Deck 3: The Accounting Cycle

Question 1

Which of the following economic events would be captured by an accrual accounting system, but not by a cash accounting system?

A)Sale of a good for cash.
B)Purchase of supplies for cash.
C)Purchase of a piece of equipment with a note payable.
D)Purchase of shares for cash by a shareholder.

Answer 1

C

Question 2

Which of the following economic events would be captured by an accrual accounting system, but not by a cash accounting system?

A)Receipt of payment for a previous sale made on credit.
B)Payment of an amount owing on a previous purchase.
C)Payment of dividends to shareholders.
D)Use of a previously purchased piece of equipment in production.

Answer 2

D

Question 3

The recording of expenses in the same period as that in which the revenue is recorded is the application of which accounting concept?

A)Matching
B)Revenue recognition
C)Accrued expenses
D)Conservatism

Answer 3

A

Question 4

Under accrual accounting, which of the following statements about revenue recognition is true?

A)Revenue recognition is always straightforward.
B)Revenue can only be recognized when the goods are delivered.
C)Revenue can only be recognized when the expenses are paid.
D)Revenue recognition should occur when the entity enjoys the economic benefit.

Question 5

Which of the following would be used to record the purchase of a new piece of equipment during the period?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 6

On May 15th, Bain Bathtubs signed a lease to rent a storefront starting on June 1st for the next two years at $1,000 per month.They paid the first two months' rent in advance on signing the lease.On May 15th how would the transaction be recorded?

A)An increase in expenses of $2,000 and a decrease in cash of $2,000.
B)An increase in expenses of $24,000 and a decrease in cash of $24,000.
C)An increase in prepaid rent of $2,000 and a decrease in cash of $2,000.
D)An increase in prepaid rent of $24,000 and a decrease in cash of $24,000.

Question 7

Which of the following best describes the matching concept in accounting?

A)Revenues should be recorded in the same period as the expenses related to it are paid.
B)Revenue should be recorded in the same period as the cash is received.
C)Expenses should be recorded when paid.
D)Expenses should be recorded in the same period as the revenue they helped earn is recorded.

Question 8

Canada Corporation has hired a new sales manager to start work next month.She will earn $65,000 per year plus a bonus to be determined at year-end.At the time of the hiring, how would the event be recorded?

A)An increase in assets and an increase in salaries payable.
B)An increase in expenses and an increase in salaries payable.
C)A decrease in retained earnings and an increase in salaries payable,
D)It would not be recorded.

Question 9

Which of the following would be used to record the sale of goods on credit for the period?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 10

On May 15th Bain Bathtubs signed a lease to rent a storefront starting on June 1st for the next two years at $1,000 per month.They paid the first two months' rent in advance on signing the lease.On May 15th how would the transaction be recorded?

A)Dr.Rent expense $2,000, Cr.Cash $2,000
B)Dr.Rent expense $24,000, Cr.Cash $24,000
C)Dr.Prepaid rent $2,000, Cr.Cash $2,000
D)Dr.Prepaid rent $24,000, Cr Cash $2,000 Cr.Rent payable $22,000

Question 11

Which of the following is an advantage of accrual accounting?

A)It does not require any judgment.
B)It provides more relevant information.
C)It does not provide more reliable information.
D)It records all economic events.

Question 12

Which of the following statements about the accounting cycle is true?

A)The accounting cycle is the process of recording all economic events that affect the entity.
B)The accounting cycle is the process of entering data into the accounting system to be processed, organized and used to produce financial statements.
C)The accounting cycle is only applicable for entities using accrual accounting.
D)The accounting cycle is completed on a weekly basis.

Question 13

Which of the following account balances increases with debits?

A)Accounts payable
B)Cash sales
C)Retained earnings
D)Salary expense

Question 14

Which of the following illustrates the matching principle?

A)Expensing the cost of an item sold at the same as the revenue is recognized.
B)Expensing a fixed asset when purchased.
C)Expensing a fixed asset at the end of its useful life.
D)Waiting until the cash is collected before recognizing revenue.

