Fundamentals of Accounting Theories

1. Adjusting entries are a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only.

b. Accrual-basis accounting is the method

required by generally accepted accounting principles. c. Accrual-basis accounting recognizes expenses when they are paid. d. Accrual-basis accounting follows the matching principle. 7. The revenue recognition principle dictates that revenue be recognized in the accounting period a. before it is earned. b. after it is earned. c. in which it is earned. d. in which it is collected. 8. An expense is recorded under the cash basis only when a. services are performed. b. it is earned. c. cash is paid. d. it is incurred. 9. For prepaid expense adjusting entries a. an expenseliability account relationship exists. b. prior to adjustment, expenses are overstated and assets are understated. c. the adjusting entry results in a debit to an expense account and a credit to an asset account. d. none of these. 10. Expenses paid and recorded as assets before they are used are called a. accrued expenses. b. interim expenses. c. prepaid expenses. d. unearned expenses. 11. An account is an individual accounting record of increases and decreases in specific a. liabilities. b. assets. c. expenses. d. assets, liabilities, and owner's equity items.

2. If an adjusting entry is not made for an accrued

revenue, a. assets will be overstated. b. expenses will be understated. c. owner's equity will be understated. d. revenues will be overstated.

3. If an adjusting entry is not made for an accrued

expense, a. expenses will be overstated. b. liabilities will be understated. c. net income will be understated. d. owner's equity will be understated.

4. Financial statements are prepared directly from the a. general journal. b. ledger. c. trial balance. d. adjusted trial balance.

5. Cathy Cline, an employee of Welker Company,

will not receive her paycheck until April 2. Based on services performed from March 15 to March 30, her salary was P9,000. The adjusting entry for Welker Company on March 31 is a. Salaries Expense........ 9000 Salaries Payable.... 9000 b. No entry is required. c. Salaries Expense........ 9000 Cash....................... 9000 d. Salaries Payable......... 9000 Cash...................... 9000

12. A debit is not the normal balance for which of

the following? a. Asset account b. Drawing account c. Expense account d. Capital account

6. Which of the following statements concerning

accrual-basis accounting is incorrect? a. Accrual-basis accounting follows the revenue recognition principle.

13. Which of the following rules is incorrect?

a. b. c. d. Credits decrease the drawing account. Debits increase the capital account. Credits increase revenue accounts. Debits decrease liability accounts.

Fundamentals of Accounting Theories

14. Which of the following statements is false? a. Revenues increase owner's equity. b. Revenues have normal credit balances. c. Revenues are a positive factor in the computation of net income. d. Revenues are increased by debits. 15. Which of the following is the correct sequence of steps in the recording process? a. Posting, journalizing, analyzing b. Journalizing, analyzing, posting c. Analyzing, posting, journalizing d. Analyzing, journalizing, posting c. chronological order. d. dollar amount order. 21. The chart of accounts is a a. list of accounts and their balances at a given time. b. device used to prove the mathematical accuracy of the ledger. c. listing of the accounts and the account numbers which identify their location in the ledger. d. required step in the recording process.

22. Which of the following is incorrect regarding a 16. Which of the following is false about a journal?
a. It discloses in one place the complete effects of a transaction. b. It provides a chronological record of transactions. c. It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared. d. It keeps in one place all the information about changes in specific account balances. trial balance? a. It proves that the debits equal the credits after posting. b. It proves that the company has recorded all transactions. c. A trial balance uncovers errors in journalizing and posting. d. A trial balance is useful in the preparation of financial statements.

23. A trial balance will not balance if

a. a journal entry is posted twice. b. a wrong amount is used in journalizing. c. incorrect account titles are used in journalizing. d. a journal entry is only partially posted.

17. Meenen Company purchases equipment for P

1,200 and supplies for P 400 from Sanders Co. for P 1,600 cash. The entry for this transaction will include a a. debit to Equipment P 1,200 and a debit to Supplies Expense P 400 for Sanders. b. credit to Cash for Sanders. c. credit to Accounts Payable for Meenen. d. debit to Equipment P 1,200 and a debit to Supplies P 400 for Meenen.

