Accounting Midterm - True or False

True

Failure to record the adjusting entry for accrued salaries results in the current year's profit being overstated.

False

As equipment is depreciated, its book value increases and it accumulated depreciation increases.

True

An adjusting entry includes at least one balance sheet account and at least one income statement account.

False

All decreases in owner's equity are a result of expenses.

True

Accounting periods should be of equal length to facilitate comparisons between periods.

True

Failure to record the adjusting entry for depreciation will overstate assets on the balance sheet.

False

In recording the adjusting entry for accrued salaries, all the accounts involved are decreased.

False

The owner's personal withdrawals for the year cause a decrease in profit.

True

The expiration of usefulness of equipment during an accounting period is called depreciation.

False

Acquiring a computer for cash is just exchanging one asset for another and will not result in an expense even in the future periods.

True

Applying accrual accounting results in a more accurate measurement of profit for the period than does the cash basis of accounting.

True

Not all increases to cash represent revenues.

Only $35.99/year

False

Adjusting entries affect cash flows in the current period.

False

Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

False

A deferral is the recognition of an expense that has risen but has not yet been recorded.

False

Assets become liabilities when they expire.

True

When there is no direct connection between revenues and costs, the costs are systematically allocated among the periods benefited.

False

Revenue results from collection of accounts receivable.

True

Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.

True

Adjusting entries are useful in apportioning costs among two or more accounting periods.

True

Recording incurred but unpaid expenses is an example of an accrual.

False

Revenue is equal to the cash received by a company during an accounting period.

False

A company's fiscal year must correspond to the calendar year.

False

If all transactions were originally recorded in conformity with GAAP, there would be no need for adjusting entries at the end of the period.

True

The adjustment to record depreciation of property and equipment consists of a debit to depreciation expense and a credit to accumulated depreciation.

True

When services are not paid for until after they have been performed, the accrued expense is recorded by an adjusting entry at the end of the accounting period.

True

The adjusting entry to recognize earned commission revenues not previously recorded or billed will cause total assets to increase.

False

When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be understated.

True

Accumulated depreciation accounts may be referred to as contra-asset accounts.

True

Accounts that are partly income statement amounts and partly balance sheet amounts are called mixed accounts.

False

An asset's book value represents the true market value of the asset.

True

Of the adjustment for accrued salaries is omitted, liabilities and expenses will be understated.

False

A decrease in an expense account is the equivalent of a decrease in owner's equity.

False

The adjusting entry to allocate part of the cost of a one-year fire insurance policy to expense will cause total assets to increase.

True

Every adjusting entry must change both an income statement account and a balance sheet account.

False

The adjusting entry to recognize an expense which is unrecorded and unpaid will cause total assets to increase.

True

Failure to record the adjusting entry for depreciation results in assets and owner's equity being overstated on the balance sheet.

False

A fiscal period must begin on January 1.

True

In recording the adjusting entries for depreciation, both accounts involved are increased.

True

The amount of accrued revenues is recorded by debiting an asset account and crediting an income account.

False

Accrued revenue is a term used to describe revenue that has been received but not yet earned.

True

Book value is the original cost of a building less depreciation for the year.

True

The adjusting entry to recognize earned revenues which was received in advance will cause total liabilities to decrease.

True

The balance sheet is also known as the statement of financial position.

True

Financial position may be assessed by referring to a balance sheet.

False

The heading for an income statement might include the line "As at December 31, 2015."

True

The statement of changes in equity relates the income statement to the balance sheet by showing how the owner's Capital account changed during the accounting period.

True

The statement of changes in equity discloses the withdrawals during the period.

False

The purchase of equipment is an example of a financing activity.

True

Financial statements cannot be prepared correctly until all the accounts have been adjusted.

False

Total assets, total liabilities and owner's equity on the balance sheet are the same as the totals of the Balance Sheet columns on the worksheet.

False

The worksheet is prepared after the formal adjusting and closing entries.

False

Paying taxes to the government is an example of financing activity.

False

When the balance sheet columns of the worksheet are initially footed they should be in balance.

True

The balances of the Accumulated Depreciation accounts will appear on the credit side of the worksheet's Balance Sheet columns.

False

On a worksheet, the balance of the owner's Capital account is its ending amount for the period.

True

Working papers provide a written record of the work performed by the accountant or auditor.

True

The worksheet is a type of accountant's working paper.

False

The amount placed opposite the owner's Capital in the balance sheet columns of the worksheet is the amount to be reflected for owner's Capital on the balance sheet

True

The purchase of land is an example of an investing activity.

True

The amount of owner's withdrawals can be found on the worksheet.

False

The balance sheet may be prepared by referring solely to the Balance Sheet columns of the worksheet.

False

The worksheet should be prepared after the formal financial statements have been prepared.

False

The amount for the owner's withdrawals will appear in the income statement columns of the worksheet.

True

Buying and producing goods and services are examples of operating activities.

True

The statement of cash flows discloses significant events related to the operating , investing, and financing activities of a business.

True

The Adjusted Trial Balance columns of the worksheet are prepared by combining the Trial Balance and Adjustments columns of the worksheet.