Question 15

What is used to enter the information about economic events into the accounting system?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 16

Which of the following normally has a credit balance?

A)Accounts receivable
B)Capital assets
C)Prepaid insurance
D)Retained earnings

Question 17

Recording a transaction in two places in the accounts is an example of which principle?

A)Accrual accounting
B)Closing the books
C)Adjusting the trial balance
D)Double-entry bookkeeping

Question 18

Which of the following account balances increases with credits?

A)Salary expense
B)Prepaid rent
C)Cash sales
D)Dividends

Question 19

Able Inc has a December 31st year-end.They provided services worth $4,000 in December and were paid $1,000 in cash at that time with the rest due in January.The employees who performed the services were paid $2,500 for their work in January.Under the matching concept how much net income/loss would be reported in December?

A)($1,500)
B)$1,000
C)$1,500
D)$4,000

Question 20

Which of the following normally has a debit balance?

A)Accumulated depreciation
B)Accounts payable
C)Depreciation expense
D)Retained earnings

Question 21

Bigwin Inc had a loan outstanding during the month, and at the end of the month it paid interest expense of $200.How would the event be recorded?

A)A decrease in cash and a decrease in loan payable.
B)An increase in interest expense and an increase in loan payable.
C)An increase in interest expense and a decrease in loan payable.
D)A decrease in cash and an increase in interest expense.

Question 22

A company purchased on credit and received $2,500 worth of goods to be sold in their stores.How would the event be recorded?

A)A $2,500 increase in inventory and a $2,500 increase in expenses.
B)A $2,500 increase in expenses and a $2,500 increase in accounts payable
C)A $2,500 increase in inventory and a $2,500 increase in accounts payable.
D)The event would not be recorded at this time.

Question 23

Pear Inc declared and paid a $10,000 dividend at the end of the year.How would the transaction be recorded?

A)Dr.Expense $10,000, Cr.Cash $10,000
B)Dr.Expense $10,000, Cr.Retained earnings $10,000
C)Dr.Retained earnings $10,000, Cr.Expenses $10,000
D)Dr.Retained earnings $10,000 Cr.Cash $10,000

Question 24

A company made the following entry in their books: Dr.Depreciation expense $15,000, Cr.Accumulated depreciation $15,000.What is the event that most likely occurred?

A)The company bought a capital asset.
B)The company sold a capital asset.
C)The company recorded that a portion of the capital asset that had been used during the period.
D)The company adjusted the capital asset to reflect the change in market value.

Question 25

Bigwin Inc had a loan outstanding during the month and at the end of the month it paid interest expense of $200.How would the transaction be recorded?

A)Dr.Loan payable $200, Cr.Cash $200
B)Dr.Loan payable $200, Cr.Interest expense $200
C)Dr.Interest expense $200, Cr Loan payable $200
D)Dr.Interest expense $200, Cr.Cash $200

Question 26

A business bought a new delivery truck worth $45,000.They paid $5,000 down and took out a loan for the balance.How would the transaction be recorded?

A)Dr.Capital assets $45,000, Cr.Cash $5,000, Cr.Bank loan $40,000
B)Dr.Capital assets $40,000, Cr.Bank loan $40,000
C)Dr.Cash $5,000, Dr.Bank loan $40,000, Cr.Capital asset $45,000,
D)Dr.Bank loan $40,000, Cr.Capital assets $40,000,

Question 27

At the end of the month BBB Ltd determined that the cost to them of goods that had been sold during the month was $125,000.How would this information be recorded?

A)The information is not recorded as no economic event had taken place.
B)A decrease in inventory of $125,000 and an increase in expenses of $125,000.
C)An increase in inventory of $125,000 and a decrease in cash of $125,000.
D)An increase in expenses of $125,000 and an increase in accounts payable of $125,000

Question 28

Which of the following statements best describes the term "return on equity" (ROE)?

