Accounting

Module 1
Accounting Concepts

1- Financial accounting focuses on the specific needs of decision makers external to the
organization. Which of the following would not be an external user?
a- Stockholders
b- Internal Revenue Service
c- Vice President – Marketing
d- Banks
2- The correct version of the accounting equation is
a- Assets = liabilities – owners’ equity
b- Assets = liabilities + owners’ equity
c- Liabilities = assets + owners’ equity
d- Owners’ equity = assets + liabilities
3- The annual report does not include
a- A report from the independent auditors
b- Footnotes
c- Statements on the company’s internal controls
d- A letter from the board of directors
4- Another term for owners’ equity is
a- Assets
b- Liabilities
c- Net assets
d- Net liabilities
5- The balance sheet shows the financial status od a company
a- At a particular point in time
b- Foe a period of a month, quarter or year
c- From the beginning of a period to the end of the period
d- Only at the end of the year
6- A loan from the bank
a- Increases assets and owners’ equity
b- Increase assets and liabilities
c- Increases liabilities and owners’ equity
d- Has no effect on total assets.
7- The purchase of inventory by paying cash causes
a- An increase in one asset and decrease in another
b- An increase in owners’ equity and decrease in an asset
c- An increase in an asset and increase in a liability
d- None of the above
8- If the owners (stockholder) equity section of the balance sheet includes “additional paid
in capital” the types of organization is a
a- Non profit
b- Partnership
c- Corporation
d- Governmental entity
9- Which of the following is a disadvantage of the corporate form of ownership?
a- Separation of ownership and management
b- Continuity of existence
c- Unlimited liability
d- Ease of rising capital

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e- Both c and d
f- None of the above
10- An audit opinion
a- Is provided by the audited company’s president
b- Is provided by private accountants
c- Is provided by an independent CPA
d- All the above
11- The income statement shows the financial performance of a company
a- At a particular point in time
b- For a period of a month, quarter or a year
c- From the beginning of a period to the end period
d- B & C
12- Repaying a loan from a bank
a- Increases assets and owners’ equity
b- Decreases assets and liabilities
c- Increases liabilities and owners’ equity
d- Has no effect on total assets
13- The purchase of inventory on account causes
a- An increase in one asset and a decrease in another
b- An increase in owners’ equity and a decrease in an asset
c- An increase in a n asset and an increase in a liability
d- None of the above

Module 2
Measuring Income
1- A fiscal year
a- Ends on December 31
b- Always ends at the end of the month
c- Ends on June 30
d- Is any 12 consecutive months
2- The key components in measuring income are
a- Revenue and assets
b- Assets and liabilities
c- Revenues and expenses
d- Retained earnings and expenses
e- Revenues and liabilities
f- Expenses and assets
3- Which of the following help determine when a sale should be included in the income
statement?
a- Recognition principle
b- Cost recovery principle
c- Matching principle
d- Both and c
4- The recording of expense in the same time period as the related revenue is called
a- Matching
b- Recognition
c- Allocation
d- Accuracy
5- Given the following information at the end of the year, what was the balance of in retained
earnings at the beginning of the year?
Total assets 190,000

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Total liabilities 110,000
Contributed capital 30,000
Revenues 85,000
Expenses 70,000
a- 25,000
b- 35,000
c- 45,000
d- 80,000
6- Which of the following accounts is not an expense?
a- Depreciation
b- Salaries
c- Dividends
d- Delivery expense
7- Given the following information at the end of the year, how much was net income for the
year?
Beginning retained earnings 54,000
Dividends 20,000
Ending retained earnings 69,000

a- (5,000)
b- 15,000
c- 35,000
d- 40,000
8- Declaration of dividends to stockholders
a- Increases paid in capital
b- Decreases paid in capital
c- Increases retained earnings
d- Decreases retained earnings
e- Increases assets
f- Increases liabilities
9- The ratio that sometimes referred to as the earnings multiple is the
a- Earnings per share ratio
b- Dividends yield ratio
c- Price earnings ratio
d- Dividend payment ratio
10- The only financial ratio required to be a part of financial statements is
a- Price earnings
b- Earnings per share
c- Dividend yield
d- Dividend payout
11- Which of the following formulas is used to calculate dividend yield ratio?
a- Net income \ average number of shares outstanding
b- Common dividend per share \ market price per share
c- Market price per share \ gross profit per share
d- Revenue \ average number of shares outstanding
12- The recording of revenue in the period where they are earned
a- Matching
b- Recognition
c- Allocation
d- Accuracy
13- Given the following information at the end of the year, what was the balance in the retained
earnings at the beginning of the year?

