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business
accounting principles

Questions and Answers of Accounting Principles

What is the difference between adjusting entries and closing entries? LO5
Describe the four entries that close the temporary accounts. LO5
What type of accounts are closed by transferring their balances (a) as a debit to Income Summary, (b) as a credit to Income Summary? LO5
To what account is the income summary account closed? LO5
To what account is the owner's drawing account closed? LO5
What is the purpose of the post-closing trial balance? LO5
What is the natural business year? LO5
Why might a department store select a fiscal year ending January 31, rather than a fiscal year ending December 31? LO5
The initial step in the process of developing an accounting system is called: LO2 A. analysis C. implementation B. design D. feedback
A payment of cash for the purchase of sen-ices should be recorded in the: LO2 A. purchases journal B. cash payments journal C. revenue journal D. cash receipts journal
When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called: LO2 A. a subsidiary ledger B. a creditors ledger C. an
Which of the following would be used in a computerized accounting system? LO2 A. Revenue journal B. Cash receipts journal C. Electronic invoice form D. Month-end postings to the general ledger
Why is the accounting system of a business an information system? LO2
What is the three-step process of systems evolution? LO2
What are the three objectives of internal control? LO2
Name and describe the five elements of internal control. LO2
How does a policy of rotating clerical employees from job to job aid in strengthen- ing the control procedures within the control environment? LO2
Why should the responsibility for a sequence of related operations be divided among different persons? LO2
Why should the employee who handles cash receipts not have the responsibility for maintaining the accounts receivable records? LO2
Why should the responsibility for maintaining the accounting records be separated from the responsibility for operations? LO2
What is the term applied (a) to the ledger containing the individual customer accounts and (b) to the single account summarizing accounts receivable? LO2
What are the major advantages of the use of special journals? LO2
Environmental Services Co. uses the special journals described in this chapter. Which journal will be used to record fees earned (a) for cash. (b) on account? LO2
How many individual postings to Fees Earned for the month would be needed in Question 14 if the procedure described in (a) had been used; if the procedure described in (b) had been used? LO2
The Accounts Payable and Cash columns in the cash payments journal were unknowingly overstated by $100 at the end of the month, (a) Assuming no other errors in recording or posting, will the error
Assuming the use of a two-column general journal, a purchases journal, and a cash payments journal as illustrated in this chapter, indicate the journal in which each of the following transactions
What is an electronic form and how is it used in a computerized accounting system? LO2
If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing: LO3 A. a debit memorandum B. a credit memorandum C. an invoice D. a bill
If merchandise is sold on account to a customer for$1,000, terms FOB shipping point, 1 10, n 30. and the seller prepays $50 in transportation costs, the amount of the discount for early payment would
The income statement in which the total of all expenses is deducted from the total of all revenues is termed: LO3 A. multiple-step form C. account form B. single-step form D. report form
On a multiple-step income statement. the excess of net sales over the cost of merchandise sold is called: LO3 A. operating income B. income from operations C. gross profit D. net income
What distinguishes a merchandising business from a service business? LO3
Can a business earn a gross profit but incur a net loss? Explain. LO3
What is the name of the account in which purchases of merchandise are recorded in a perpetual inventory system? LO3
What is the name of the account in which sales of merchandise are recorded? LO3
How does the accounting for sales to customers using bank credit cards, such as MasterCard and MSA, differ from accounting for sales to customers using nonbank credit cards, such as American Express?
The credit period during which the buyer of merchandise is allowed to pay usually begins with what date? LO3
What is the meaning of (a) 1 10, n 60; (b) n 30; (c) n eom? LO3
It is not unusual for a customer to drive into some Texaco, Chevron, or Conoco gasoline stations and discover that the cash price per gallon is 3 or 4 cents less than the credit price per gallon. As
What is the nature of (a) a credit memorandum issued by the seller of merchandise,(b) a debit memorandum issued by the buyer of merchandise? LO3
Who bears the transportation costs w^hen the terms of sale are (a) FOB shipping point, (b) FOB destination? LO3
Name at least three accounts that would normally appear in the chan of accounts of a merchandising business but would not appear in the chart of accounts of a service business. LO3
Differentiate between the multiple-step and the single-step forms of the income statement. LO3
What are the major advantages and disadvantages of the single-step form of income statement compared to the multiple-step statement? LO3
What type of revenue is reported in the Other income section of the multiple-step income statement? LO3
The Hansen Office Equipment, which uses a perpetual inventory system. experi- enced a normal inventory shrinkage of $12.860. What accounts would be debited and credited to record the adjustment for
Assume that Hansen Office Equipment in Question 15 experienced an abnormal inventory shrinkage of $210,500. Hansen Office Equipment has decided to record the abnormal inventory shrinkage so that it
In preparing a bank reconciliation, the amount of checks outstanding would be: LO2 A. added to the cash balance according to the bank statement.B. deducted from the cash balance according to the bank
Journal entries based on the bank reconciliation are required for: LO2A. additions to the cash balance according to the de- positor's records. B. deductions from the cash balance according to the