True

An important use of the worksheet is as an aid in the preparation of financial statements

True

When the Income Statement columns of the worksheet are initially footed, they should be out of balance by the amount of profit or loss.

False

The account commissions Earned would appear on the balance sheet.

False

The Wages Payable would appear on the Income Statement.

False

A worksheet is more useful for a small entity than for a large one.

True

When the freight term is "FOB Destination, Freight Collect," it means the seller shoulders the freight but the buyer pays it.

False

When "143" is written as "134," there is a sliding error.

False

A trade discount is a cash discount.

False

The matching principle provides guidance in accounting for the recognition of assets.

False

Allowance for bad debts is considered as contra asset account, presented on the liability portion.

False

All decreases in owner's equity are a result of expenses.

False

Sales return and allowances is an expense account.

False

Primary users of the accounting information are accountant and auditors.

True

Pabebe Company bought a building that cost ₱200,000, has accumulated depreciation of ₱20,000. The book value of the building is ₱180,000.

False

In a worksheet, a net lost is shown in the income statement column only.

False

Concepts underlying the preparation of adjusting entries include periodicity and separate entity concept.

True

One way to handle prepaid items is to initially charge them to an appropriate expense account and at the end of the accounting period transfer the unused portion to an appropriate prepaid account.

False

Book value of an asset is the original cost of an asset less depreciation expense for the year.

True

Accrued Revenues should be recorded as an asset on the balance sheet.

False

An adjusting entry prepared at the end of the year for a deferral initially recorded using asset method would involve a credit to an expense account.

True

The chart of accounts for a merchandizing entity differs from that of a service entity.

False

The difference between revenues from sales and cost of sales is operating income.

False

For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to cash.

False

The bill of lading is a document prepared by the seller detailing the terms of delivery.

True

A validated deposit slip indicates that cash and checks were actually deposited.

False

Discounts offered to the buyer to encourage early payment are trade discounts.

False

Cash discounts are called purchases discounts from the buyer's point of view.

True

The sales discounts account is a contra-income account and will have a debit balance.

False

A credit term of "2/10, n/30" means that the buyer may deduct 2% from the invoice if payment is made within ten days from the end of the month.

True

Purchases returns and allowances is a deduction from purchases.

False

The cost of merchandize purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period.

False

The purchase of equipment not for resale should be debited to purchase account.

False

If the seller is to shoulder the cost of delivery, the term is stated as FOB destination.

False

The term freight prepaid or collect will dictate who shoulders the transportation costs.

True

The two main systems for accounting for merchandize are periodic and perpetual.

True

The perpetual inventory system requires recording the cost of each sale as it occurs.

False

There is no need for a physical inventory count in the perpetual inventory system.

False

The debit balance of the inventory account in the trial balance under the periodic inventory system is the amount of the inventory at the end of the current year.

True

The ending inventory of one period is the beginning inventory of the next period.

True

The balance into the merchandise inventory account at the beginning of the period represents the cost of the merchandize on hand at that time.

True

The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for purchases and collection of cash.

True

A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.

True

Merchandise inventory could include goods that are in transit.

True

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory.

True

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

False

Under the periodic inventory system, cost of goods sold is treated as an account.

False

The periodic inventory system provides an up-to-date amount of inventory on hand.

True

Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.

True

A physical inventory is usually taken at the end of the accounting period.

True

Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory Account.

False

An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

True

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

True

When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.

True

The income statement of an entity that provides services only will not have cost of goods sold.

False

For a merchandising entity, the difference between net sales and operating expenses is called gross margin.

True

Sales return and allowances is described as a contra-revenue account.

False

On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expense.

False

Transportation out is included in the cost of goods sold calculation.

True

Advertising expense appears as a selling expense on the income statement.

True

Transportation in is considered a cost of merchandise purchased.

True

When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.

False

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the invoice date.

False

Terms 2/10, n/30 is an example of a trade discount.

True

Goods should be recorded at their list price less any trade discounts involved.

False

FOB shipping point means the seller incurs the shipping costs.

True

Under the perpetual inventory, the cost of merchandise is debited to Merchandise Inventory at the time of purchase.

True

The Merchandise Inventory account is not affected when a sales allowance is granted.

True

Ending merchandise inventory for year 1 automatically becomes beginning merchandise inventory for year 2.

False

The calculation of cost of goods available for sale during the year is not affected by the previous year's ending inventory.

True

The change in inventory level from the beginning to the end of the year affects cost of goods sold.

False

Transportation in is treated as a deduction in the cost of goods sold section of the income statement.

True

Under the periodic inventory system, the purchases account I'd used to accumulate a purchases of merchandise for resale.

True

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory.

False

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

False

Under the periodic inventory system, cost of goods sold is treated as an account.

False

The periodic inventory system provides an up-to-date amount of inventory on hand.

True

Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.

True

A physical inventory is usually taken at the end of the accounting period.

True

Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory Account.

False

An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

True

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

False

When the periodic inventory system is used, a physical inventory should be taken at the end of fiscal year.

True

The income statement of an entity that provides services only will not have cost of goods sold.