1. Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received. True False 2. The matching principle in accounting requires the matching of revenue earned with the assets used to product the revenue. expenses incurred to produce the revenue. assets used less the liabilities incurred. liabilities used to produce the revenue. 3.Revenue accounts are closed by crediting them and debiting Retained Earnings. True False 4. The closing entries show a debit to Retained Earnings of $350, and a credit to Retained Earnings of $750. There was also a credit to Dividends Payable of $100. This company had a net income of $400. net income of $500. net loss of $400. net loss of $500. 5. Which of the following characterizes Best Buy? Best Buy neither purchases nor sells products. Best Buy sells products but doesn't purchase products. Best Buy purchases products but doesn't sell products. Best Buy both purchases and sells products. 6. In the perpetual inventory system, inventory is constantly updated through the inventory tracking system. True False 7. An invoice with the credit terms 3/10, n/30 means that the customer has three days to take a 10% discount off of the invoice total. True False 8. If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited by the merchandiser for the reduction in price under a perpetual inventory system is Cash. Accounts Payable. Returns. Inventory. 9. Which of the following credit terms allows a discount of 3% if payment is made within 15 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice? 3/15, EOM 3/15, n/30 3/EOM, n/30 15/3, n/30 10. The inventory system that uses the merchandise inventory account as an asset account is called the merchandising system. perpetual system. retailing system. periodic system. 11. Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales account. True False 12. FOB shipping point means that title passes at the time the product is shipped from the seller. True False 13. ________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing. Average cost FIFO LIFO Specific identification 14. One lot of merchandise was counted at $566.34. A second count of the same merchandise showed $566.82. The difference could be ignored due to materiality. conservatism. consistency. entity. 15. Which of the following is an INCORRECT statement if ending inventory is overstated? Income tax is overstated. Net income is overstated. Gross profit is overstated. Cost of goods sold is overstated. 16. The first step in using the gross profit method to estimate ending inventory is to estimate the beginning inventory. cost of goods sold. ending inventory. cost of goods available for sale. 17. Inventory turnover equals average ending inventory divided by cost of goods sold. True False 18. A business with a ________ net income percentage may often have a ________ inventory turnover rate. A. higher; lower B. lower; lower C. lower; higher D. Both A and C are correct 19. One objective of an internal control system is to safeguard the assets of a company. True False 20. Management and staff attitudes toward internal control are an important part of control activities. True False 21. Which element of internal control deals with the establishment of a company's policies? Control activities Information and communication Risk assessment Control environment 22.Which of the following would NOT be considered a control activity? Having written job descriptions Not having employees take vacations Keeping accounting records Changing passwords regularly 23. The audit opinion that all companies try to achieve is a(n) ________opinion. adverse disclaimer of qualified unqualified 24. An audit opinion in which the auditors take exception to a specific treatment of accounting information is the ________ opinion. adverse unqualified disclaimer of qualified 25.Ethical conduct refers to how society requires people to act. True False 26. Using U.S. GAAP, book value typically ________ market value. bears no relationship to is lower than is equal to is higher than