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Total assets 200,000
Total liabilities 100,000
Contributed capital 20,000
Revenues 150,000
Expenses 120,000

a- 25000
b- 35000
c- 50000
d- 80000

Module 3
Recording transactions
1- The general ledger
a- Should always have a credit balance
b- Is a collection of accounts that support the financial statements
c- Is the book of original entry
d- Complies all source documents
2- Which of the following is a group of accounts that all accounts that all normally have a debit
balance?
a- Cash, mortgage payable, inventory
b- Land, cost of goods sold, paid in capital
c- Accounts receivable, salaries expense, inventory
d- Prepaid rent, building, notes payable
3- The term credit means
a- To increase
b- To decrease
c- The lift side of an account
d- The right side of an account
4- Source documents are
a- Supporting original records of financial transactions
b- Journal entries
c- Ledger accounts
d- Increases on the left side of an account
5- What is the correct order of accounting process?
a- Ledger, journal, trial balance, balance sheet, income statement
b- Journal, trial balance, ledger, balance sheet, income statement
c- Trail balance, journal, ledger, income statement
d- Journal, ledger, trail balance, income statement, balance sheet
6- To find an explanation of a transaction, one would look at the
a- Journal
b- Ledger
c- Chart of accounts
d- Trail balance
7- The trail balance is
a- The listing of all accounts
b- Listing of all accounts with their balances
c- A place where a running balance of an account is kept
d- The book of original entry

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8- The trail balance makes sure
a- The proper accounts are affected
b- Each account has the appropriate dollar amount balance
c- The debits equal the credits in the journal
d- The debits equal the credits in the ledger
e- None of the above
9- When the financial statements are completed, the income summary is found on which
financial statement?
a- Balance sheet
b- Income statement
c- Statement of cash flow
d- None of the above
10- If the company ends the year with net income, the balance in the income summary account
immediately preceding it closing will have a
a- Debit balance
b- Credit balance (usually)
c- Both a and b
d- Credit balance (always)
11- If the bookkeeper (in 20x2) expenses the entire cost of a truck that normally would be used
for three years, then
a- Net income will be understated for 20x2 and overstated for year 20x3 and 20x4
b- Total assets will not equal liabilities plus owners’ equity
c- The net income will be overstated for 20x2 and understated for year 20x3 and 20x4
d- Assets will be overstated for 20x2
12- If the bookkeeper fails to make revenue entry for 20x2,
a- Both 20x2s and 20x3s net income will be overstated
b- Only 20x2s net income will be overstated
c- Net income for 20x2 would be understated
d- Assets will be overstated for 20x2 and 20x3
13- Which of the following is a group of accounts that all normally have a debit balance?
a- Cash, accounts receivable and inventory
b- Land, cost of goods sold and paid in capital
c- Accounts receivable, salaries expense and accounts payable
d- Prepaid rent, building and notes payable
14- A chronological listing of transactions is found in
a- Supporting original records of financial transactions
b- Journal entries
c- Ledger accounts
d- Increases on the left side of an account

Module 4
Accrual accounting and financial statement format
1- Which of the following is an example of an implicit transaction?
a- Payment of years rent in advance
b- Payment of dividends to stockholders
c- Recording monthly depreciation on equipment
d- Expiration of prepaid rent
e- Both a and c
f- Both c and d
2- Which of the following is not an application of an accrual accounting?

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a- Adjusting the accounts at the end of a period
b- Recognizing revenues when earned
c- Recognizing expenses when incurred
d- Recording expenses when paid
3- A company recorded cash purchases of supplies as a debit to what account?
a- Assets
b- Cash
c- Office supplies inventory
d- Office supplies expense
4- In November, cash was received in advance of rendering a service. The explicit transaction
was correctly recorded in November. If the service was not performed by December 31, the
adjusting entry would be
a- A debit to unearned revenue and credit to cash
b- A debit to unearned revenue and credit to revenue
c- A debit to revenue and a credit to prepaid services
d- A debit to prepaid services and a credit to revenue
e- Both b and d
f- None of the above
5- The wages payable account is an example of
a- An expense
b- An asset
c- A liability
d- An owners’ equity item
6- ABC Engineering completed a survey for York, Corp., on July 30 and billed the company
on August 1. For ABC, this an example of
a- An accrued expense
b- An accrued revenue
c- A deferred expense
d- A deferred revenue
7- The journal entry to record the receipt of revenue received in advance requires a
a- Debit to unearned revenue
b- Credit to revenue
c- Credit to cash
d- Debit to cash
e- Debit to revenue
8- The journal entry to record the accrual of interest expense on a one-year note requires a
credit to
a- Cash
b- Interest expense
c- Interest payable
d- Prepaid interest
9- Which of the following is a current asset?
a- Accounts receivable
b- Equipment
c- Goodwill
d- Accounts payable
10- Which of the following is not a current liability?
a- Wages payable
b- Bonds payable due in 2020
c- Prepaid rent
d- Sales tax payable
e- Both a and d

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11- Which of the following is used in liquidity determination?
a- Return on sales ratio
b- Profit margin
c- Current ratio
d- None of the above
12- Donald, crop’s balance sheet as of Dec.31 20X2 includes the following
Current assets 60,000
Current liabilities 15,000
Total assets 90,000
Total liabilities 45,000

What is Donald’s current ratio?

a- 2
b- 4
c- 3
d- 6
13- Morton, corp., has the following income statement items for the year 20X2:
Sales 100,000
Gross profit 72,000
Operating expenses 47,000
Net income 25,000

What is Morton’s return on sales?

a- 5%
b- 10%
c- 25%
d- 40%

14- The journal entry to record the accrual of interest income on a one-year note requires a debit
to
a- Cash
b- Interest receivable
c- Interest payable
d- Prepaid interest
15- A debit to fees receivable triggers a credit to:
a- Fees payable
b- Fee allowance
c- Fee income
d- None of the above
16- Morton, Corp. has the following income statement items for year 2018:
Sales 100,000
Gross profit 72,000
Operating expenses 47,000
Net income 25,000

What is Morton’s return on sales?

a- 5%
b- 10%
c- 25%
d- 40%

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