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343 Multiple choice questions

  1. (When "Where did it go?" equals "Where did it come from?" or) when a company's assets equal the sum of its liabilities plus owner's equity
  2. A gain or loss as a result of a business asset going up or down in value, but the asset has not been sold
  3. Journal entry: record $100 of sales on account
  4. Assets that can be used to pay current liabilities
  5. The 12-month period a business uses to report the results of its operations
  6. Assume all assets are purchased on the first day of the 7th month of the fiscal year
  7. The exclusive right to publish, perform, or reproduce music, art, film, books or software
  8. Cost of goods sold formula
  9. To become a corporation
  10. Debit Cash $800 and Accumulated Depreciation $300; Credit Machine $1,000 and Gain on sale of machine $100
  11. A schedule showing the principal, interest, and remaining balance for each payment on a loan
  12. Journal entry: bond periodic cash payment of $10,000 with an interest expense of $9,000
  13. Income statement formula
  14. Depreciation equals the quotient of the Number of Units Produced and Life in Number of Units, times the difference of Cost and Salvage Value.

    (Depreciation = Number of Units Produced OVER Life in Number of Units, ALL TIMES (Cost MINUS Salvage Value))
  15. Assume all assets purchased during the year were purchased on the first day of the year
  16. The contra-asset account that accumulates all the depreciation of long-lived assets over the years
  17. Financial assets are shown on the balance sheet at their present value. When given a non-interest-bearing note (which has interest in the face amount), GAAP requires that the interest be backed out.
  18. The amount a bank gives in exchange for a note
  19. Another way to determine equity ratio
  20. The amount of long-lived assets used up during operations
  21. One day's sales formula
  22. Journal entry: purchase $1,000 shares of no par stock for $1,000
  23. Formula for book value of a long-lived asset
  24. The system in which income and expenses are recognized when cash changes hands. Cash basis accounting does not meet GAAP.
  25. The official list of all business accounts
  26. The system in which income is recognized when earned and expenses are recognized when incurred
  27. Journal entry: adjust allowance to be $1,000 when it is $800
  28. End-of-year posting to bring the temporary accounts to zero and transfer their balances into the owner's equity account
  29. Journal entry: issue $10,000 of bonds at a price of 90
  30. Journal entry: pay $3,000 on products covered by warranty
  31. Corporate shares with no dollar amount written on the stock certificate
  32. Journal entry: sell for $900 stock that was bought for $1,000
  33. The cost to the business of the goods that it sells
  34. The skill of providing financial information to run a large business
  35. The person who borrows money and writes a note promising to pay in the future
  36. Journal entry: pay a $290 bill in our accounts payable
  37. A separate record containing the details of a control account. Example: the accounts receivable subsidiary record lists all who owe the company money, the total of which is reflected in accounts receivable.
  38. Interest formula
  39. Journal entry: purchase $100 supplies, purchases method
  40. Journal entry: corporation buys $1,000 of treasury stock
  41. The right to buy a portion of each new issuance of stock in order to maintain the same ownership percentage
  42. The number of shares of a corporation that the corporation has issued to investors
  43. Journal entry: Record customer default on $1,000 note held to maturity. $100 of interest had been accrued.
  44. Cost of goods sold percent formula
  45. When numbers are "netted," they combine so that the negative numbers get subtracted from the positive numbers
  46. Journal entry: buy $100 merchandise for resale, perpetual method
  47. The method that recognizes bad-debt expenses in the period the business writes off the accounts receivable. Not GAAP.
