Question 1

The accounting term which refers to whether a particular error is of such importance as to affect the decisions of an average prudent investor is called

Accepted Answer

A)  Adequate disclosure 
B)  Materiality 
C)  Internal control 
D)  Conservatism 
A)  Adequate disclosure 
B)  Materiality 
C)  Internal control 
D)  Conservatism

Question 2

The amount of cash a company has on hand at the end of the year is an example of an asset.

Accepted Answer

A) True 
 B)False

Question 3

Two terms used in financial accounting are gain and revenue. Which of the following statements is correct?

Accepted Answer

A)  Revenues relate to the main business of the company, while gains are from events that are not a main regular part of the business. 
B)  The two terms mean the same thing. 
C)  A company's revenues are always much larger than the gains it has. 
D)  A company that reports revenues will never report gains. 
A)  Revenues relate to the main business of the company, while gains are from events that are not a main regular part of the business. 
B)  The two terms mean the same thing. 
C)  A company's revenues are always much larger than the gains it has. 
D)  A company that reports revenues will never report gains.

Question 4

""Accrued rent payable"" is an example of a liability.

Accepted Answer

A) True 
 B)False

Question 5

Accrued receivables arise when the company has earned something, but has not yet been paid.

Accepted Answer

A) True 
 B)False

Question 6

A ""prepaid expense"" occurs when a company must recognize an expense before it pays cash for the service it is receiving.

Accepted Answer

A) True 
 B)False

Question 7

All of the following items are assets except

Accepted Answer

A)  Sales 
B)  Accounts receivable 
C)  Prepaid rent 
D)  Supplies on hand 
A)  Sales 
B)  Accounts receivable 
C)  Prepaid rent 
D)  Supplies on hand

Question 8

Assume that a company owns machinery. When it bought the machinery, it recorded a reduction in cash, and an increase in an asset. At the end of the month, what entry, if any, should be recorded using accrual accounting to reflect the fact that the machinery is now older?

Accepted Answer

A)  No entry is needed, since no cash payment is being made at the end of the month. 
B)  An entry recording an expense and reducing total assets and total equity 
C)  An entry recording an expense, increasing a liability, and reducing total equity 
D)  An entry recording an expense, increasing total assets, and reducing equity 
A)  No entry is needed, since no cash payment is being made at the end of the month. 
B)  An entry recording an expense and reducing total assets and total equity 
C)  An entry recording an expense, increasing a liability, and reducing total equity 
D)  An entry recording an expense, increasing total assets, and reducing equity

Question 9

In the previous question, what is the outflow of cash that will be shown in the operating section of Abex's Year 1 cash flow statement?

Accepted Answer

A)  None 
B)  2500 
C)  5000 
D)  7500 
E)  10000 
A)  None 
B)  2500 
C)  5000 
D)  7500 
E)  10000

Question 10

Assume a company sold 12 months' worth of car insurance to a customer on November 1. When it made the sale, it recorded an increase in cash and also recorded "unearned revenues." Under accrual accounting, the company should make which of the following adjustments, if any, to its records at the end of December, with regard to this insurance policy?

Accepted Answer

A)  No adjustment is needed since the cash was properly recorded on November 1. 
B)  It should record a decrease in prepaid assets, an increase in expense, and a decrease in equity. 
C)  It should record an increase in revenues, an increase in equity, and a decrease in liabilities. 
D)  It should record a decrease in revenues, an increase in liabilities, and a decrease in equity. 
E)  It should record an increase in revenues, an increase in cash, and an increase in equity. 
A)  No adjustment is needed since the cash was properly recorded on November 1. 
B)  It should record a decrease in prepaid assets, an increase in expense, and a decrease in equity. 
C)  It should record an increase in revenues, an increase in equity, and a decrease in liabilities. 
D)  It should record a decrease in revenues, an increase in liabilities, and a decrease in equity. 
E)  It should record an increase in revenues, an increase in cash, and an increase in equity.

Question 11

For the FASB, one of the primary desirable characteristics of accounting information is "understandability."

Accepted Answer

A) True 
 B)False

Question 12

For the FASB, one of the enhancing desirable characteristics of accounting information is "understandability."

Accepted Answer

A) True 
 B)False

Question 13

Assume a company has borrowed money from a bank. As of the end of December 31, one month's interest has built up on this loan, and has not been paid yet. Under accrual accounting, the company should make which of the following adjustments, if any, to its records?

Accepted Answer

A)  It should record a decrease in assets, an increase in expenses, and a decrease in equity. 
B)  It should record an increase in assets, an increase in expenses, and a decrease in equity. 
C)  It should record a decrease in liabilities, an increase in expenses, and a decrease in equity. 
D)  It should record an increase in liabilities, an increase in expenses, and a decrease in equity. 
E)  No adjustment is needed since the interest has not yet been paid to the bank. 
A)  It should record a decrease in assets, an increase in expenses, and a decrease in equity. 
B)  It should record an increase in assets, an increase in expenses, and a decrease in equity. 
C)  It should record a decrease in liabilities, an increase in expenses, and a decrease in equity. 
D)  It should record an increase in liabilities, an increase in expenses, and a decrease in equity. 
E)  No adjustment is needed since the interest has not yet been paid to the bank.

Question 14

In accrual accounting, expenses must always involve an outflow of cash.

