Fa basics quiz+answers

Financial Accounting: Basics
QUIZ

1 Mark
• Which term is associated with "left"
or "left-side"?
– Debit
– Credit

1 Mark
• When cash is received, the account
Cash will be
– Debited
– Credited

1 Mark
• Which term is associated with "right"
or "right-side"?
– Debit
– Credit

1 Mark
• When a company pays a bill, the account Cash
will be
– Debited
– Credited

1 Mark
• What will usually cause an asset account to
increase?
– Debit
– Credit

1 Mark
• What will usually cause the liability account
Accounts Payable to increase?
– Debit
– Credit

1 Mark
• Entries to expenses such as Rent Expense are
usually
– Debits
– Credits

1 Mark
• Entries to revenues accounts such as Service
Revenues are usually
– Debits
– Credits

1 Mark
• Assets minus liabilities equals
Stockholder’s Equity or Owner’s Equity.

1 Mark
• Accounting entries involve a minimum of how
many accounts?
– one
– two
– three

1 Mark
• Unearned Revenues is what type of account?
– Asset
– Liability
– Stockholders' (Owner's) Equity

1 Mark
• Liabilities often have the word
_____Payable______ in their account title.

1 Mark
• Obligations are reported on the balance sheet
and are referred to as___Liabilities__.

1 Mark
• Assets are usually reported on the balance
sheet at which amount?
– cost
– current market value
– expected selling price

1 Mark
• Under the accrual basis of accounting,
EXPENSES are reported in the accounting
period when the
– cash is paid
– expense matches the revenues or is used up

1 Mark
• Under the accrual basis of accounting,
REVENUES are reported in the accounting
period when the
– cash is received
– service or goods have been delivered

1 Mark
• The financial statement that reports the
revenues and expenses for a period of time
such as a year or a month is the
– balance sheet
– income statement
– statement of cash flows

1 Mark
• Which of the following will cause owner's
equity to increase?
– Expenses
– Owner Drawings
– Revenues

1 Mark
The accounting equation should remain in balance because every
transaction affects how many accounts?
only one only two two or more

1 Mark
• A corporation's net income is eventually
recorded in the following stockholders' equity
account: _Retained_ _Earnings_.

1 Mark
• The financial statement with a structure that
is similar to the accounting equation is
the _Balance_ _Sheet_.

1 Mark
• Which of the following will cause owner's
equity to decrease?
– net income
– net loss
– revenues

1 Mark
• The personal assets of the owner of a
company will not appear on the company's
balance sheet because of which
principle/guideline?
– Cost
– Economic Entity
– Monetary Unit

1 Mark
Which principle/guideline requires a company's balance sheet to report
its land at the amount the company paid to acquire the land, even if
the land could be sold today at a significantly higher amount?
Cost Economic Entity Monetary Unit

1 Mark
Which principle/guideline requires the company's financial statements to
have footnotes containing information that is important to users of the
financial statements?
Conservatism Economic Entity Full Disclosure

1 Mark
Which principle/guideline justifies a company violating an accounting
principle because the amounts are immaterial?
Conservatism Full Disclosure Materiality

1 Mark
Which principle/guideline is associated with the assumption that the
company will continue on long enough to carry out its objectives and
commitments?
Economic Entity Going Concern Time Period

1 Mark
A very large corporation's financial statements have the dollar amounts
rounded to the nearest $100. Which accounting principle/guideline
justifies not reporting the amounts to the penny?
Full Disclosure Materiality Monetary Unit

1 Mark
Accountants might recognize losses but not gains in certain situations.
For example, the company might write-down the cost of inventory, but
will not write-up the cost of inventory. Which principle/guideline is
associated with this action?
Conservatism Materiality Monetary Unit

1 Mark
Which principle/guideline directs a company to show all the expenses
related to its revenues of a specified period even if the expenses were
not paid in that period?
Cost Matching Monetary Unit

1 Mark
When the accountant has to choose between two acceptable
alternatives, the accountant should ideally select the alternative that will
report less profit, less asset amount, or a greater liability amount. This is
based upon which principle/guideline?
Conservatism Cost Materiality

1 Mark
Public utilities' balance sheets list the plant assets before the current
assets. This is acceptable under which accounting principle/guideline?
Conservatism Cost Industry Practices

1 Mark
A large company purchases a $250 digital camera and expenses it
immediately instead of recording it as an asset and depreciating it over
its useful life. This practice may be acceptable because of which
Cost Matching Materiality

1 Mark
A company sold merchandise of $8,000 to a customer in December. The
company's sales terms require the customer to pay the company in 30
days. The company's income statement reported the sale in December.
This is proper under which accounting principle/guideline?
Full Disclosure Monetary Unit Revenue Recognition

1 Mark
Near the end of the current year, a company required a customer to pay
$200,000 as a deposit for work that is to begin in the following year. At
the end of the current year the company reported the $200,000 as a
liability on its balance sheet. Which accounting principle/guideline
prevented the company from reporting the $200,000 on its income
statement for the current year?
Going Concern Materiality Revenue Recognition

1 Mark
A retailer wishes to report its merchandise inventory on its balance sheet
at its retail value. This would violate which accounting
Cost Full Disclosure Monetary Unit

1 Mark
• The financial statement that reports the
assets, liabilities, and stockholders' (owner's)
equity at a specific date is the
– balance sheet
– income statement
– statement of cash flows

2 Marks
The owner invests personal cash in the business.
Assets: Increase Decrease No Effect
Liabilities: Increase Decrease No Effect
Owner's (or Stockholders') Equity: Increase Decrease No Effect

2 Marks
The owner withdraws business assets for personal use.

2 Marks
The company receives cash from a bank loan.

2 Marks
The company purchases equipment with its cash.

2 Marks
The owner contributes her personal truck to the business.

2 Marks
The company purchases a significant amount of supplies on
credit.

2 Marks
The company repays the bank that had lent money to the
company.

2 Marks
The company purchases land by paying half in cash and signing
a note payable for the other half.

• Information for the next 4 Questions:
– Company X provides consulting services to Client
Q in May. Company X bills Client Q in May for the
agreed upon amount of $5,000. The sales invoice
shows that the amount will be due in June.

4 Marks
In May, Company X records the transaction by a debit
to Accounts Receivable for $5,000 and a credit to Service
Revenues for $5,000. What is the effect of this entry upon the
accounting equation for Company X?

4 Marks
In June, Company X receives the $5,000. What is the effect on
the accounting equation and which accounts are affected
at Company X?

4 Marks
What is the effect on Client Q's accounting equation in May
when Client Q records the transaction as a debit to Consultant
Expense for $5,000 and a credit to Accounts Payable for $5,000?
Assets: Increase Decrease
No
Effect

4 Marks
What is the effect on Client Q's accounting equation in June
when Client Q remits the $5,000? Also, which accounts will be
involved?

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