  48. Journal entry: company owes $1,000 of wages
  49. Accounts that explain why assets went down from operations
  50. An expense account for small expenses that are not important enough to have their own account
  51. Equity ratio =
  52. Journal entry: issue $10,000 of bonds at a price of 110
  53. The amount written on the face of a bond that represents the lump sum payment the borrowing corporation promises to pay on the maturity date
  54. Quoted price of a bond
  55. The number of issued shares of a corporation less any treasury stock repurchased
  56. Non-operating expenses or revenues come from transactions that are not part of normal business operations
  57. When lenders pay less for a bond than the face amount, the difference between what the lenders pay and the face amount is the discount
  58. Journal entry: Discount a $1,000 note at the bank for $1,070
  59. Information significant enough to affect decision making
  60. Stock in a corporation with certain special privileges
  61. A supply of items a business has on hand
  62. Journal entry: receive a $100 dividend on a stock
  63. Journal entry: Employer loans $100 to employee
  64. The individual owner (without partners) of an unincorporated business
  65. Average net accounts receivable (A/R) formula
  66. The loan amount that remains unpaid
  67. Those debts that must be paid within one year or one operating cycle, whichever is longer
  68. A single number on an income statement, net of tax, which shows the total effect of a change in accounting method as if the method had been used since day one of the business
  69. The rules of accounting that everyone must follow
  70. A contra-purchases account used under the periodic inventory method to keep track of discounts granted by vendors for paying early
  71. Assets =
  72. Assume all assets purchased within the first 15 days of the month are purchased on the first day of the month. Assume all assets purchased after the 15th of the month are purchased on the first day of the following month.
  73. The accounting principle that assumes that the value of money stays the same year after year
  74. Journal entry: Spend $50,000 on research and development of a new drug
  75. Assets that are expected to last longer than one year. Also called PLANT ASSETS.
  76. An account used once a year for closing entries. Its purpose is to record net income for the year.
  77. The amount borrowed, or the PRINCIPAL. INTEREST-BEARING NOTES show the present value as the present amount.
  78. The estimated amount received for an asset at the end of its useful life. Also called RESIDUAL VALUE and SCRAP VALUE.
  79. Gross profit percent formula
  80. An asset is said to be in this state when its book value equals its salvage value
  81. Journal entry: Borrow $1,000
  82. Journal entry: depreciate $3,000 on buildings and $1,000 on equipment
  83. A method of journalizing and posting accounts at the same time by recording transactions vertically in columns
  84. Requires a business to capitalize all costs necessary to get an asset operating
  85. Journal entry: reimburse petty cash
  86. The dates (usually semiannual or quarterly) each year on which the borrowing corporation promises to make the periodic cash payments
  87. Outsiders to whom the company owes money
  88. Journal entry: the dividend date of record arrives
  89. Assets that represent expenses paid in advance that provide future benefits to the business
  90. What a business normally does to make money
  91. Journal entry: set up a $100 petty cash fund
  92. Proceeds from a discounted note formula
  93. Debit and credit formula
  94. Journal entry: Adjust balloon inventory to make it $500 bigger
  95. When an intangible asset is in this state, all of its cost will have been allocated to past fiscal periods, and its book value will be zero
  96. The inventory system that averages the cost of all items in inventory
  97. Short-term investments for which the purpose is to resell them for a profit
  98. Journal entry: distribute a 4:1 stock split
  99. Formula for gross profit
  100. Used when a company computes a ratio from various numbers on the financial statements in order to analyze results
  101. Manufacturing cost of goods sold formula
  102. Owner's equity =
  103. A list of all fixed assets in the company, their purchase dates, their depreciation methods, and their depreciation each year
  104. A corporation with few (usually less than 10) stockholders
  105. Percentage of sales formula
  106. A note without an interest rate written on the face, whose face amount is the future value
  107. Cash flow statement formula
  108. A cost of goods sold account used in the periodic inventory method to keep track of all merchandise bought for resale during the year
  109. A book or computer subroutine that is designed for quick input of a frequent type of business transaction
  110. The method of splitting partnership profits after making guaranteed payments
  111. A company with plenty of cash that buys an entire offering of bonds with the hope of reselling them for a profit
  112. Journal entry: accrue $500 of interest owed on a loan
  113. Adjust a periodic inventory at year end. Inventory account is $1,000, but should be $1,075.
  114. The skill of producing financial statements from business transactions
  115. Journal entry: Adjust balloon inventory to make it $500 smaller
  116. The date on which the corporate board of directors declares a dividend
  117. The true value of the bond liability
  118. Money that the owner takes from the business, or money in the business account that the owner spends on personal bills
  119. Net Income =
  120. The amount of an intangible asset used up during the period
  121. Journal entry: Earn $4,000 of cash income from sales
  122. Step 1: pay partners a certain percentage of their average equity.
    Step 2: pay partners a certain $/hour for their time.
