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CPA REVIEW

THEORY OF ACCOUNTS C. Gonzaga


TOPIC: THE ACCCOUNTING PROCESS: A REVIEW

Review of the Accounting Process


Step 1 Compile and arrange the business documents supporting transactions.
Step 2 Journalize business transactions and events on the books of original
entry called JOURNALS.
Step 3 Post the journal entries from the journals to the LEDGERS, he books of
final entry.
Step 4 Prepare the TRIAL BALANCE from the General Ledgers.
Step 5 Compile the data that will be needed to prepare the necessary
ADJUSTMENTS to make the account balances up-to-date.
Step 6 Prepare the WORKSHEET.
Step 7 Prepare the basic FINANCIAL STATEMENTS.
Step 8 Journalize on the general journal and post on the general ledgers the
adjustments made in the worksheet.
Step 9 Journalize and post the CLOSING ENTRIES.
Step 10 Balance and rule the general ledger accounts after posting closing
entries.
Step 11 Prepare the POST-CLOSING TRIAL BALANCE.
Step 12 Journalize and post the necessary REVERSING ENTRIES to facilitate
the recording routines in the next accounting period.

Accounting Equation
The accounting system is an information system that uses accounts to record and classify the financial
effects of an entity’ transactions and events, summarize these effects, and report the results in financial
statements. Accounts ordinarily are classified in accordance with the ff. equations:

Assets = Liabilities + Equity


Equity = Contributed Capital + Retained Earnings
Retained Earnings = RE, Beginning of the period + Net income –Dividends
+(-) Certain adjustments
Net income = Revenues – Expenses + Gains – Losses

Classification of Accounts
 Permanent (real) accounts = asset, liability and equity accounts.
 Temporary (nominal) accounts = revenues, expenses, gains, losses, and dividends.

Key terms
Journal entries = record the financial effects of transactions and events in the accounting system.
Adjusting entries= entries made as of the balance sheet date to record the effects on periodic revenue and
expense of prepayments (prepaid expenses and unearned revenues) and accruals (revenues earned but not
yet received in cash and expenses incurred but not yet paid in cash.).

Types of adjustments are:

 Accrued expenses= expenses already incurred but not yet paid.

Expense (e.g. Salaries & Wages Expense) xxx


Liability (e.g. Salaries & Wages Payable) xxx

 Accrued revenues=income already earned but not yet collected.

Asset (e.g. Commission Receivable) xxx


Income(e.g. Commission Income) xxx

 Prepaid expenses – are items of goods or services purchased by the company for use in its operations but
not fully consumed or used up by the entity at the end of the accounting period. When goods or services are
initially purchased, the cost is recorded either as an asset (using the asset method) or as an expense (using
the expense method), as follows:

ASSET METHOD EXPENSE METHOD


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Journal entry upon payment for goods or Journal entry upon payment for goods or
services: services:

Asset (ex. Prepaid Insurance) xxx Expense (ex. Insurance Expense) xxx
Cash xxx Cash xxx
ASSET METHOD EXPENSE METHOD
Adjusting entry (end of the accounting Adjusting entry (end of the accounting
period): period):

Expense (ex. Insurance Expense) xxx Asset (ex. Prepaid Insurance) xxx
Asset (ex. Prepaid Insurance) xxx Expense(ex. Insurance Expense) xxx
To take up the used portion To take up the unused portion
of the item. of the item.

Reversing entry (beginning of the Reversing entry (beginning of the subsequent


subsequent accounting period): accounting period):

(None) Expense (ex. Insurance Expense) xxx


Asset (ex. Prepaid Insurance) xxx

 Unearned revenues (pre-collected or deferred revenues) = cash received in advance by the company for
the future sale of inventory or services to be performed in the future. The collection in advance is treated as a
liability ( using the liability method) or as an income (using the income method), as follows:

LIABILITY METHOD INCOME METHOD


Journal entry upon cash collection in Journal entry upon cash collection in
advance: advance:

Cash xxx Cash xxx


Liability (ex. Unearned Rent) xxx Income (ex. Rent Income) xxx

Adjusting entry (end of the accounting Adjusting entry (end of the accounting
period): period):

Liability (ex. Unearned Rent) xxx Income (ex. Rent Income) xxx
Income (ex. Rent Income) xxx Liability (ex. Unearned Rent) xxx
To take up the earned portion To take up the unearned portion
of the item. of the item.