24. The steps in the preparation of a worksheet do

not include a. analyzing documentary evidence. b. preparing a trial balance on the worksheet. c. entering the adjustments in the adjustment columns. d. entering adjusted balances in the adjusted trial balance columns. 25. Balance sheet accounts are considered to be a. temporary owner's equity accounts. b. permanent accounts. c. capital accounts. d. nominal accounts.

18. Jack Wiser withdraws P 30,000 cash from his

business for personal use. The entry for this transaction will include a debit of P 30,000 to a. Jack Wiser, Drawing. b. Jack Wiser, Capital. c. Owner's Salary Expense. d. Salaries Expense. 19. On October 3, Nick Carter, a carpenter, received a cash payment for services previously billed to a client. Nick paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a a. credit to Nick Carter, Capital. b. credit to Notes Payable. c. debit to Accounts Receivable. d. credit to Accounts Payable. 20. Posting of journal entries should be done in a. account number order. b. alphabetical order.

26. Income Summary has a credit balance of

P12,000 in J. Sawyer Co. after closing revenues and expenses. The entry to close Income Summary is a. credit Income Summary P12,000, debit J. Sawyer, Capital P12,000. b. credit Income Summary P12,000, debit J. Sawyer, Drawing P12,000.

Fundamentals of Accounting Theories c. debit Income Summary P12,000, credit

J. Sawyer, Drawing P12,000. d. debit Income Summary P12,000, credit J. Sawyer, Capital P12,000. 27. The post-closing trial balance contains only a. income statement accounts. b. balance sheet accounts. c. balance sheet and income statement accounts. d. income statement, balance sheet, and owner's equity statement accounts. 28. Which of the following is an optional step in the accounting cycle? a. Adjusting entries b. Closing entries c. Correcting entries d. Reversing entries

a. b. c. d.

the Capital account. Capital Stock. Investment in Stock. Retained Earnings.

33. Current liabilities a. are obligations that the company is to pay within the forthcoming year. b. are listed in the balance sheet in order of their expected maturity. c. are listed in the balance sheet, starting with accounts payable. d. should not include long-term debt that is expected to be paid within the next year. 34. The use of reversing entries a. is a required step in the accounting cycle. b. changes the amounts reported in the financial statements. c. simplifies the recording of subsequent transactions. d. is required for all adjusting entries.

29. Which one of the following statements

concerning the accounting cycle is incorrect? a. The accounting cycle includes journalizing transactions and posting to ledger accounts. b. The accounting cycle includes only one optional step. c. The steps in the accounting cycle are performed in sequence. d. The steps in the accounting cycle are repeated in each accounting period. 30. Correcting entries are made a. at the beginning of an accounting period. b. at the end of an accounting period. c. whenever an error is discovered. d. after closing entries.

35. A post-closing trial balance will show a. zero balances for all accounts. b. zero balances for balance sheet accounts. c. only balance sheet accounts. d. only income statement accounts. 36. The purpose of the post-closing trial balance is to a. prove that no mistakes were made. b. prove the equality of the balance sheet account balances that are carried forward into the next accounting period. c. prove the equality of the income statement account balances that are carried forward into the next accounting period. d. list all the balance sheet accounts in alphabetical order for easy reference. 37. The balances that appear on the post-closing trial balance will match the a. income statement account balances after adjustments. b. balance sheet account balances after closing entries. c. income statement account balances after closing entries. d. balance sheet account balances after adjustments.

31. On September 23, Pitts Company received a

P350 check from Mike Moluf for services to be performed in the future. The bookkeeper for Pitts Company incorrectly debited Cash for $350 and credited Accounts Receivable for P350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should a. debit Cash P350 and credit Unearned Service Revenue P350. b. debit Accounts Receivable P350 and credit Unearned Service Revenue P350. c. debit Accounts Receivable P350 and credit Cash P350. d. debit Accounts Receivable P350 and credit Service Revenue P350.