    Step 3: divide the remaining profit or loss by a sharing ratio
  123. Uses of money to buy assets that make more money. Long-term investments are in assets such as buildings and equipment. Short-term investments are in assets such as certificates of deposit or stock.
  124. The accounting principle that requires accountants to resolve financial statement uncertainty in the least favorable way
  125. First-in, first-out. The inventory system that assumes the oldest items in inventory are the first ones sold.
  126. Net purchases formula
  127. Recorded the cost as an expense
  128. Periodic cash payment
  129. Journal entry: get a $290 invoice for utilities
  130. The front side of the bond certificate
  131. A trial balance prepared after the books have been closed at the end of the year
  132. An account that shows the estimated amount owed on the warranties a business offers
  133. The book or computer subroutine that can be used to record any type of accounting entry
  134. Journal entry: Amortize a patent $500
  135. Periodic interest expense formula
  136. Recorded the cost as an asset
  137. The right side of T-accounts. Credits increase liabilities and equity and income accounts, but decrease assets.
  138. Journal entry: record uncollectible accts exp estimated at 2% of $100,000 sales
  139. The process of taking amounts from recorded business transactions and placing those amounts as debits or credits in the various accounts
  140. A non-cash journal entry at the end of a period that adjusts a balance sheet account
  141. A system for making small payments with cash
  142. Journal entry: purchase $100 supplies, consumption method
  143. The extra cost a business pays for another business for being unusually profitable
  144. A deposit not shown is a bank deposit made too late to show up on the bank statement
  145. Maximum shares that a corporation may legally issue
  146. The inventory method that keeps track of merchandise costs in various purchases and contra-purchases accounts and then computes cost of goods sold on the income statement. Inventory on the books is adjusted only at year-end.
  147. A gain or loss that happens when an asset is sold
  148. A tool to keep track of the ups and downs in accounts. The ups go on one side of the T and downs on the other side.
  149. Quick ratio formula
  150. Journal entry: Return $50 of purchases for a refund
  151. Journal entry: admit Partner B, who contributes $1,000
  152. money that is spent and gone; The opposite of "capitalized."
  153. A word that means a subtraction has occurred
  154. A financial statement analysis technique in which one number is assigned as 100% and all other numbers are expressed as a percentage of the first number. In balance sheets, the key number is total assets. In income statements, the key number is sales.
  155. Special identifications that are protected against infringement
  156. Average inventory formula
  157. Journal entry: Estimate cost of warranties - $6,000
  158. The inventory system that keeps track of the actual historic cost of each inventory item. When that item is sold, the cost flows into cost of goods sold.
  159. An employee is bonded when an insurance company has issued a policy saying it will pay the employer should the employee ever steal
  160. A listing of all accounts with their balances. Debit balances go in the debit column; credit balances go in the credit column. The debit column must equal the credit column for the books to be in balance.
  161. Investments that the business plans to resell within one year. Also called "investments in marketable securities."
  162. The cost paid for the merchandise sold
  163. Accounts that explain why assets went up from operations
  164. MACRS, for which IRS tables tell the rate by which to multiply an asset's historical cost
  165. An economic resource that is expected to be of benefit in the future.
  166. Journal entry: corporation pays a $3,000 dividend
  167. Financial reports for any period less than one year
  168. The check of business accounting records in order to give an opinion on whether the financial statements present the business fairly
  169. The natural period of time before certain business activities tend to repeat - normally one year
  170. Journal entry: earn $10,000 of rent income received in advance
  171. Plant assets are assets that have a life longer than one year
  172. An accounting value, the equivalent to par value, given to stock with no par value written on the stock certificate
  173. Assets that are available to spend within a year
  174. Accountants licensed by the state as professional independent verifiers of business financial statements
  175. Recognize revenues or expenses on the accounting books even though no cash changes hands
  176. Bond book value
  177. The method of estimating the allowance for uncollectable accounts
  178. An artificial "person" created by the laws of a state that has the right to do business
  179. Debt ratio =
  180. All accounts normally keep balances that are either debits or credits
  181. A check has cleared the bank if the PAYEE has presented the check to the bank and the bank has paid it by taking money out of the MAKER'S account
  182. Corporate net income from all sources EXCEPT six specific items: gains and losses from the sale of business assets or investments; income from discontinued business segments; extraordinary gains and losses that are unusual and infrequent; the cumulative effect of changes in accounting method; unrealized gains and losses from available-for-sale investments; and foreign currency translation adjustments.
