ACCOUNTING (ACCT) test questions and

correct answers RATED A

The two main qualities of accounting are CORRECT -Relevance and reliability

The largest organization of professional accountants CORRECT -AICPA

The FASB is responsible for establishing CORRECT -GAAP

The owners interest in the assets of a corporation CORRECT -Stockholders equity

Stockholders equity increases as a result of CORRECT -owner investments, and net

income during a period

The term double entry accounting indicates that the accountant CORRECT -uses at
least two accounts to record a transaction, two columns to record changes in each
account

when a company receives cash for issuing stock CORRECT -increases assets and
increases equity

When a company performs services for a company on account the transaction:

CORRECT -increases assets and increases revenues

what is not a component of stockholders equity CORRECT -Accounts Payable

Accounting transactions are originally recorded in the CORRECT -journal or

database

the process of posting in traditional bookkeeping CORRECT -transferring data from

the journal to the ledger

the two primary methods used to account for transactions CORRECT -cash basis
and accural basis

An accrual refers to an event that CORRECT -when an expense or revenue is

recorded before the cash settlement

which account is credited in the adjusting entry to record insurance expired during the
current period CORRECT -Prepaid insurance

what is not a purpose of internal control CORRECT -to promote operational

inefficiency
Who has the primary responsibility for ensuring internal control CORRECT -The
companies top management

what should be added to a bank balance in the bank reconciliation CORRECT -

deposits in transit

in merchandising business gross profit is equal to sales revenue minus CORRECT -

cost of goods sold

the perpetual inventory system CORRECT -provides a continuous record of inventory

on hand

under the allowance method for estimating uncollectible accounts the entry to record
bad debt expense CORRECT -shows a reduction in net income

when a company has a contingent loss and a reasonably possible chance of occurrence
the FASB requires that CORRECT -it should be reported in the notes of the financial
statement

the interest rate that investors demand for loaning their money is called CORRECT -
effective rate of interest

if a bond is issued at a smaller percentage than the market rate it is a CORRECT -

discount

all investments not classified as trading securities or held to maturity securities are
classified as CORRECT -available for sale securities

the accounting book value of an asset is defined as CORRECT -cost minus

accumulated depreciation

Paid in capital is also known as CORRECT -additional contributed capital

Not counting treasury stock and other comprehensive income, stockholders equity is
divided into CORRECT -contributed capital and retained earnings

what reduces total stock holders equity CORRECT -treasury stock

what asses a companies profitability focusing on the relationship between net income
and average common stockholders equity CORRECT -return on equity

an investor who wishes to know whether a company is successful in using its assets to
earn income for individuals who finance the business should review the CORRECT -
return on assets
cash paid or received for long term assets should be reported as CORRECT -
investing activities

changes in current assets or current liabilities should be reported as CORRECT -

operating activities

A statement of responsibility declares that CORRECT -top management are

responsible for the financial statements and the statements are prepared in accordance
with GAAP

Which entity requires companies issuing publicly traded stock to have their financial
statements audited CORRECT -SEC

The primary responsibility of the auditor is to decide whether the companies

CORRECT -financial statements apply with GAAP

an audit is useful to stockholders because it ensures that CORRECT -the financial

statements are free from material error

available for sale investments in stock are reported on the balance sheet as
CORRECT -their current market value

on the statement of cash flows the cash paid to acquire another company is known as
CORRECT -investing outflow

The stable monetary unit of accounting concept is CORRECT -enables accountants

to ignore the effect of inflation on accounting records

what is not an advantage of issuing stock CORRECT -generally results in a higher

earnings per share

Earnings per share is calculated as CORRECT -net income divided by the average
number of shares of common stock outstanding throughout the year

what method of preparing the statement of cashflows reconciles operating activities to

net income CORRECT -the indirect method

what will not appear as adjustments to net income on the indirect method CORRECT
-payment of cash dividends

dividends paid to the stockholders will CORRECT -decrease assets and decrease
stockholders equity

A conflict of interest refers to the tension between CORRECT -responsibilities of two

competing roles
when a business customer makes a withdrawl from the bank the business debits cash
on hand and credits cash in bank. What happens to the BANK CORRECT -
decreases cash and decreases liabilities

for which form of business ownership are the the business owners legally distinct from
the business CORRECT -a corporation

which account shows the amount of accounts receivable that the business does not
expect to collect CORRECT -allowance for uncollectable accounts

What is Materiality CORRECT -a concept or convention within auditing and

accounting relating to the importance or significance of an amount transaction or
discrepency