A)ROE is a measure of the effectiveness of the entity in using the assets provided by owners to generate net income.
B)ROE is the measure of the amount of dividends that have been returned to the shareholders.
C)ROE is measure of how effective the entity is at controlling expenses.
D)ROE is the measure of the risk and liquidity of an entity.

Question 29

From the following data what is the cost of sales? Beginning inventory $12,000, purchases $128,000, ending inventory $14,000.

A)$116,000
B)$126,000
C)$128,000
D)$130,000

Question 30

In its first month of operation a company made purchases of goods to sell totaling $58,000, and at the end of the month they had $7,500 of them still on hand.What would be the cost of sales expense for the month?

A)$7,500
B)$50,500
C)$58,000
D)Cannot be determined without knowing what the sales were for the month.

Question 31

Which of the following best describes the profit margin ratio?

A)It is a measure of the risk and liquidity of the entity.
B)It measures how much revenue is available after paying for the cost of goods sold to meet other expenses.
C)It is a measure of the effectiveness of the entity at controlling costs.
D)It is a measure of the amount of dividends to be paid to the shareholders.

Question 32

A company purchased and received $2,500 worth of goods on credit to be sold in their stores.How would the event be recorded?

A)Dr.Inventory $2,500, Cr.Expenses $2,500
B)Dr.Expenses $2,500, Cr.Accounts payable $2,500
C)Dr.Inventory $2,500, Cr.Accounts payable $2,500
D)The event would not be recorded at this time.

Question 33

A company reported net income of $22,500, had capital stock of $200,000 and retained earnings of $150,000.The ROE would be closest to?

A)6.4%
B)11.25%
C)15%
D)75% (22,500/350,000)

Question 34

At the end of the month BBB Ltd determined that the cost to them of goods that had been sold during the month was $125,000.How would this information be recorded?

A)The information is not recorded as no economic event had taken place.
B)Dr.Expenses $125,000, Cr Inventory $125,000.
C)Dr.Inventory $125,000, Cr Cash $125,000.
D)Dr.Expenses $125,000, Cr.Accounts payable of $125,000

Question 35

A company made the following entry in their books: Dr.Cash $25,000, Cr.Accounts receivable $25,000.What is the event that most likely occurred?

A)The company collected monies owing from a customer.
B)The company made a sale on credit.
C)The company paid a bill that was due.
D)The company borrowed money.

Question 36

Pear Inc declared and paid a $10,000 dividend at the end of the year.How would the transaction be recorded?

A)An increase in expense of $10,000 and a decrease in cash of $10,000.
B)An increase in expense of $10,000 and a decrease in retained earnings of $10,000.
C)A decrease in retained earnings of $10,000 and a decrease in expenses of $10,000.
D)A decrease in retained earnings of $10,000 and a decrease in cash of $10,000.

Question 37

A company made the following entry in their books: Dr.Accounts receivable $25,000, Cr.Sales $25,000.What is the event that most likely occurred?

A)The company collected monies owing from a customer.
B)The company made a sale on credit.
C)The company paid a bill that was due.
D)The company borrowed money.

Question 38

Which of the following statements about straight-line depreciation is not true?

A)Straight-line depreciation results in an equal amount of depreciation each period.
B)Straight-line depreciation is an application of the matching principle.
C)Straight-line depreciation results in the cost of the asset being expensed in the first year.
D)Straight-line depreciation requires estimates to be made by managers.

Question 39

A business bought a new delivery truck worth $45,000.They paid $5,000 down and took out a loan for the balance.How would the transaction be recorded?

A)$45,000 increase in capital assets, $5,000 decrease in cash, $40,000 increase in bank loan.
B)$40,000 increase in capital assets, $40,000 increase in bank loan.
C)$45,000 increase in expenses, $5,000 decrease in cash, $40,000 increase in bank loan.
D)$45,000 increase in capital assets, $5,000 decrease in cash, $40,000 decrease in bank loan.