  183. Journal entry: Record $1,500 of car depreciation
  184. The cost of living while away from home on business
  185. An income account that explains the increase in business assets as a result of selling goods.
  186. The financial report that shows the result of business operations over a period of time
  187. Forbids businesses to change accounting METHODS from year to year
  188. The type of stock that represents the basic ownership of a corporation
  189. The interest rate written on the face of a note
  190. Certificates that corporations (and governments) issue to borrow large amounts of money from a large number of people. The certificates call for periodic cash payments each year with a lump sum payment on the maturity date.
  191. The day the borrowing corporation promises to pay the lump sum payment required by the bond
  192. Another way to determine debt ratio
  193. Book value at beginning of year x 2 / estimated life = depreciation expense for year until book value reaches salvage value
  194. Percentage of accounts receivable formula
  195. A place on the financial books to keep track of financial information that the owner wants to know
  196. A schedule that shows key information about all payments of a loan.
  197. Journal entry: corporation DECLARES a $3,000 dividend
  198. A note with an interest rate written on the face, whose face amount is the present value
  199. Cash received on sale of asset
  200. Assets that help a business or a person make money
  201. Journal entry: Sell item for $500 that cost $300, periodic inventory system
  202. Assets with no physical form, yet they offer value to a business for more than one year
  203. The amount that lenders pay for a bond in excess of the face amount
  204. Gross profit formula
  205. Journal entry: reflect that short-term investments have gone up $300
  206. When money is changed into another asset that helps the business make money
  207. Assume all assets purchased within the first 6 months of the fiscal year are purchased on the first day of the year. Assume all assets purchased within the last 6 months of the fiscal year are purchased on the first day of the following year.
  208. The accounting principle that requires assets to be reported on balance sheets at their historical cost
  209. The left side of T-accounts. Debits increase assets, withdrawal and expense accounts, but decrease liabilities and equity.
  210. The cost of business airplane fares, trains, and long-distance buses
  211. The company must report inventories at cost or the current market price, whichever is lower
  212. Journal entry: Spent $50 on repairs and $1,000 to extend life of Machine A, with $600 in accumulated depreciation
  213. Journal entry: write off $1,000 bad debt (allowance method)
  214. The accounting principle that requires business transactions to be recorded using the best objective evidence
  215. A section on the income statement showing gains from the normal process of selling assets and investments
  216. The account that reflects interest accrued on business debts
  217. The semiannual or quarterly payments a bond requires the borrowing corporation to make
  218. A dollar amount written on a stock certificate
  219. The process of finding money for the business from sources other than normal operations
  220. Journal entry: write off $1,000 bad debt (direct write-off method)
  221. The person to whom a check is written
  222. A sale for which payment is to be made later
  223. Contracts or government grants that give the owner special rights
  224. Journal entry: receive $24,000 in advance for 4 years of rent
  225. The usual method of computing cash flow from operations. It starts with net income and uses the CHANGES in the asset and liability accounts to adjust net income into cash flow from operations.
  226. Journal entry: buy a $7,000 machine with cash
  227. Assets quickly changeable into cash: cash, short-term investments, and net accounts receivable
  228. Usually a week or two after the declaration date. Whoever owns corporate stock on the date of record gets the dividend.
  229. A contra-purchases account used under the periodic inventory method to keep track of refunds a business gets for returning merchandise to vendors, or reductions in price (allowances) the vendor offers to resolve complaints
  230. If any work on an asset extends the life of that asset, the cost of that work should be capitalized
  231. Entries made on the first day of a new period that switch the debits and credits of the adjusting entries made on the last day of the previous period
  232. money owed
  233. Money partners receive for some reason other than splitting profits by some ratio
  234. The cost a company pays to create and develop a product. It is never an intangible asset, but instead is expensed each year.
  235. The business financial statement that shows where the cash came from and where it went during the period. It has four major sections.
