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Final Exam - Accounting Class Study Guide
Questions With Verified Answers
Which of the following best describes accounting? - answer✔An information system that
provides reports to users regarding economic activities and condition of a business.
Which of the following is the best description of accounting's role in business? -
answer✔Accounting provides information to managers to operate the business and to other
users to make decisions regarding the economic condition of the company.
Which of the following are guidelines for behaving ethically?
I. Identify the consequences of a decision and its effect on others.
II. Consider your obligations and responsibilities to those affected by your decision.
III. Identify an ethical decision by using your personal ethical standards of honesty and fairness -
answer✔I, II, and III
An entity that is organized according to state or federal statues and in which ownership is
divided into shares of stock is a - answer✔corporation.
Within the United States, the dominant body in the primary development of accounting
principles is the - answer✔Financial Accounting Standards Board (FASB).
The business entity assumption means that - answer✔the entity is an individual economic unit
for which data are recorded, analyzed and reported
The initials GAAP stands for - answer✔generally accepted accounting principles
The accounting equation may be expressed as - answer✔Assets - Liabilities = Stockholder's
Equity
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Earning revenue - answer✔increases assets; increases stockholders' equity
Transactions affecting stockholders' equity include - answer✔stockholder investments,
dividends, earning of revenues and incurrence of expenses
A financial statement user would determine if a company was profitable or not during a specific
period of time by reviewing the - answer✔income statement
The Assets section of a balance sheet normally presents assets in - answer✔the order in which
they will converted into cash or used in operations
A chart of accounts is - answer✔usually a listing of accounts in financial order
An account is said to have a debit balance if - answer✔the amounts of the debits exceeds the
amount of the credits
In which order are the accounts listed in the chart of accounts? - answer✔Assets, liabilities,,
stockholders' equity, revenues, expenses
The accounts in the ledger of Monroe Entertainment Co. follow. All accounts have normal
balances.
Accounts Payable $1,500
Accounts Receivable 1,800
Supplies 500
Prepaid Insurance 2,000
Cash 3,200
Office Equipment 1,800
Dividends 1,200
Unearned Rent 1,600
Fees Earned 8,600
Insurance Expense 1,300
Rent Expense 1,500
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Land 8,000
Wages Expense 1,400
Retained Earnings 5,500
Common Stock 9,200 - answer✔3,100
Accounts Payable + Unearned Rent
1500 + 1600 = 3100
A credit balance in which of the following accounts would indicate a likely error? -
answer✔Salary Expense
Which of the following will increase stockholders' equity? - answer✔revenues > expenses
Which of the following groups of accounts increase with a credit? - answer✔liabilities, common
stock, revenues
April 14
Equipment 15,000
Cash 5,000
Notes Payable 10,000
Which of the following is the best explanation for this journal entry? - answer✔Punished
equipment; paid cash of $5000, with the remainder to be paid in the future.
A trial balance is prepared to - answer✔discover errors that affect the equality of debits and
credits
Richardson Company has a condensed income statement as shown.
Line Item Description
Sales
Year 2 Year 1
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$150,000 $165,500
Total operating expenses
133,000 147,500
Net income
$17,000 $18,000
Using horizontal analysis, calculate the amount and percent change for sales. Round percentage
to one decimal place. - answer✔$(15,500). (9.4%)
Change in sales = Sales in Year 2 - Sales in Year 1 = $150,000 - 165,500
Percent Change in Sales = CHange in sales / Sales in Year 1
15,500 ÷ 165,000
Using accrual accounting, revenues are recorded - answer✔when a service has been performed
or products have been delivered to customers without regard to when cash is received
Using accrual accounting, expenses are recorded and reported only - answer✔when they are
incurred, whether or not cash is paid
The accounting principle upon which deferrals and accruals are based is - answer✔matching
Adjusting entries affect at least one - answer✔income statement accunt and one balance sheet
accounts
As time passes, fixed assets other than lands lose their capacity to provide useful services. To
account for this decrease in usefulness, the cost of the fixed asset is systematically allocated to
expense through a process called - answer✔depreciation
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