carpenter, received a cash payment for services previously
billed to a client.  Mike paid his telephone bill, and he also bought equipment on credit.  For
the three transactions, at least one of the entries will include a: credit to Accounts Payable.
39. The chart of accounts is a:
- listing of the accounts and the account numbers which identify their location in the ledger.
40. A trial balance will not balance if: a journal entry is only partially posted.

41. Journal. → An accounting record in which transactions are initially recorded in chronological
order.,
42. Journalizing. → The procedure of entering transaction data in the journal.,
43. Chart of accounts. → A list of accounts and the account numbers which identify their
location in the ledger.,
44. Account → An individual accounting record of increases and decreases in a specific asset,
liability, or owner’s equity item.,
45. Posting → The procedure of transferring journal entries to the ledger accounts.,
46. Debit. → The left side of an account.,
47. Trial balance. → A list of accounts and their balances at a given time.,
48. Double-entry system. → A system that records the dual effect of each transaction in
appropriate accounts.,
49. T-account. → The form of an account with a title and a left or debit side and a right or credit
side.,
50. Credit. → The right side of an account.,
51. Ledger. → The entire group of accounts maintained by a company.
Reasons why we need to adjust entries:

1. Some income accounts already earned have not been recorded in the books.

2. Some expense accounts already incurred have not been recorded in the books.

3. Some income and expense accounts include portions that are still unearned or unexpired.

4. Some liability accounts include portions already earned

5. Some asset accounts include portions already expired.

Adjusting entries are journal entries made at the end of the accounting period to update the balances of some accounts
in order to present more fairly and more accurately the results of operations and financial condition of the business.

A business may employ one of the two methods of keeping the books of accounts;

1. Cash basis- income is recorded only when cash is received and expense is recorded only when paid.

2. Accrual basis- income is recorded at the time goods or services are rendered, whether or not cash

is received, and expense is recorded when incurred, whether cash is paid or not.

a. A certain percent of Accounts Receivable

Accounts Receivable xx
x Rate of loss %
Required Allowance xx
Less: Recorded Allowance xx
Bad Debts Expense xx
b. A certain percent of Service Income
Service Income xx
x Rate of loss %
Bad Debts Expense xx

In order to properly compute the amount of depreciation to be charged as expense during an

accounting period, three factors are necessary, namely:
a. Depreciation base
b. Scrap value
c. Estimated useful life
The simplest and frequently used method of depreciation is called the straight-line method. The
formula is;
Depreciation per year = Cost- Scrap Value
Estimated Life
Entry: Depreciation- Building xx
Accumulated Depreciation- Building xx
Treatments:
Depreciation- Operating Expense
Accumulated Depreciation- Contra-asset account/Valuation account

Prepaid expense is an economic benefit that has been paid for in advance of its use. At the time of payment, an asset is
acquired that will expire or be used up and it becomes an expense.

Two methods that can be used:

a. Asset method. Under this method, the original entry
made is charged to an asset account. At the end of the period, the expense portion is set up.

b. Expense method. Under this method, expense account is charged when payment is made. At the end of the period,
the asset portion is set up.
 TRANSACTION ASSET METHOD EXPENSE METHOD
1. Payment of Prepaid Expense xx Expense xx
expense Cash xx Cash xx

Payment of expense. Payment of expense.

2. Adjusting entry. Expense xx Prepaid Expense xx
Prepaid Expense xx Expense xx

Expense for the Prepaid expense.

period
Precollected/Unearned/Deferred Incomes- are items representing some cash or property received, the
earnings or realization of which covers a period extending the current or present period. These are also
called deferred credits.
Income collected in advance maybe recorded originally to a liability or real account, or to an
income or nominal account.
At the end of the accounting period, the pre-collected incomes are divided into their component
liability (real) and income(nominal) elements by means of adjusting entries. In the adjusting process,
the liability must be presented by a real account title and the income portion by a nominal account title.

TRANSACTION LIABILITY METHOD REVENUE METHOD

a) Collection of Cash xx Cash xx
income. Liability Account xx Income Account xx

Cash receipts Cash receipts..

b) Adjusting entry Liability Account xx Income Account xx
Income Account xx Liability Account xx

Income earned. Unearned income.