1. Which of the following statements is incorrect?

1. Which of the following statements is incorrect?

a. Assets - Capital = Liabilities

b. Assets - Liabilities = Capital

c. Liabilities + Capital = Assets

d. Liabilities + Assets = Capital

2. Which of the following is not an asset?

a. Loan from K Harris

b. Debtors

c. Cash balance

d. Buildings

3. Which of the following is a liability?

a. Cash at Bank

b. Machinery

c. Motor Vehicles

d. Creditors for goods

4. Which of the following best describes the meaning of ‘Purchases’?

a. Goods bought for resale

b. Goods paid for

c. Items bought

d. Goods bought on credit

5. Which of the following best describes a trial balance?

a. Shows all the entries in the books

b. It is a special account

c. Shows the financial position of a business

d. It is a list of balances on the books

6. Given the following, what is the amount of Capital? Assets: Premises £20,000; Stock £8,500; Cash £100. Liabilities: Creditors £3,000; Loan from A Adams £4,000 Given the following, what is the amount of Capital? Assets: Premises £20,000; Stock £8,500; Cash £100. Liabilities: Creditors £3,000; Loan from A Adams £4,000

£21,600

£32,400

£21,400

7. Which of the following is correct?

a. Profit does not alter capital

b. Capital can only come from profit

c. Profit increases capital

d. Profit reduces capital

8. Is it true that the trial balance totals should agree?

a. No, there are sometimes good reasons why they differ

b. Yes, except where the trial balance is extracted at the year end

c. Yes, always

d. No, because it is not a balance sheet

9. Financially, shareholders are rewarded by:

a. Interest

b. Profits

c. Dividends

d. None of the above

10. A revenue:

a. Is a decrease in shareholders’ equity.

b. Is a decrease or an increase in shareholders’ equity.

c. Has no impact on shareholders’ equity
d. Is an increase in shareholders’ equity.

11. Which of the following is a liability account?

a. Accounts Receivable

c. Rent Expense

b. Withdrawals

d. Accounts Payable

12. The left side of an account is referred to as

a. the balance.

c. a credit.

b. a debit.

d. a footing.

13. Payment for a two-year insurance policy is a debit to

a. Prepaid Insurance.

b. Insurance Expense.

c. Cash.

d. Accounts Payable.

14. Transactions initially are recorded in the

a. trial balance.

b. T account.

c. journal.

d. ledger.

15. Which sequence correctly summarizes the accounting process?

a. Journalize transactions, post to the accounts, prepare a trial balance

b. Journalize transactions, prepare a trial balance, post to the accounts

c. Post to the accounts, journalize transactions, prepare a trial balance

d. Prepare a trial balance, journalize transactions, post to the accounts

16. The left side of an account is used to record which of the following?

a. Debit or credit, depending on the type of account

b. Increases

c. Credits

d. Debits

17. Suppose Hunt Company has receivables of $65,000, furniture totaling $205,000, and cash

of $52,000. The business has a $109,000 note payable and owes $81,000 on account.

How much is Hunt’s owner’s equity?

a. $28,000

b. $132,000

c. $190,000

d. $322,000

18. To test that the total of debits and the total of credits are equal, the accountant peri­odically prepares a

a. Trial balance.

b. T account.

c. general journal.

d. ledger.

19. The detailed record of the changes in a particular asset, liability, or owner’s equity is

called

a. an account.

b. a journal.

c. a ledger.

d. a trial balance.

20. Pixel Copies recorded a cash collection on account by debiting Cash and crediting

Accounts payable. What will the trial balance show for this error?

a. Too much for cash

b. Too much for liabilities

c. Too much for expenses

d. The trial balance will not balance

21. Timothy McGreggor, Attorney, began the year with total assets of $129,000, liabilities of

$77,000, and owner’s equity of $52,000. During the year the business earned revenue of

$113,000 and paid expenses of $34,000. McGreggor also withdrew cash of $63,000.

How much is the business’s equity at year-end?

a. $68,000

b. $97,000

c. $131,000

d. $165,000

22. Michael Barry, Attorney, began the year with total assets of $126,000, liabilities of

$74,000, and owner’s equity of $52,000. During the year the business earned revenue of

$110,000 and paid expenses of $33,000. Barry also withdrew cash of $69,000. How

would Michael Barry record expenses paid of $33,000?

a. Cash 33,000

Expenses 33,000

b. Accounts payable 33,000

Cash 33,000

c. Expenses 33,000

Accounts payable 33,000

d. Expenses 33,000

Cash 33,000

23. Posting a $2,500 purchase of supplies on account appears as follows:

24. Suppose Dave’s Discount’s Inventory account showed a balance of $8,000 before the yearend adjustments. The physical count of goods on hand totaled $7,400. To adjust the accounts, Dave Marshall would make the following entry:

a. Cost of goods sold 600

Inventory 600

b. Inventory 600

Accounts receivable 600

c. Accounts payable 600

Inventory 600

d. Inventory 600

Cost of goods sold 600

25. The journal entry for the purchase of inventory on account is

a. Inventory XXX

Accounts receivable XXX

b. Accounts receivable XXX

Inventory XXX

c. Inventory XXX

Accounts payable XXX

d. Inventory XXX

Cash XXX

26. Which account does a merchandiser use that a service company does not use?

a. Cost of goods sold

b. Inventory

c. Sales revenue

d. All of the above

27. The two main inventory accounting systems are the

a. perpetual and periodic.

b. purchase and sale.

c. returns and allowances.

d. cash and accrual.