Accepted Answer

A) True 
 B)False

Question 15

Assume that an employee works and earns $100, but has not yet been paid when the accounting period ends. Under accrual accounting, the books should reflect

Accepted Answer

A)  Nothing, since the employee has not yet been paid 
B)  A liability of $100 and a revenue of $100 
C)  An asset of $100 and an expense of $100 
D)  A liability of $100 and an expense of $100 
A)  Nothing, since the employee has not yet been paid 
B)  A liability of $100 and a revenue of $100 
C)  An asset of $100 and an expense of $100 
D)  A liability of $100 and an expense of $100

Question 16

On a company's cash flow statement, the amount it receives when it provides services to customers is considered which type of cash flow?

Accepted Answer

A)  Operating 
B)  Investing 
C)  Financing 
D)  Not a cash flow 
A)  Operating 
B)  Investing 
C)  Financing 
D)  Not a cash flow

Question 17

The most important U.S. private accounting standard-setting organizations are the Financial Acounting Standards Board and the Governmental Accounting Standards Board.

Accepted Answer

A) True 
 B)False

Question 18

In accrual accounting, revenues can sometimes be recognized before a company receives cash.

Accepted Answer

A) True 
 B)False

Question 19

According to the FASB, for an accounting measurement to be a "faithful representation" of some economic transaction or event, the measurement should be as complete, neutral, and free from error as possible.

Accepted Answer

A) True 
 B)False

Question 20

The financial accounting element that best describes materials the company owns and intends to sell to customers as part of the normal business operations of the company is

Accepted Answer

A)  Assets 
B)  Liability 
C)  Equity 
D)  Expense 
E)  Revenue 
A)  Assets 
B)  Liability 
C)  Equity 
D)  Expense 
E)  Revenue

The accounting term which refers to whether a particular error is of such importance as to affect the decisions of an average prudent investor is called

The amount of cash a company has on hand at the end of the year is an example of an asset.

Two terms used in financial accounting are gain and revenue. Which of the following statements is correct?

""Accrued rent payable"" is an example of a liability.

Accrued receivables arise when the company has earned something, but has not yet been paid.

A ""prepaid expense"" occurs when a company must recognize an expense before it pays cash for the service it is receiving.

All of the following items are assets except

Assume that a company owns machinery. When it bought the machinery, it recorded a reduction in cash, and an increase in an asset. At the end of the month, what entry, if any, should be recorded using accrual accounting to reflect the fact that the machinery is now older?

In the previous question, what is the outflow of cash that will be shown in the operating section of Abex's Year 1 cash flow statement?

For the FASB, one of the primary desirable characteristics of accounting information is "understandability."

For the FASB, one of the enhancing desirable characteristics of accounting information is "understandability."

Assume a company has borrowed money from a bank. As of the end of December 31, one month's interest has built up on this loan, and has not been paid yet. Under accrual accounting, the company should make which of the following adjustments, if any, to its records?

In accrual accounting, expenses must always involve an outflow of cash.

Assume that an employee works and earns $100, but has not yet been paid when the accounting period ends. Under accrual accounting, the books should reflect

On a company's cash flow statement, the amount it receives when it provides services to customers is considered which type of cash flow?

The most important U.S. private accounting standard-setting organizations are the Financial Acounting Standards Board and the Governmental Accounting Standards Board.

In accrual accounting, revenues can sometimes be recognized before a company receives cash.

According to the FASB, for an accounting measurement to be a "faithful representation" of some economic transaction or event, the measurement should be as complete, neutral, and free from error as possible.

The financial accounting element that best describes materials the company owns and intends to sell to customers as part of the normal business operations of the company is

How Accounting Works

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters

Exam 2: Selecting Your Business Structure

The accounting term which refers to whether a particular error is of such importance as to affect the decisions of an average prudent investor is called

The amount of cash a company has on hand at the end of the year is an example of an asset.

Two terms used in financial accounting are gain and revenue. Which of the following statements is correct?

""Accrued rent payable"" is an example of a liability.

Accrued receivables arise when the company has earned something, but has not yet been paid.

A ""prepaid expense"" occurs when a company must recognize an expense before it pays cash for the service it is receiving.

All of the following items are assets except

Assume that a company owns machinery. When it bought the machinery, it recorded a reduction in cash, and an increase in an asset. At the end of the month, what entry, if any, should be recorded using accrual accounting to reflect the fact that the machinery is now older?

In the previous question, what is the outflow of cash that will be shown in the operating section of Abex's Year 1 cash flow statement?

For the FASB, one of the primary desirable characteristics of accounting information is "understandability."

For the FASB, one of the enhancing desirable characteristics of accounting information is "understandability."

Assume a company has borrowed money from a bank. As of the end of December 31, one month's interest has built up on this loan, and has not been paid yet. Under accrual accounting, the company should make which of the following adjustments, if any, to its records?

In accrual accounting, expenses must always involve an outflow of cash.

Assume that an employee works and earns $100, but has not yet been paid when the accounting period ends. Under accrual accounting, the books should reflect

On a company's cash flow statement, the amount it receives when it provides services to customers is considered which type of cash flow?

The most important U.S. private accounting standard-setting organizations are the Financial Acounting Standards Board and the Governmental Accounting Standards Board.

In accrual accounting, revenues can sometimes be recognized before a company receives cash.

According to the FASB, for an accounting measurement to be a "faithful representation" of some economic transaction or event, the measurement should be as complete, neutral, and free from error as possible.

The financial accounting element that best describes materials the company owns and intends to sell to customers as part of the normal business operations of the company is

How Accounting Works

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters