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

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
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?

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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

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

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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
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

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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?
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?

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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
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%

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