Multiple Choice:

1. Double-entry accounting is an accounting system:

a. That records each transaction twice.

b. That records the effects of transactions and other events in at least two accounts with equal debits and credits.

c. In which each transaction effects and is recorded in two or more accounts, but that could include two debits and not credits.

d. That may only be used if T-accounts are used.

e. In which each transaction affects and is recorded in two or more accounts, but that could include two credits and not debits.

2. The accounting process begins with:

a. Analyzing business transactions and source documents.

b. Preparing financial statements and other reports.

c. Summarizing the recorded effects of business transactions.

d. Presentation of financial information to decision makers.

3. Which of the following does not accurately represent the accounting equation?

a. Assets – Liabilities = Stockholder’s Equity.

b. Assets – Stockholder’s Equity = Liabilities.

c. Assets + Liabilities = Stockholder’s Equity.

d. Assets = Liabilities + Stockholder’s Equity.

4. External users of financial accounting information include all of the following except

a. Lenders such as bankers

b. Governmental agencies such as the IRS

c. Employees of a business

d. Potential investors

5. A gain in net income is

a. Assets minus liabilities.

b. The excess of revenues over expenses.

c. An asset.

d. The excess of expenses over revenues.

6. Brown Business Associates collected $2,000 cash on its Accounts Receivable. The effects of this transaction as reflected in the accounting equation are:

a. Total assets decreases and equity increases.

b. Both total assets and total liabilities decrease.

c. Total assets, total liabilities, and equity are unchanged.

d. Both total assets and equity are unchanged and liabilities increase.

e. Both total liabilities and equity increase, while total assets decrease.

7. Which of these accounts would not be present in the closing entries?

a. Utilities expense.

b. Fees earned revenue.

c. Insurance expense.

f. Dividends payable.

8. Consultants-R-US paid off $5,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

a. Assets, $5,000 increase; liabilities, no effect; equity, $5,000 increase.

b. Assets, $5,000 decrease; liabilities, $5,000 decrease; equity, no effect.

c. Assets $5,000 decrease; liabilities, $5,000 increase; equity, no effect.

d. Assets, no effect; liabilities $5,000 decrease; equity, $5,000 increase.

9. Revenue is properly recognized:

a. When the customer’s order is received.

b. Only if the transaction creates an Account Receivable.

c. When it is earned.

d. Only when payment is received as soon as the work is done.

10. Which of these accounts would be present in the closing entries?

a. Dividends

b. Accounts Payable

c. Prepaid rent

d. Conservatism

11. FOB Shipping Point means that:

a. Buyer pays the freight.

b. Seller pays the freight.

c. Goods are shipped free on board (FOB) to the buyers place.

d. Trucking company pays the freight

12. A Perpetual Inventory System would include all of the following except:

a. Continuous records are kept of the quantity.

b. The balance in cost of goods sold equals the cost of merchandise sold to customers at all times.

c. Helps to manage inventory more effectively and thus avoid running out of stock.

d. The inventory not yet sold is counted periodically.

13. A business’ assets total $150,000 and its liabilities total $30,000. What is the total stockholder’s equity of the business?

a. $120,000.

b. $180,000.

c. $100,000.

d. $150,000.

e. None of the above.

14. The buyer received an invoice from the seller for merchandise with a list price of $1000 and credit terms of 2/15, n/30. The term 2/15 in the credit terms denotes which of the following?

a. The discount percentage and the number of days to the end of the month.

b. Only the discount period.

c. The discount percentage and the number of days in the credit period.

d.. The discount percentage and the number of days in the discount period.

15. Which of the following accounts is considered a permanent or real account?

a. Interest revenue.

b. Insurance expense.

c. Prepaid insurance.

d. Supplies expense.