Reversing entry (beginning of the Reversing entry (beginning of the subsequent


subsequent accounting period): accounting period):

(None) Liability (ex. Unearned Rent) xxx


Income (ex. Rent Income) xxx

 Depreciation/amortization of assets
Depreciation expense xxx
Accumulated depreciation xxx

 Provision for uncollectible or doubtful accounts


Uncollectible accounts expense xxx
Allowance for uncollectible accounts xxx

 Reasonably estimable and probable losses due to past events (such as decline in value of investment
in marketable securities or those arising from pending lawsuits).
Estimated loss from pending lawsuit xxx
Estimated liability from pending lawsuit xxx

 Provision for income taxes:

Income tax expense xxx


Income tax payable xxx

 Inventory (if periodic inventory system is used):


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Adjusting entry ( at end of the accounting period):

(Using Cost of Goods Sold Method or Adjusting Method):

Inventory, end xxx


Purchase returns & allowances xxx
Cost of goods sold xxx
Inventory, beginning xxx
Purchases xxx
Freight-in xxx

(Using alternative approach):

Income Summary xxx


Beginning inventory xxx

Ending inventory xxx


Income Summary xxx

(NOTE: When perpetual inventory system is used, the ending inventory and the cost of goods sold
balances already appear in the ledger and therefore, no adjusting entry is necessary unless there are
discrepancies or errors eg. shortage or overage, in the inventory count vs. perpetual inventory records.)

Closing entries = transfer (close) temporary account balances to retained earnings. (assuming corporate
business) as follows:

Revenues/ gains xxx


Income summary xxx

Income summary xxx


Expenses/ losses xxx

If net income, that is, income summary has a credit balance:


Income summary xxx
Retained earnings xxx

If net loss, that is, income summary has a debit balance:


Retained earnings xxx
Income summary xxx

Retained earnings xxx


Dividends xxx

Reversing entries = reverse the effects of adjusting entries to simplify the future recording of revenue and
expense transactions related to adjusting entries. These entries are made at the beginning of the subsequent
period to dispose some accrued and deferred items (assets and liabilities) that were entered in the balance sheet
accounts through adjusting entries. But, not all adjusting entries are reversed, only those adjustments that affect
asset or liability accounts that are normally used during an accounting period are reversed. Preparation of
reversing entries is optional.

ADJUSTING ENTRIES REVERSING ENTRIES


Accrued expenses: Accrued expenses:
Wages expense xxx Wages payable xxx
Wages payable xxx Wages expense xxx

Accrued revenues: Accrued revenues:


Interest receivable xxx Interest income xxx
Interest income Interest receivable xxx
xxx
Prepaid expenses (using Expense Method Prepaid expenses (using Expense
): Method only):
Insurance expense xxx
Prepaid insurance xxx Prepaid insurance xxx
Insurance expense xxx
Unearned revenues (using Income Unearned revenues (using Income
Method): Method only):
Rent income xxx Unearned rent xxx
Unearned rent xxx Rent income xxx
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(Note: Adjusting, closing, and reversing entries must affect at least one temporary account and at least
one real account.)

Beg. Bal. xxx xxx Rvrse entry Beg. Bal. xxx xxx Adj entry
(to record used
Adj entry xxx Ending Bal. Pre-payments xxx portion)
(to record
unused portion) xxx xxx Ending Bal.

(Using Income Method): (Using Liability Method):

Unearned Revenue Unearned Revenue

Revrse entry xxx xxx Beg. Bal. Adj entry xxx Beg. Bal.
(to record
Ending Bal. xxx xxx Adj entry earned xxx Pre- collections
(to record portion) xxx
unearned
Ending bal. xxx
portion.)

(Under Periodic Inventory System) : ( Under Perpetual Inventory System):

Inventory Inventory

Beg. Bal. xxx xxx Closing entry Beg. Bal xxx xxx Cost of
of the Beg. Bal. Purchases xxx goods sold
to CGS or to Returns xxx Returns to
Income Summary from suppliers
customers xxx xxx Ending invtry

Cost goods sold Cost of goods sold

Transferred xxx Transferred bal.