Question 40

The following information comes from Simon Company's year-end financial statements: Sales $250,000, Cost of goods sold $100,000, Net income $12,500 and Total assets $187,500.The profit margin ratio for the year is closest to?

A)5%
B)6.6%
C)40 %
D)12.5%

Question 41

Which of the following is an example of an adjusting entry?

A)Recording the increase in the market value of land.
B)Recording the salary expense earned in the last week of the year, to be paid next year.
C)Recording the receipt of inventory in the last week of the year that will be paid next year.
D)Recording the payment of year-end dividends.

Question 42

Accumulated depreciation is an example of which of the following?

A)Prepaid expense
B)Deferred expense
C)Contra account
D)Accrued expense

Question 43

London Ltd bought a computer system two years ago for $50,000.They are amortizing it using the straight-line method over five years.At the end of the second year what is the computer system's net book value (NBV)?

A)$10,000
B)$20,000
C)$30,000
D)$50,000

Question 44

The employees of Melvin Movers worked a full month in June but will not be paid for it until July 15th.The adjusting entry to record the wages payable at the end of June is an example of which of the following adjustments?

A)Prepaid expenses
B)Deferred expenses
C)Contra accounts
D)Accrued expenses

Question 45

Richmond owns land and a building.The land was bought for $75,000 and the building was built for $625,000.The company expects to use the site for 25 years.If the company has owned and used the assets for five years, what are their net book values (NBV)?
$\begin{array}{cc}&\text { Land NBV } & \text { Building NBV } \\A.&\$ 60,000 & \$ 500,000 \\B.&\$ 75,000 & \$ 500,000 \\C.&\$ 60,000 & \$ 625,000 \\D.&\$ 75,000 & \$ 625,000\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 46

Where in the financial statement is the account "Accumulated depreciation" found?

A)Balance Sheet: Current assets
B)Balance Sheet: Non-current assets
C)Balance Sheet: Current liabilities
D)Income Statement

Question 47

Which of the following statements about adjusting entries is true?

A)Adjusting entries may involve the cash account.
B)Adjusting entries are required whenever the accounting records are updated.
C)Adjusting entries always involve an expense account.
D)Adjusting entries always include at least one balance sheet account and one income statement account.

Question 48

Which of the following is an example of an adjusting entry?

A)Collecting cash owing from a customer.
B)Paying interest expense on a loan.
C)Buying supplies on credit.
D)Recognizing the expired portion of prepaid rent.

Question 49

Manitoba Ltd lent $100,000 to Winnipeg Inc at an interest rate of 5%.Both the loan and all the interest are to be repaid after two years.At the end of the first year what is the entry required on Manitoba's books?

A)Dr.Interest receivable $5,000, Cr.Interest revenue $5,000
B)Dr.Interest expense $5,000, Cr.Interest payable $5,000
C)Dr.Interest revenue $5,000, Cr.Interest payable $5,000
D)There is no entry required at the end of the first year.

Question 50

Mad Mags sells magazines with one-year subscriptions.They require the payment in full before they start sending out the magazines.The payment received would be an example of which of the following?

A)Unearned revenue
B)Prepaid expenses
C)Accrued liability
D)Revenue

Question 51

Manitoba Ltd lent $100,000 to Winnipeg Inc at an interest rate of 5%.Both the loan and all the interest are to be repaid after two years.At the end of the first year what is the entry required on Winnipeg's books?

A)Dr.Interest receivable $5,000, Cr.Interest revenue $5,000
B)Dr.Interest expense $5,000, Cr.Interest payable $5,000
C)Dr.Interest revenue $5,000, Cr.Interest payable $5,000
D)There is no entry required at the end of the first year.

Question 52

Which of the following would be used to record depreciation expense for the period?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 53

The manager preparing the financial statements is trying to reduce net income to keep income taxes as low as possible.Which of the following accounting decisions could he use to decrease income?