32. All of the following are owner's equity accounts

except

Fundamentals of Accounting Theories

38. When two accounts are required in one journal entry, the entry is referred to as a a. balanced entry. b. simple entry. c. posting. d. nominal entry. 39. Another name for journal is a. listing. b. book of original entry. c. book of accounts. d. book of source documents. a. Periodic inventory systems require more detailed inventory records. b. Perpetual inventory systems require more detailed inventory records. c. A periodic system requires cost of goods sold be determined after each sale. d. A perpetual system determines cost of goods sold only at the end of the accounting e. period. 47. In a perpetual inventory system, cost of goods sold is recorded a. on a daily basis. b. on a monthly basis. c. on an annual basis. d. with each sale. 48. If a company determines cost of goods sold each time a sale occurs, it a. must have a computer accounting system. b. uses a combination of the perpetual and periodic inventory systems. c. uses a periodic inventory system. d. uses a perpetual inventory system. 49. Under a perpetual inventory system, acquisition of merchandise for resale is debited to the a. Merchandise Inventory account. b. Purchases account. c. Supplies account. d. Cost of Goods Sold account. 50. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales. d. Merchandise Inventory.

40. The standard format of a journal would not

include a. b. c. d. a reference column. an account title column. a T-account. a date column.

41. Transactions in a journal are initially recorded in a. account number order. b. dollar amount order. c. alphabetical order. d. chronological order.

42. A journal is not useful for

a. disclosing in one place the complete effect of a transaction. b. preparing financial statements. c. providing a record of transactions. d. locating and preventing errors.

43. A complete journal entry does not show

a. the date of the transaction. b. the new balance in the accounts affected by the transaction. c. a brief explanation of the transaction. d. the accounts and amounts to be debited and credited. 44. The name given to entering transaction data in the journal is a. chronicling. b. listing. c. posting. d. journalizing. 45. The standard form of a journal entry has the a. debit account entered first and indented. b. credit account entered first and indented. c. debit account entered first at the extreme left margin. d. credit account entered first at the extreme left margin. 46. Which of the following is a true statement about inventory systems?

51. The Merchandise Inventory account is used in

a. b. c. d. each of the following except the entry to record goods purchased on account. the return of goods purchased. payment of freight on goods sold. payment within the discount period.

52. A buyer would record a payment within the discount period under a perpetual inventory system by crediting a. Accounts Payable. b. Merchandise Inventory. c. Purchase Discounts. d. Sales Discounts. 53. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the

Fundamentals of Accounting Theories

a. Merchandise Inventory account will be increased. b. Merchandise Inventory account will not be affected. c. seller will bear the freight cost. d. carrier will bear the freight cost. 54. In a perpetual inventory system, the Cost of Goods Sold account is used a. only when a cash sale of merchandise occurs. b. only when a credit sale of merchandise occurs. c. only when a sale of merchandise occurs. d. whenever there is a sale of merchandise or a return of merchandise sold. 55. Sales revenues are usually considered earned when a. cash is received from credit sales. b. an order is received. c. goods have been transferred from the seller to the buyer. d. adjusting entries are made. b. Merchandise Inventory. c. Purchases. d. Purchase Returns and Allowances. 61. Which one of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system? a. Cash received on account with a discount b. Payment of freight costs on a purchase c. Return of merchandise sold d. Sale of merchandise on credit 62. A merchandising company using a perpetual system may record an adjusting entry by a. debiting Income Summary. b. crediting Income Summary. c. debiting Cost of Goods Sold. d. debiting Sales. 63. The operating cycle of a merchandiser is a. always one year in length. b. generally longer than it is for a service company. c. about the same as for a service company. d. generally shorter than it is for a service company. 64. The sales revenue section of an income statement for a retailer would not include e. Sales discounts. f. Sales. g. Net sales. h. Cost of goods sold. 65. The operating expense section of an income statement for a wholesaler would not include a. freight-out. b. utilities expense. c. cost of goods sold. d. insurance expense.

56. A sales invoice is a source document that a. provides support for goods purchased for resale. b. provides evidence of incurred operating expenses. c. provides evidence of credit sales. d. serves only as a customer receipt. 57. Sales revenue a. may be recorded before cash is collected. b. will always equal cash collections in a month. c. only results from credit sales. d. is only recorded after cash is collected. 58. The journal entry to record a credit sale is a. Cash Sales b. Cash Service Revenue c. Accounts Receivable Service Revenue d. Accounts Receivable Sales 59. A credit memorandum is prepared when a. an employee does a good job. b. goods are sold on credit. c. goods that were sold on credit are returned. d. customers refuse to pay their accounts. 60. In a periodic inventory system, a return of defective merchandise by a customer is recorded by crediting a. Accounts Payable.