    - Cash flow from operations
    - Cash flow from investing activities
    - Cash flow from financing activities
    - A calculation of (1) net cash flow, and (2) cash - end of period.
  236. The organization of accountants that has the responsibility of creating accounting rules
  237. A distribution of a small amount of stock proportionally to all stockholders
  238. Bond periodic cash payment of $10,000 with an interest expense of $11,000
  239. Business procedures that make it difficult to get away with wrong behavior
  240. Debts that must be paid within one year or one operating cycle, whichever is longer
  241. The company's income and expenses associated with that income should be matched with each other and reported in the same period
  242. Journal entry: record $100 collected on account
  243. The person who writes a check
  244. The amount of a natural resource used up during the period
  245. These are assumptions about the purchase dates of fixed assets in order to simplify the depreciation process
  246. The financial statements report about a single business. Every business gets its own set of books. Accountants do not mix in the owner's personal financial information.
  247. Two final types of income shown at the bottom of an income statement. Rather than be closed out into retained income, these two types of income have their own cumulative equity accounts. They are: foreign currency adjustments; and unrealized gains on available-for-sale investments.
  248. Journal entry: Buy merchandise for resale, periodic method
  249. Journal entry: corporation sells $1,000 of treasury stock for $2,000
  250. Journal entry: Accrue $400 of interest on a note
  251. Journal entry: Receive $1,100 payment on a $1,000 note. $60 of interest receivable was already accrued.
  252. Recording business transactions twice: once to show where the money came from, and another time to show where the money went
  253. The book or computer subroutine that contains all the individual accounts
  254. The future value of a note
  255. Days in inventory formula
  256. Gain or Loss calculation
  257. A negative liability, such as a bond discount
  258. Journal entry: Pay $98 to buy $100 of merchandise. Vendor discounted $2 for paying quickly.
  259. When a company gives up collecting an account receivable, it writes off the account by removing it from company records
  260. an entity's income minus cost of goods sold, expenses and taxes for an accounting period
  261. A corporation's investment in its own stock
  262. A depreciation method that results in higher depreciation expense in an asset's early years
  263. Those which are both unusual and infrequent
  264. A financial statement that calculates an end-of-period balance of the owner's equity account
  265. Journal entry: corporation issues 100 shares in a common stock dividend, $10 par
  266. Journal entry: buy 3 years insurance for $3,600
  267. Assume all assets are purchased on the 15th of the month
  268. An account that is subtracted from Purchases to compute Net Purchases. Examples: PURCHASES DISCOUNT and PURCHASES RETURNS AND ALLOWANCES.
  269. Journal entry: Put in a $4,000 driveway and $3,000 fence
  270. Allows businesses to change ESTIMATES when more accurate information becomes available. Changes are made for the current and all future years, but not retroactively.
  271. Discount on a note formula
  272. Days' sales in A/R formula
  273. Financial statements should disclose enough information to allow outside readers to make intelligent decisions. The information should be relevant, reliable, and comparable. For example, financial statements must disclose the inventory system used.
  274. American Institute of Certified Public Accountants. Accounting's professional organization that issues the code of ethics for accountants.
  275. The amount borrowed plus the interest up to the maturity date
  276. A large distribution (2-for-1 or larger) of new stock in which stockholders turn in old certificates and receive new stock certificates
  277. Percent of par dividend calculation
  278. Journal entry: Spend $700 to make new equipment operational
  279. Dollar per share dividend calculation
  280. The method of calculating cash flow from operations that does not start with net income, but does show cash-in and cash-out categories
  281. Used when a company compares its current results with those from a previous year
  282. Current ratio =
  283. The accounting principle that says that businesses should pay for more accurate information only if the information is useful for making business decisions
  284. To sell a note to a bank that subtracts a DISCOUNT, giving the seller the PROCEEDS
  285. The rate that most lenders can immediately get for their money
  286. The percentage written on the face of a bond used to calculate the periodic cash payment
  287. Journal entry: Buy a $2,000 car on time with a $100 cash down payment
  288. The amount borrowed; this is the non-interest portion paid back when making loan payments
  289. Accounts that get closed (brought to zero) at the end of each year. The temporary accounts are income, expenses, withdrawal, and dividends.