A)Not recognize revenue until all the cash is collected.
B)Pick a longer life for the depreciation of fixed assets.
C)Pay out the maximum amount of dividends possible.
D)Delay the payment of expenses as long as possible.

Question 54

Davos Limited had $1,500 in prepaid rent at the beginning of the month, representing three months' worth of rent paid in advance.What is the correct adjusting entry at the end of the month?

A)Dr.Prepaid rent $500, Cr.Rent expense $500
B)Dr.Rent expense $500, Cr.Prepaid rent $500
C)Dr.Rent expense $1,000, Cr.Prepaid Rent $1,000
D)Dr.Prepaid rent $1,000, Cr.Rent expense $1,000

Question 55

Geneva Inc, had opened for business on September 1st but did not pay rent until September 15th, when they paid $6,000 in rent for the three months of September, October and November.How would the event be recorded on the September 30?

A)Dr.Rent expense $500, Dr.Prepaid rent $5,500, Cr.Cash $6,000
B)Dr.Rent expense $2,000 Dr.Prepaid rent $4,000 Cr.Cash $6,000
C)Dr.Rent expense $6,000, Cr.Cash $6,000
D)Dr.Prepaid rent $6,000, Cr.Cash $6,000

Question 56

Which of the following would be used to record the expiry of prepaid rent during the period?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 57

On which of the following businesses' balance sheets would you most likely expect to see an unearned revenue account?

A)Coffee shop
B)Women's clothing store
C)Manufacturer
D)Airline

Question 58

The manager preparing the financial statements receives a bonus based on net income.Which of the following accounting decisions could he use to increase his bonus?

A)Not recognize revenue until all the cash is collected.
B)Pick a longer life for the depreciation of fixed assets.
C)Pay out the maximum amount of dividends possible.
D)Delay the payment of expenses as long as possible.

Question 59

The following comes from Simon Company's year-end financial statements: Sales $250,000, Cost of goods sold $100,000, Net income $12,500, Total assets $187,500 and Total liabilities $67,500.The return on equity (ROE) for the year is closest to?

A)6.6%
B)10.4%
C)133.3%
D)208.3%

Question 60

Turin Turbines had $250,000 worth of goods on hand at the beginning of the year.During the year they made purchases of $2,200,000 and sales of $4,200,000.At year-end they counted the inventory still on hand and had $212,500.What was their cost of sales for the year?

A)$1,787,500
B)$2,462,500
C)$2,200,000
D)$2,237,500

Question 61

Cosmos Computer Consulting (CCC) is preparing their year-end financial statements.They completed two projects in the last month: one worth $12,000 that has been billed to the customer but has not yet been paid, and one worth $18,000 that they have not yet been invoiced to the customer.In the case of the second contract CCC had received a $3,000 deposit at the beginning of the contract.With respect to these two contracts, what amount would be recorded as unearned revenue for Cosmos at year-end?

A)$3,000
B)$15,000
C)$18,000
D)There is no unearned revenue at year-end.

Question 62

Which of the following would be used to reset the income statement accounts to zero at the end of the period?

A)A journal entry
B)An adjusting entry
C)A closing entry
D)A temporary account

Question 63

At the end of the accounting period, closing entries are used to reset the balance of the temporary accounts to zero.Into what account are the balances of the temporary accounts transferred?

A)Unearned revenue
B)Retained earnings
C)Capital stock account
D)Net income account

Question 64

Cosmos Computer Consulting is preparing their year-end financial statements.They completed two projects in the last month: one worth $12,000 that they have billed the customer for but not yet been paid, and one worth $18,000 that they have not yet had a chance to bill the customer for.In the case of the second contract they had received a $3,000 deposit at the beginning of the contract.With respect to these two contracts what amount would be recorded as Revenue for Cosmos at year-end?

A)$12,000
B)$15,000
C)$27,000
D)$30,000

Question 65

Which of the following is an example of a deferred expense adjusting entry?