28. JC Manufacturing purchased inventory for $5,300 and also paid a $260 freight bill. JC

Manufacturing returned 45% of the goods to the seller and later took a 2% purchase discount.

What is JC Manufacturing’s final cost of the inventory that it kept? (Round your

answer to the nearest whole number.)

a. $2,997

b. $2,337

c. $3,117

d. $2,857

29. Suppose Austin Sound had sales of $300,000 and sales returns of $45,000. Cost of goods

sold was $152,000. How much gross profit did Austin Sound report?

a. $148,000

b. $103,000

c. $255,000

d. $88,000

30. Which account in question 6 would Dave Marshall close at the end of the year?

a. Cost of goods sold

b. Inventory

c. Accounts receivable

d. Accounts payable

31. Which subtotals appear on a multi-step income statement but do not appear on a singlestep

income statement?

a. Gross profit and Income from operations

b. Operating expenses and Net income

c. Cost of goods sold and Net income

d. Net sales and Cost of goods sold

32. Assume Juniper Natural Dyes made net Sales of $90,000, and Cost of goods sold totaled

$58,000. Average inventory was $17,000. What was Juniper Natural Dyes’ gross profit

percentage for this period? (Round your answer to the nearest whole percent.)

a. 36% c. 64%

b. 3.4 times d. 17%

33. A business receives a cash payment for services rendered. Which of the following occurs?
A) An asset is debited and a liability is credited.
B) An asset is debited and a revenue account is credited.
C) An asset is credited and a liability is debited.
D) An asset is debited and a revenue account is debited.

34. A utility bill is received. It will be paid in the following accounting period. Which of the following would be true as a result of the receipt of the utility bill?
A) Net income will increase.
B) Owner's equity will decrease.
C) Total liabilities will decrease.
D) There will be no effect on total liabilities.

35. The adjusting process has two purposes. Which of the following represents these two purposes?
A) 1) Measure net income or loss and 2) Update the balance sheet
B) 1) Compute ending capital and 2) Journalize the period's activity
C) Both A and B are correct
D) None of the above

36. Total liabilities increase by $7,000. How is the accounting equation affected?
A) Assets must have increased by $7000 or owner's equity must have decreased by $7000.
B) Owner's equity must have increased by $7,000.
C) Assets and owner's equity must have each decreased by $3,500.
D) Assets must have decreased by $7,000.

37. Exe Ltd sells goods on credit to Wy Ltd for £3000. Which of the following accounting entries correctly records this transaction?

(a) Debit sales, credit Wy Ltd £3000.

(b) Debit Wy Ltd, credit sales £3000.

(c) Debit cash, credit sales £3000.

(d) Debit Wy Ltd, credit stock £3000

38. The following items relate to the bank account of Exe Ltd: balance at 1 January 2001 = £ 4500 (on hand), total payments in 2001 were £45 800, total receipts in 2001 were £36 900, bank charges not yet entered into the bank account were £1200. What was the correct closing bank balance at 31 December 2001?

(a) £5600 overdrawn.

(b) £12 200 overdrawn.

(c) £4400 overdrawn.

(d) £13 400 overdrawn

39. Which of the following statements is correct?

(a) Accounting profit is the difference between cash receipts and cash paid in a period.

(b) Accounting profit is the total of cash sales in the year less the expenses for the period.

(c) Accounting profit is the difference between revenue income and expenses for the period.

(d) Accounting profit is the difference between revenue income and cash payments for the period.

40. Which of the following amounts appears on both the income statement and the balance sheet?
A) net income
B) total assets
C) ending owner's equity
D) none of these amounts appear on both the income statement and the balance sheet.

41. The journal entry to record the borrowing of cash and the signing of a note payable involves:

a. A debit to note payable and a credit to cash.

b. Debits to cash and interest expense and a credit to cash.

c. A debit to cash and a credit to note payable.

d. None of the above.

42. A prepaid expense is an expense:

a. Incurred before the cash is paid.

b. Incurred and paid.

c. Paid but not yet incurred.

d. None of the above.

43. If revenues exceed expenses for the accounting period, the income summary account:

a. Will have a debit balance after closing

b. Will have a debit balance prior to closing.

c. Will have a credit balance prior to closing.

d. None of the above.

44. The accumulated depreciation account is a contra (valuation) account to:

a. Owner's equity account.

b. Expense account.

c. Asset account.

d. Liability account.

45. If the required adjusting entry for depreciation expense is omitted:

a. Assets will be overstated and income understated.

b. Assets will be overstated and income overstated.

c. Assets will be understated and income overstated.

d. Assets will be understated and income understated.

46. Which of the following purchase discounts terms is best for the buyer?

a. 2/10, n/30.

b. 1/5, n/40

c. 5/10, n/20

d. 5/15, n/40

47. Accounting was invented by Luca Pacioli.

a. true

b. false

48. Income less expenses is shown on the balance sheet.

a. true

b. false

49. Closing entries are not needed if the business plans to continue operating in the future and issue financial statements each year.

a. true

b. false

50. The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.

a. true

b. false

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