  290. If a business segment has been discontinued or been sold, all the associated income, expenses, gains, and losses are combined, net of tax, and reported as a single number on the income statement
  291. Journal entry: pay $1,000 of wages accrued last period
  292. Journal entry: pay loan payment of $535, of which $35 is interest
  293. Journal entry: buy $1,000 of short-term investments
  294. Liabilities =
  295. Journal entry: Correct $50 wrongly debited to car expense instead of travel expense
  296. Historical cost x IRS decimal = depreciation for year
  297. Journal entry: Deplete mineral rights $10,000
  298. A share of the profits distributed to stockholders in the form of cash
  299. That portion of the business the owner gets to keep after paying off all creditors
  300. Standards that define how to act in business situations
  301. Ending owner's equity formula
  302. The accounting principle that requires that financial statements be based on the assumption that the business will last indefinitely
  303. describes how quickly something can be changed into cash
  304. Last-in, first-out. The inventory system that assumes the latest items purchased are the first ones sold.
  305. The inventory method that increases the inventory account with every purchase and lowers the inventory account with every sale.
  306. (Historical cost - salvage value) / estimated life = depreciation for all years
  307. A summary of financial balances as of a particular day.
  308. Businesses should use the same accounting system from period to period. For example, there is no switching back and forth from LIFO to FIFO.
  309. The method of estimating uncollectible accounts expense
  310. All financial statements have a standard 3-line heading as follows:

    Name of the Company
    Name of the Report
    Date (balance sheet) or Period of Time (all other statements)
  311. A promise by a business to pay for future expenses of a product sold
  312. The account that reflects wages earned as of the end of the period but not yet paid
  313. An account that gets subtracted from an asset account
  314. The account that shows the total of all the individual records in the SUBSIDIARY RECORD
  315. Certified public accountants who audit accounting records
  316. An account that gets subtracted from its related account. These accounts always get reported as negative numbers
  317. [_BLANK_], also called the basis for depreciation, is the amount of cost that can be depreciated on an asset over time. The [_BLANK_] is calculated by subtracting the salvage value of an asset from its cost.
  318. The method of accounting for operating supplies that recognizes supplies as an expense when they are purchased.
  319. A document evidencing ownership in a corporation
  320. The equity account in a corporation that contains all the earnings the corporation has ever earned but not yet distributed to shareholders
  321. Journal entry: owner contributes $100 to the business
  322. The number shown represents income or loss after a reduction for income taxes
  323. Used when a company compares all the numbers of a financial report with a key number from the report
  324. Journal entry: use up $100 of prepaid insurance
  325. Sister accounts that have a normal balance the opposite of their brother account. Contra accounts are reported under their brother account and have the effect of lowering the brother account.
  326. A check is outstanding when it has not yet cleared the bank
  327. The exclusive right to produce and sell an invention
  328. Journal entry: accept a $1,000 note in payment for goods
  329. The investor who currently owns the bond certificate
  330. A section of the liability section of the balance sheet. These liabilities result from receiving cash before earning it.
  331. Journal entry: Close out $10,000 of income and $6,000 of expense accounts
  332. The method of accounting for operating supplies that recognizes supplies as an expense when they are consumed. When supplies are purchased, the debits are stored in supplies inventory. The supplies expense account is not touched until the inventory account is adjusted.
  333. Operating net income or operating income formula
  334. Journal entry: owner buys $150 of personal groceries
  335. Inventory turnover formula
  336. Income from normal operations that are expected to continue in the coming years. Normal operations + Gains and losses from sale of business assets or investments.
  337. Securities (pieces of paper that represent ownership in investments such as stocks, bonds, etc.) that are traded on public exchanges, such as the New York Stock Exchange
  338. Used when a company compares its financial statements with those of similar companies
  339. The accounting principle that requires a reporting of the current and non-current portions of all debt. Where the current portion cannot easily be estimated, this principle requires reporting the entire debt as current.
  340. Book value of a fixed asset
  341. Journal entry: purchase 1,000 shares of 50 cents par stock for $1,000 cash and $2,000 of equipment
  342. The dollar amount written on the face of a note
  343. Debit Cash $500, Accumulated Depreciation $300, and Loss on Sale of Machine $200; Credit Machine $1,000