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Multiple Choice Questions 1 An accounting convention is best described as a. an absolute truth. b. an accounting custom. c. an optional rule. d. something that cannot be changed. 2. A debit is not the normal balance for which account listed below? a. Dividends b. Cash c. Accounts Receivable d. Service Revenue At December 1, 2006, Marco Companys accounts receivable balance was $1,200. During December, Marco had credit sales of $5,000 and collected accounts receivable of $4,000. At December 31, 2006, the accounts receivable balance is a. $1,200 debit b. $2,200 debit c. $6,200 debit d. $2,200 credit At October 1, 2006, Deet Industries had an accounts payable balance of $30,000. During the month, the company made purchases on account of $25,000 and made payments on account of $40,000. At October 31, 2006, the accounts payable balance is a. $30,000 debit b. $10,000 credit c. $15,000 credit d. $40,000 credit The first step in the recording process is to a. prepare financial statements. b. analyze each transaction for its effect on the accounts. c. post to a journal. d. prepare a trial balance. A trial balance is a listing of a. transactions in a journal. b. the chart of accounts. c. general ledger accounts and balances. d. the totals from the journal pages. A trial balance would only help in detecting which one of the following errors? a. A transaction that is not journalized b. A journal entry that is posted twice c. Offsetting errors are made in recording the transaction d. A transposition error when transferring the debit side of journal entry to the ledger

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8..... An account is an individual accounting record of increases and decreases in specific a. liabilities. b. assets.

c. expenses. d. assets, liabilities, and , stockholders equity items. 9. Which of the following is not a common time period chosen by businesses as their accounting period? a. Daily b. Monthly c. Quarterly d. Annually Which of the following time periods would not be referred to as an interim period? a. Monthly b. Quarterly c. Semi-annually d. Annually Which of the following are in accordance with generally accepted accounting principles? a. Accrual basis accounting b. Cash basis accounting c. Both accrual basis and cash basis accounting d. Neither accrual basis nor cash basis accounting Horton Enterprises performed services on July 30, billed the customer on August 3, and received payment on September 7. The revenue should be recognized in a. December. b. July. c. August. d. September. The matching principle matches a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses. An adjusted trial balance a. is prepared after the financial statements have been prepared. b. proves the equality of the debits and the credits of the ledger accounts. c. is required by GAAP. d. is prepared after the post-closing trial balance. A work sheet is a multiple column form that facilitates the a. identification of events. b. measurement process. c. preparation of financial statements. d. analysis process.

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Which of the following companies would be least likely to use a work sheet to facilitate the adjustment process? a. Large company with numerous accounts b. Small company with numerous accounts c. All companies, since work sheets are required under generally accepted accounting principles d. Small company with few accounts The account, Supplies, will appear in the following debit columns of the work sheet. a. Trial balance

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b. Adjusted trial balance c. Balance sheet d. All of these 18. When constructing a work sheet, accounts are often needed that are not listed in the trial balance already entered on the work sheet from the ledger. Where should these additional accounts be shown on the work sheet? a. They should be inserted in alphabetical order into the trial balance accounts already given. b. They should be inserted in chart of account order into the trial balance already given. c. They should be inserted on the lines immediately below the trial balance totals. d. They should not be inserted on the trial balance until the next accounting period. The Income Summary account is an important account that is used a. during interim periods. b. in preparing adjusting entries. c. annually in preparing closing entries. d. annually in preparing correcting entries. a. b. c. d. 21. 20. The balance in the income summary account before it is closed will be equal to the net income or loss on the income statement. the beginning balance in the retained earnings account. the ending balance in the retained earnings account. zero.

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A post-closing trial balance is prepared a. after closing entries have been journalized and posted. b. before closing entries have been journalized and posted. c. after closing entries have been journalized but before the entries are posted. d. before closing entries have been journalized but after the entries are posted. a. b. c. d. 22. In a perpetual inventory system, cost of goods sold is recorded on a daily basis. on a monthly basis. on an annual basis. with each sale.

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Reymeyer Inc. uses a perpetual inventory system. A purchase of inventory on account for $2,000 will be recorded with the following journal entry: a. debit Merchandise Inventory, $2,000; credit Accounts Payable, $2,000. b. debit Purchases, $2,000; credit Accounts Payable, $2,000. c. debit Supplies, $2,000; credit Cash, $2,000. d. debit Cost of Goods Sold, $2,000; credit Merchandise Inventory, $2,000. A purchaser, dissatisfied with merchandise received, may return goods to the seller for credit. From the standpoint of the seller, this transaction is known as a: purchase return. sales return. sales allowance. purchase allowance. Morton Company uses a perpetual inventory system. On December 1, 2006, the company purchased inventory on account for $9,000. The credit terms are 2/10, n/30. If Morton pays the bill on December 29, 2006, what amount of discount will be taken? a. $0 b. $90 c. $180

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d. $882 26. CMP Inc. maintains perpetual inventory records. During January, the company made purchases of $40,000 and sold goods with a cost of $42,000 for $104,000. Cost of goods sold for the month is: a. $40,000 b. $42,000 c. $62,000 d. $64,000 A sales invoice is a source document that a. provides support for goods purchased for resale. b. provides evidence of incurred operating expenses. c. provides evidence of credit sales. d. serves only as a customer receipt. a. b. c. d. 29 28. Sales revenue may be recorded before cash is collected. will always equal cash collections in a month. only results from credit sales. is only recorded after cash is collected.

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Internal control is defined, in part, as a plan that safeguards a. all balance sheet accounts. b. assets. c. liabilities. d. capital stock.

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Which of the following is an example of an irregularity in the accounting process? a. An employee steals inventory. b. Towards the end of the month, the bookkeeper puts bills in a drawer to be recorded in the next month instead of recording the expenses and liabilities in the accounting records when incurred. c. The store manager refuses to take vacations. d. The bookkeeper borrows cash on Fridays and repays it on Monday. Internal controls are not designed to safeguard assets from a. natural disasters. b. employee theft. c. robbery. d. unauthorized use. system of internal control a. is infallible. b. can be rendered ineffective by employee collusion. c. invariably will have costs exceeding benefits. d. is premised on the concept of absolute assurance. Postage stamps on hand are considered to be a. cash. b. petty cash. c. cash equivalents. d. a prepaid expense. ll of the following items would be considered cash on hand except a. coins in petty cash b. money orders on hand c. cash in the bank account

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d. postdated checks 35 Proper control for over-the-counter cash receipts includes a. a cash register with totals visible to the customer. b. using electronic cash registers with no tapes. c. cash count sheets requiring only the supervisor's signature. d. cash count sheets requiring only the cashier's signature. company stamps checks received in the mail with the words "For Deposit Only". This endorsement is called a. a blank endorsement. b. a rubber stamp. c. a restrictive endorsement. d. an operational endorsement. True or False Questions 37 38 39 40. 41. 42. 43. company's calendar year and fiscal year are always the same. Accounting time periods that are one year in length are referred to as interim periods. The cash basis of accounting is not in accordance with generally accepted accounting principles. Cost of goods sold is an operating expense for a merchandising company. The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month. The matching principle requires that the cost of the merchandise be matched against the sales revenue from the merchandise. A merchandiser using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

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