Which of the following is the correct entry to replen- ish a petty cash fund? LO2A. Debit Petty Cash; credit Cash B. Debit various expense accounts; credit Petty Cash C. Debit various expense
Why is cash the asset that often warrants the most attention in the design of an ef fective internal control structure? LO2
The combined cash count of all cash registers at the close of business is $110 less than the cash sales indicated by the cash register tapes. (a) In what account is the cash shortage recorded? (b)
In which section of the income statement would a credit balance in Cash Short and Over be reported? LO2
Before a voucher for the purchase of merchandise is approved for payment, support- ing documents should be compared to verify the accuracy of the liability. Name an example of a supporting document
When is a voucher recorded? LO2
The accounting clerk pays all obligations by prenumbered checks. What are the strengths and weaknesses in the internal control over cash payments in this situation? LO2
In what order are vouchers ordinarily filed (a) in the unpaid voucher file and (b) in the paid voucher file? Give reasons for the answers. LO2
The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference? LO2
What is the purpose of preparing a bank reconciliation? LO2
Do items reported on the bank statement as credits represent (a) additions made by the bank to the depositor's balance, or (b) deductions made by the bank from the depositor's balance? LO2
What entry should be made if a check received from a customer and deposited is returned by the bank for lack of sufficient funds (an NSF check)? LO2
Explain why some cash payments are made in coins and currency from a petty cash fund. LO2
What account or accounts are debited when (a) establishing a petty cash fund and (b) replenishing a petty cash fund? LO2
The petty cash account has a debit balance of $750. At the end of the accounting period, there is $112 in the petty cash fund, along with petty cash receipts totaling $638. Should the fund be
How are cash equivalents reported in the financial statements? LO2
How is a compensating balance reported in the financial statements? LO2
Describe the nature of a business LO1
Describe the role of accounting ir business. LO2
Describe the importance of busi- j ness ethics and the basic principles of proper ethical conduct. LO3
Describe the profession of account ing. LO4
Summarize the development ofi accounting principles and relate them to practice. LO5
State the accounting equation and*define each element of the equa- tion. LO6
Explain how business transactio can be stated in terms of the resulting changes in the basic elements of the accounting equation. LO7
Describe the financial statements of a proprietorship and explain how they interrelate. LO8
Use the ratio of liabilities to owner's equity to analyze the ability of a business to withstand poor business conditions. LO9
An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services ( outputs i to customers.LO9 A. Account form B. Account
A type of business that changes basic inputs into products that are sold to individual customers.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F.
A type of business that purchases products from other businesses and sells them to customers.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F.
A business owned by one individual.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity concept
A business owned by two or more individuals.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity
A business organized under state or federal statutes as a separate legal entity.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance
A person or entity who has an interest in the economic performance of a business.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G.
Individuals authorized by the owners to operate the business.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business
An information system that provides reports to stakeholders about the economic activities and condition of a business.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E.
Moral principles that guide the conduct of individuals.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I.
A specialized field of accounting concerned primarily with the recording and reporting of economic data and activities to stakeholders outside the business.LO9 A. Account form B. Account payable C.
A specialized field of accounting that uses estimated data to aid management in mnning day-to-day operations and in planning future operations.LO9 A. Account form B. Account payable C. Account
The authoritative body that has the primary responsibility for developing accounting principles.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F.
A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business.LO9 A. Account form B. Account payable C. Account receivable
A concept of accounting requiring that economic data be recorded in dollars.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance
The resources owned by a business.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity concept
The rights of creditors that represent debts of the business.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business
The rights of the owners.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity concept J.
Assets = Liabilities + Owner's Equity LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity
An economic event or condition that directly changes an entity's financial condition or directly affects its results of operations.LO9 A. Account form B. Account payable C. Account receivable D.
The liability created by a purchase on account.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business
Items such as supplies that will be used in the business in the future.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H.
A claim against the customer.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business entity concept J.
The amounts used in the process of earning revenue.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet H. Business I. Business
The amount a business earns by selling goods or services to its customers.LO9 A. Account form B. Account payable C. Account receivable D. Accounting E. Accounting equation F. Assets G. Balance sheet

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