Bal. of of purchse Cost of goods xxx Returns from
purchases,freight- returns & allow. sold xxx customers
in & beg. purchse discounts
Inventory xxx Adj entry to setup xxx Closing entry
accounts xxx ending invty. of ending bal.
xxx Closing entry of
ending inventory

MULTIPLE CHOICE

1. The step in the preparation of a work sheet do not include:


a. Analyzing source documents.
b. Preparing a trial balance on the work sheet.
c. Entering the adjustments in the adjustment columns.
d. Entering adjusted trial balances in the adjusted trial balance columns.

2. The number of accounts appearing in the trial balance will normally be


a. Less than the number of accounts in the post-closing trial balance.
b. Equal to the number of accounts in the adjusted trial balance.
c. More than the number of accounts in the post-closing trial balance.
d. More than the number of accounts in the adjusted trial balance.

3. The post-closing trial balance contains only


a. Income statement accounts.
b. Statement of financial position accounts.
c. Statement of financial position accounts and income statement accounts.
d. Income statement, statement of financial position, and statement of changes in owner’s equity accounts.
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4. Entering a transaction from the journal to the ledger is called


a. Journalizing b. Footing c. Posting d. Referencing

5. Which is false concerning use of special journals?


a. Only sales of merchandise on account are recorded in the sales journal
b. Purchases of any item on account are recorded in the purchases journal. Acquisition of any item for cash
are recorded in the cash disbursements journal
c. Transactions that cannot be appropriately recorded in a special journal are recorded in the general journal
d. Only cash purchases are recorded in the cash disbursement journal

6. After physical counting, the Merchandise Inventory on hand as of December 31 were valued at P85,000. The
adjusting entry to record ending inventory is:
a. Debit Merchandise Inventory, P85,000; credit Sales, P85,000.
b. Debit Merchandise Inventory, P85,000; credit Owner, Capital, P85,000.
c. Debit Merchandise Inventory, P85,000; credit Income Summary, P85,000.
d. Debit Income Summary, P85,000; credit Merchandise Inventory, P85,000.

7. Adjustments classified as deferred items would include transfer from:


a. A liability account to an expense account.
b. A liability account to an asset account.
c. An asset account to an expense account.
d. An asset account to a revenue account.

8. The purpose of making reversing entries is:


a. To return the balances of the “temporary owner’s equity” accounts to zero and update the balance of the
owner’s capital account.
b. To reduce net profit for income tax purposes.
c. To record transactions in the next accounting period in a routine manner.
d. To correct errors in the accounting records.

9. What is the correct order of the following steps in the accounting cycle?
(1) Adjusting entries (4) Financial statements
(2) Adjusted trial balance (5) Post-closing trial balance
(3) Closing entries (6) Trial balance

a. 3, 5, 4, 3, 1, 2.
b. 6, 1, 2, 4, 3, 5
c. 6, 1, 2, 3, 5, 4
d. 6, 1, 2, 3, 4, 5

10. Which of the following accounts should be closed to the Income Summary account at the end of the accounting
period?
a. Accumulated Depreciation b. Prepaid Insurance c. Depreciation Expense d. Unearned Revenues
11. Closing entries:
a. Affect only statement of financial position account.
b. Is an optional step in the accounting cycle.
c. Would allow a company to analyze and record routine, repetitive transactions in the same manner all the
time.
d. Would bring to zero the balances of a company’s temporary accounts.

12. The accrual basis of accounting recognizes:


a. Revenues when services are rendered as part of operating activities.
b. Revenues when cash is received from customers.
c. Expenses when cash is paid.
d. Owner’s capital increase when additional investment is made.
13. Which of the following is NOT part of the accounting process?
a. Analyzing transactions.
b. Entering transactions in a journal.
c. Preparing a trial balance.
d. Posting transactions.
14. A ledger:
a. Is a collection of the entire group of accounts maintained by a company.
b. Is a book of original entry.
c. Should show accounts in alphabetical order.
d. Contains only asset and liability accounts.

15. A trial balance will NOT balance if:


a. A correct journal entry is posted twice.
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b. The purchase of supplies on account is debited to Supplies and credited to Cash.


c. A P100 cash drawing by the owner is debited to Owner’s Drawing for P1,000 and credited to Cash for
P100.
d. A P450 payment on account is debited to Accounts Payable for P45 and credited to Cash for P45.

16. The purpose of a trial balance is:


a. To determine that journal entries are in balance before postings those entries in the ledger.
b. To indicate the effects of business transactions upon ledger accounts.
c. To prove the equality of debits and credits in the ledger.
d. To determine that the number of ledger accounts with debit balances is equal to the number with credit
balances.

17. The key point of double-entry bookkeeping is that every transaction:


a. Is recorded by equal peso amount of debit and credit entries.
b. Is recorded in both the journal and the ledger.
c. Affects both sides of the statement of financial position.
d. Is both recorded and posted.

18. A system of bookkeeping whereby transactions are not analyzed in terms of debits and credits. Only a cash book
summarizing receipts and disbursements is used. This is known as:
a. Double-entry bookkeeping c. Modified-accrual basis
b. Single-entry bookkeeping d. Voucher system

19. The manner in which the accounting records are organized and employed within a business is known as:
a. Accounting system c. Voucher system
b. Business document d. Special journals

20. The recording phase of financial accounting covers the following steps, except:
a. Business documents are received and prepared.
b. Transactions are journalized
c. Transactions are posted to the ledger
d. Financial statements are prepared.

21. Determine the true statements


a. The accounting cycle is part of the accounting process
b. The accounting system is part of the accounting process
c. The accounting process is part of the accounting cycle
d. The accounting system is part of the accounting cycle
22. A term descriptive of accounting (as opposed to bookkeeping)
a. Routine b. Clerical c. Analytical d. Mechanical
23. The accounting process of 5 basic phases. The statement that best describes the classifying phase is
a. Transactions are analyzed in terms of their impact on the accounting equation
b. Accountable transactions are entered into the accounting books
c. Journal entries are posted to the ledgers on a per-account basis
d. Financial statements are prepared to serve as the end-product of accounting
24. Economic data on the transactions and other accountable events of an entity are collected by means of
a. Source documents
b. Accounts
c. Journals
d. Accounting records
25. The first step in the accounting cycle is to
a. Record transactions in a journal
b. Analyze transactions from source documents
c. Post journal entries to general ledger accounts
d. Adjust the general ledger accounts
26. The debit and credit analysis of a transaction normally takes place
a. Before an entry is recorded in the journal
b. When the entry is posted to the ledger
c. When the trial balance is prepared
d. At some other point in the accounting cycle
27. A transaction that has a net effect of increasing assets and equity is
a. Payment of an expense in cash
b. A sale of services for cash
c. Retirement of treasury shares
d. Collection of accounts receivables
28. Which of the following documents does not initiate an entry to be made in the accounts?
a. Sales invoice
b. Credit memorandum
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c. Purchase invoice
d. Purchase order
29. Journals are likewise regarded as the
a. Book of Genesis
b. Book of final entry
c. Book of original entry
d. Book of secondary entry
30. One of the following is a valid statement:
a. Income accounts are decreased by credits and increased by debits
b. Asset accounts are decreased by debits and increased by credits
c. Liability accounts are decreased by credits and increase by debits
d. Expense accounts are increased by debits and decreased by credits
31. Which of the following accounts normally has a credit balance?
a. Treasury shares
b. Shares returns and allowances
c. Allowance for doubtful accounts
d. Discount on bonds payable
32. Which of the following special journals is used to facilitate recording of cash sale transaction?
a. Sales journal
b. Purchase journal
c. Cash receipts journal
d. Cash disbursement
33. A check register may be used in lieu of an
a. Cash disbursement journal b. Purchases journal c. Cash receipts journal d. Sales journal
34. A voucher system is used in connection with transactions that involve only
a. The payment of cash
b. The receipt of cash
c. The purchase and sale of merchandise
d. Revenue and expense
35. When special journals are used, adjusting and closing entries are generally recorded in the
a. Cash disbursement journal b. Cash receipts journal c. General journal d. Purchases journal
36. A subsidiary ledger is
a. A backup system to protect against unexpected destruction of records
b. A listing of accounts of a subsidiary company owned by a parent company
c. A listing of accounts balance just before closing entries are prepared
d. A system that relieves the general ledger of details that so bookkeeping work may be divided
37. A chart of accounts
a. A flowchart of all transactions c. A journal
b. An accounting procedure manual d. A list of names of all account titles

38. Which of the following is considered as a real account?


a. Interest expense b.Distribution cost c. Prepaid Expense d. Income Summary
39. Which of the following is considered as a nominal account?
a. Share capital b. Share premium c. Rent income d. Accrued income

40. An example of an adjunct account is:


a. Accumulated profits and losses c. Carriage inwards
b. Opening stocks d. Carriage outwards
41. A trial balance
a. Proves absence of errors in the journalizing and posting process
b. Is prepared only once in the accounting cycle
c. Proves that debits and credits are equal in the ledger
d. Is not useful in detecting potential errors committed in the posting process
42. Which of the following errors could be disclosed by the trial balance?
a. Incorrect application of GAAP
b. Omission of journal entry
c. Posting to the correct side of wrong account
d. Posting to the wrong side of a correct account
43. When income statement accounts have zero balances, a trial balance that could prepared is the
a. Periodic trial balance
b. Adjusted trial balance
c. Post-closing balance
d. Any of these
44. Statement 1: If the debit totals in the income statement columns of the worksheet, then there is net income for
the period.
Statement 2: If the debit totals exceed the credit totals in the balance sheet columns of the worksheet, then
there is net loss for the period.
a. True, true b. True, false c. False, true d. False, false
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45. Which of the following is NOT a function of an adjusting entry?


a. To record income (expenses) already earned (incurred) but not yet taken up in the books.
b. To segregate real and nominal elements in mixed accounts
c. To record other changes in accounting value not yet reflected in the accounts
d. To bring all nominal accounts to zero balances
46. Adjusting entries normally involve
a. Expense and liability accounts c. Real and nominal accounts
b. Nominal accounts d. Asset and income accounts
47. An example of adjusting entry is recording the
a. Payment of wages to employees c. Collection of an account
b. Unrecorded wages incurred d. Purchase of an equipment
48. An prepaid expense can be best described as an amount
a. Paid and matched with earnings c. Not paid and not watched with earnings
b. Paid but not matched with earnings d. Not paid but matched with earnings
49. An accrued expense can be described as an amount
a. Paid and matched with earnings
b. Paid but not matched with earnings
c. Not paid and not matched with earnings
d. Not paid but matched with earnings
50. An adjusting entry to accrue wages incurred but not yet disbursed is an example of
a. Reflecting unrecorded expense incurred during an accounting period
b. Reflecting unrecorded revenues earned during an accounting period
c. Aligning recorded revenue with appropriate accounting period
d. Aligning recorded costs with accounting period
51. The receipt of advance rental is recorded by debiting cash and crediting unearned rentals, this approach of
recording is known as
a. Asset method
b. Expense method
c. Liability method
d. Income method
52. If the advance payment of an expense was initially recorded in an asset account, the adjusting entry will involve
a. A debit to expense and a credit to an asset account in the amount of the expired cost
b. A debit to expense and a credit to an asset account in the amount of the unexpired cost
c. A debit to an asset account and a credit to expense in the amount of the expired cost
d. A debit to an asset account and a credit to expense in the amount of the unexpired cost
53. Which of the following accounts is affected by the closing process?
a. Asset accounts
b. Liability accounts
c. Capital accounts
d. None of these
54. A credit balance in the income summary account represents
a. Net income
b. Net loss
c. Liability
d. Capital
55. Which of the following accounts would not be closed?
a. Gain on sale of equipment
b. Gain on retirement of bonds payable
c. Gain on sale of available-for-sale equity securities
d. Gain on sale of treasury stock
56. Reversing entries are
a. Required journal entries being done at the end of the accounting period
b. So called since they are the opposite of certain closing entries made at year end
c. To mean that the adjusting entries reversed are inaccurate or unnecessary
d. Done to simplify the subsequent recording of certain kinds of recurring transactions
57. Adjusting entries that should be reversed include prepaid items that
a. Create an expense account when adjusted
b. Were originally entered in an asset account
c. Create a liability account when adjusted
d. Create an asset account when adjusted
58. Correcting entries are done to correct records for errors pertaining to
a. Computation: recorded amounts are erroneously computed
b. Compliance with GAAP: accounting treatment and terminologies are inappropriate
c. Omission: effects of an accountable event are not recorded
d. All of the above are subject to correcting entries
59. An example of counter-balancing error is
a. Over/Understatement of depreciation
b. Over/Understatement of inventory
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c. Expensing of capital expenditures


d. Capitalizing of revenue expenditures
60. The basic financial statements are: (1) Balance Sheet (2) Statement of Changes in Equity (3) Income Statement
(4) Statement of Cash Flows. In which of the following sequences does an accountant ordinarily prepare the
statements?
a. 1,4,3,2 b. 2,1,3,4 c. 3,2,1,4 d. 3,2,4,1