A)Dr.Rent expense, Cr.Prepaid rent
B)Dr.Wages expense, Cr.Wage payable
C)Dr.Unearned revenue, Cr.Revenue
D)Dr.Accounts receivable, Cr.Sales

Question 66

Which action describes "posting"?

A)Recording the journal entry information in the general journal.
B)Recording the adjusting and closing journal entries on the trial balance.
C)Transferring the information in the journal entry from the general journal to the trial balance
D)Transferring the information in the journal entry from the general journal to the general ledger.

Question 67

Why do accountants use the matching principle when deciding how to record economic events? Briefly explain the matching principle as it applies to revenues and expenses.

Question 68

Which of the following is a temporary account?

A)Unearned revenues
B)Accumulated depreciation
C)Dividends declared
D)Wages payable

Question 69

Which of the following would cause the trial balance to not balance?

A)Posting an entry twice.
B)Reversing the debit and credit accounts in a journal entry.
C)Posting both sides of the entry as debits.
D)Forgetting to record an entry.

Question 70

Which of the following is an example of a transactional entry?

A)Recording depreciation expense.
B)Recognizing unearned revenue that has been earned.
C)Recording interest expense that has accrued but not been paid.
D)Paying wages that were outstanding.

Question 71

Which of the following is a temporary account?

A)Accounts receivable
B)Accumulated depreciation
C)Interest expense
D)Wages payable

Question 72

Where is there a chronological record of the journal entries?

A)General journal
B)General ledger
C)T-account
D)Bank statement

Question 73

Which accounting record is a listing of all the accounts and their balances?

A)General journal
B)T -account
C)Trial balance
D)Balance sheet

Question 74

Cosmos Computer Consulting (CCC) is preparing its year-end financial statements.They completed two projects in the last month: one worth $12,000 that has been invoiced to the customer but has not yet been paid, and one worth $18,000 that has not yet been invoiced to the customer.In the case of the second contract CCC received a $3,000 deposit at the beginning of the contract.With respect to these two contracts what amount would be recorded as accounts receivable for Cosmos at year-end?

A)$12,000
B)$18,000
C)$27,000
D)$30,000

Question 75

Identify three different points in time that an expense could be recognized relative to when it is paid.Give an example of each.

Question 76

As at August 31st Provence Products had $8,000 of accrued wages showing on their balance sheet.On September 10th they paid wages of $12,500.What portion of the wage payment relates to August and September's wage expenses respectively?
$\begin{array}{rr}&\text { August }&\text { September }\\A.&\$ 8,000 & \$ 12,500 \\B.&\$ 8,000 & \$ 4,500 \\C.&\$ 0 & \$ 12,500 \\D.&\$ 0 & \$ 4,500\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 77

Which of the following is an example of an unearned revenue adjusting entry?

A)Dr.Rent expense, Cr.Prepaid rent
B)Dr.Wages expense, Cr.Wage payable
C)Dr.Unearned revenue, Cr.Revenue
D)Dr.Accounts receivable, Cr.Sales

Question 78

If a company reports a loss for the year, the closing entry will result in which of the following?

A)A debit to retained earnings
B)A debit to miscellaneous expense
C)A credit to unearned revenue
D)A debit to capital stock

Question 79

Which of the following represents a liability that will be satisfied by providing goods or services?

A)Accrued expenses
B)Accounts receivable
C)Unearned revenue
D)Accumulated depreciation

Question 80

Which of the following correctly describes the order of the accounting cycle?

A)Post to the general ledger, post the adjusting entries, prepare trial balance, prepare financial statements and post closing journal entries.
B)Post to the general ledger, post the adjusting entries, prepare trial balance, post closing entries and prepare financial statements.
C)Post to the general ledger, post the adjusting entries, prepare financial statements, post closing journal entries and prepare trial balance.
D)Post to the general ledger, post the adjusting entries, post closing journal entries, prepare the trial balance and prepare financial statements.