61. In order to show detailed information about the composition of an account balance, most companies use
a. Special journals b. Subsidiary ledgers c. A general ledger d. A trial balance
62. The first step in the accounting cycle is to
a. Prepare an adjusted trial balance
b. Prepare adjusting entries
c. Report transaction journal
d. Post to ledger accounts
63. All of the following characteristics are common to accounting and reporting systems, regardless of complexity of
the entity, except for the
a. Type of economic events identified as recordable events
b. Accounting process used to collect and report data
c. Length of time used to define the entity’s operating cycle
d. Accounting model used to express the consequence of economic events
64. On an asset ledger account, decreases are recorded on
a. The left side
b. The right side
c. Both
d. Sides
e. Neither side
65. Which is false concerning use of special journals?
a. Only sales of merchandise on account are recorded in the sales journal
b. Purchases of any item on account are recorded in the purchases journal. Acquisition of any item for cash
are recorded in the cash disbursements journal
c. Transactions that cannot be appropriately recorded in a special journal are recorded in the general journal
d. Only cash purchases are recorded in the cash disbursement journal
66. To credit a ledger account means to make an entry on
a. The left side b. The right side c. Both sides d. Neither sides
67. Asset accounts would be expected to have
a. Debit balances b. Credit balances c. Zero balances d. Indeterminate balances
68. On an equity ledger account, increases are recorded on
a. The left side b. The right side c. Both sides d. Neither sides
69. Accounting periods can be
a. Weekly b. monthly c. yearly d. all of the these
70. Entering a transaction from the journal to the ledger is called
a. Journalizing b. Footing c. Posting d. Referencing
71. A voucher system is used in connection with transactions that involve only
a. Receipt of cash c. Purchase and sale of merchandise
b. Payment cash d. Revenue and expense
72. In a journal entry, debits are listed
a. `first b. Last c. Anywhere d. Not in a journal e. Entry
73. Posting can take place
a. Instantly b. daily c. monthly d. all of the these
74. Liability accounts would be expected to have
a. Debit balances b. Credit balances c. Zero balances d. Indeterminate balances
75. The account credited for a receipt of cash on account is
a. Accounts payable b. Service revenue c. Cash d. Accounts receivable
76. Sales total P440, 000, cost of goods sold is P210, 000, and operating expenses are P160, 000. How much is
gross margin?
a. P440, 000 b. P230, 000 c. 70, 000 d. P210, 000
77. Special journals help most by
a. Easing the preparation of the financial statements
b. Limiting the number of transactions that have to be recorded
c. Reducing the cost of operating the accounting system
d. Improving accuracy in posting to subsidiary ledgers
78. Entries prepared, as a step in the accounting process, to bring the books and accounts to date, is known as:
a. Closing entries b. Adjusting entries c. Opening entries d. Reversing entries
79. Adjusting entries
a. Help to property measure the period’s net income or net loss
b. Bring asset and liability accounts to correct balances
c. Assign revenues to the period in which they are earned
d. All of these
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80. Balancing the ledgers at the end of the period is most closely related to
a. Control b. Favorable cost/benefit relationship c. Flexibility d. Compatibility
81. The account number 211031 most likely refers to
a. Accounts payable b. An individual vendor c. Liabilities d. Current liabilities
82. When a firm generate revenues
a. Net assets increase b. Retained earnings decrease c. Liabilities increase d. Net assets decrease
83. Accounts fro the balance sheet elements are called
a. Real accounts b. Temporary accounts c. Nominal accounts d. Both b and c
84. Which of the following financial statements uses a date which represents one point in time?
a.Income statement b. Retained earnings statement Statement of financial position d. Statement of cash flows
85. A payment on account was recorded by debiting inventory and crediting cash. This entry was posted. The
correcting entry is
a. Accounts payable X
Inventory X
b. Inventory X
Accounts payable X
c. Cash X
Inventory X
d. Cash X
Accounts X
86. Which type of account would be used to record the investment made by the stockholders of a
corporation?
a. Liability b. Revenue c. Retained earnings d.. Contributed capital
87. The adjusting entry which many companies make to record interest incurred but not paid is classified as
a. A prepayment b. An estimated item c. An accrual d. A reversal
88. An unadjusted trial balance provides assurance that
a. All transactions fro the period have been recorded
b. Transactions have been correctly analyzed
c. Transactions have been posted to the correct accounts
d. Each account’s debit or credit balance has been correctly calculated
89. Cash dividends were declared on December 31, 1999 to be paid on January 15, 2000. Which journal would be
used to record the declaration of the cash dividend?
a. Sales journal b. Purchases journal c. General journal d. Cash disbursement journal
90. The work sheet is a
a. Financial statement b. Ledger c.Convenient device for completing the accounting cycle d. Journal
91. Reversing entries are
a.Not mandatory b. Mandatory for all companies c. Required by the IFRS d.Required only in certain industries
92. A transaction is an event that
a. Changes a firm’s financial position
b. Can be measured objectively
c. Must involve outside parties
d. Both a and b
93. The accounting process can be classified into two parts, namely recording phase and summarizing phase. The
recording phase includes all, except
a. Analyzing the business documents or transactions
b. Recording the transactions in the journals
c. Posting the journal entries to the general accounts
d. Preparing the unadjusted trial balance
94. The book of original entry is called
a. Journal
b. General ledger
c. Subsidiary ledger
d. An account
95. A reversing entry would be recommended for an adjusting entry which
a. Allocated the expired insurance cost from the prepaid insurance account to the insurance expense account
b. Estimated the uncollectible accounts expense
c. Recorded the portion of interest revenue which was earned but not received by year end
d. Allocated the portion of rent revenue earned from the unearned rent account to the rent revenue account
96. Premium on bonds payable is an example of
a. Nominal and adjunct account
b. Real and adjunct account
c. Nominal and contra account
d. Real and contra account
97. An example of a nominal and contra account is
a. Allowance for doubtful accounts b.Deficit c. Freight in d. Sales discount
98. A simple journal entry
a. Consist of one debit and one credit
b. Consist of two debits and one credit
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c. Consist of one debit and two credits


d. Is only a memorandum entry
99. In recording transactions
a. The word “debit” means increase and the word “credit” means decrease
b. Assets, expenses, and owners’ drawing accounts are debited for increases
c. Liabilities, revenue, and owners’ drawing accounts are debited for increases
d. Assets, expense, and owners’ capital account are debited for increases
100. The portion of prepaid expenses applicable to future periods is known as
a. An unexpired cost b. An expired cost c. A sunk cost d. A current cost
101. Closing entries are unique to
a. Retained earnings b. Income summary c. Most nominal accounts d. All nominal accounts
102. Which one of the following item least resembles a typical adjusting entry?
a. Debit an asset and credit revenue
b. Debit an expenses and credit a liability
c. Debit a liability and credit a revenue
d. Debit an asset and credit a liability
103. An unadjusted trial balance
a. Proves that no errors have been made in the accounting records
b. Is a summary taken from the general journal
c. Will detect an error where the accounts debited and credited are reversed in recording a particular
transaction
d. Facilitates the preparation of financial statements
104. Reversing entries apply to
a. All adjusting entries b. All deferrals c. All accruals d. All closing entries
105. Which of the following types of accounts measures economic flows over a period of time?
a. Real accounts b. Nominal accounts c. Mixed accounts d. Contra or adjunct accounts
106. Accounts in the chart of accounts are numbered
a. Randomly b. Sequentially c. Only in even numbers d. Only in odd numbers
107. On a work sheet, a net profit would appear in the:
a. Credit column of the Income Statement.
b. Debit column of the Income Statement.
c. Debit column of the Income Statement and credit column of the Statement of Financial Position.
d. Credit column of the Income Statement and debit column of the Statement of Financial Position.

END

TOA-9-01-ACCOUNTING PROCESS