Deck 2: The Accounting Information System

Question 1

The term used to refer to an asset's original cost is book value.

Answer 1

False

Question 2

The payment of a dividend increases both cash and stockholders' equity of the distributing entity.

Answer 2

False

Question 3

The accounting equation must balance before and after every accounting transaction.

Answer 3

True

Question 4

A chart of accounts is prepared to determine whether the books have gotten out of balance.

Question 5

Under the double-entry system of accounting,every transaction is entered in at least two accounts on opposite sides of a T-account.

Question 6

The initial step in the recording process is sometimes referred to as journalizing.

Question 7

The dividends account has a normal debit balance.

Question 8

Under the double-entry system of accounting,a debit is always a negative entry.

Question 9

The time-period assumption assumes that a company prepares its financial statements every month.

Question 10

The International Accounting Standards Board (IASB)was created in order to develop worldwide accounting standards that are required for all financial statements,regardless of the country where the financial statements were prepared.

Question 11

According to the historical cost principle,assets are always carried at their current market value.

Question 12

A company in the process of liquidation is considered to be under the going concern assumption.

Question 13

Because it tends to provide the most reliable measure of activity,all assets are reported on the balance sheet at their fair market values.

Question 14

GAAP has established a universal chart of accounts that is applicable to all businesses in the United States.

Question 15

A debit entry increases assets and revenue accounts.

Question 16

The issuance of common stock increases a company's assets and stockholders' equity.

Question 17

An accounting transaction may impact only one financial statement or multiple statements.

Question 18

Income statement accounts have normal credit balances.

Question 19

A T-account for Cash cannot contain any credits.

Question 20

The going concern assumption infers that a company will continue to operate into the near future.

Question 21

The concept that assumes that assets are recorded at the amount to acquire them is called the ____________________ principle.

Question 22

The various rules and conventions that have evolved over time to guide the preparation of financial statements in the U.S.are called ____________________

Question 23

A full disclosure policy stipulates that all information that would make a difference to financial statement users should be revealed.

Question 24

The general ledger is often used for the initial recording of repetitive transactions.

Question 25

The ____________________ is the private sector group with authority to set accounting standards in the United States

Question 26

The conservatism principle is concerned with the possibility of understating assets or income.

Question 27

____________________ is the quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences.

Question 28

When preparing the financial statements,the accountant must estimate the balances of certain accounts.When two possible estimates are available and when these estimates are about equally likely,the accountant's prudent reaction is to select the least optimistic estimate in terms of the recorded amounts of assets or income statement accounts.This is referred to as the principle of ____________________.

Question 29

Only events that can be measured with sufficient reliability will be recognized in the accounting system.

Question 30

If a company performed services for credit,then the debit side of the journal entry would be to Accounts Payable and the credit would be to Service Revenue.

Question 31

A trial balance is the listing of each active account and its corresponding debit or credit balance at a particular point in time.

Question 32

Even though a trial balance reveals that the debits equal the credits,there still may be errors in the company's books.

Question 33

____________________ is the magnitude of an omission or misstatement in accounting information that will influence the decision of someone relying on the information.

Question 34

The ____________________ is the U.S.federal government agency with the ultimate authority to determine the accounting rules for companies whose stock is sold to the public

Question 35

The purchase of office supplies from a supplier is an example of an external event.

Question 36

The concept that assumes that an entity is not in the process of bankruptcy is called the ___________ concept.

Question 37

____________________ is the capacity of information to make a difference in a decision by helping make timely predictions or provide timely feedback.

Question 38

The general ledger is an example of a book of original entry.

Question 39

____________________ is the quality of accounting information that makes it dependable in representing the events that it purports to represent.

Question 40

If a company made a payment on account,then assets and liabilities would both decrease.

Question 41

The ____________________ side,or left-side,of a liability account is used to record decreases in the account balance.

Question 42

The issuance of common stock increases both ____________________ and stockholders' equity.

Question 43

Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used in the preparation of financial statements?

A)Economic Entity
B)Continuity
C)Time-Period
D)Monetary Unit

Question 44

The ___________________ is a list of each active account and its debit or credit balance at a specific point in time.

Question 45

The payment of salaries to employees will result in a debit to an expense account and a credit to the ___________ account.

Question 46

If a law firm provides services on account for its clients,both ____________________ and retained earnings will increase.

Question 47

For assets,expenses,and dividend accounts,a credit will _______ the balance in the account.

Question 48

Which of the following is an assumption made in the preparation of the financial statements?

A)Financial statements are prepared for a specific entity that is distinct from the entity's owners.
B)The current market value is assumed to be more relevant than the original cost paid.
C)The preparation of financial statements for a specific time period assumes that the balance sheet covers a designated period of time.
D)Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit.

Question 49

The ____________________ is the file or book that contains all of the company's accounts.

Question 50

A revenue account has a normal ___________ balance.

Question 51

For liabilities,stockholders' equity,and revenue accounts,debits will _____________ the account balance.

Question 52

____________________ is the quality of accounting information that allows a user to compare two or more accounting periods for a single company.

Question 53

The ___________________ is a chronological record of all transactions entered into by a business.

Question 54

Credits are always on the ____________________ side of a T-account.

Question 55

____________________ documents provide the evidence needed in an accounting system to record a transaction.

Question 56

Which of the following statements is true regarding economic events?

A)The signing of a service contract is an example of an external event that is recorded in the accounting records.
B)Every event which affects an entity can be identified from a source document.
C)All internal and external events must be measured with sufficient reliability.
D)External events involve exchanges between an entity and another entity outside the company.

Question 57

In order for an internal or external event to be recognized in an accounting system,the items making up the event must impact the financial statements and they must be sufficiently reliable and ____________________.

Question 58

The ____________________ principle says that assets of a company are initially recorded at their original cost.

Question 59

The ____________________ is a list of all the accounts used by an entity.

Question 60

Borrowing from the bank in order to acquire computer equipment for $1,500 has the effect of increasing both assets and ____________________.

Question 61

Which of the following is an internal event for a business entity?

A)An attorney provides services for clients.
B)An attorney purchases computer equipment.
C)An attorney uses computer equipment to maintain business records and prepare legal documents.
D)An attorney receives cash payments from clients who were billed for legal services.

Question 62

Which organization has the power to set accounting rules for companies whose stock is publicly-traded in the U.S.stock markets,but has delegated its power to another organization?

A)International Accounting Standards Board (IASB)
B)Financial Accounting Standards Board (FASB)
C)General Association of Accounting Practitioners (GAAP)
D)Securities Exchange Commission (SEC)

Question 63

The time-period assumption is necessary because

A)inflation exists and causes confusing swings in financial statement amounts over time.
B)external users of financial statements want accurately-reported net income for a specific period of time.
C)financial statements users expect full disclosure of all economic events throughout the entire time period.
D)it is required by the federal government.

Question 64

The payment of employee salaries has what effect on the accounting equation?

A)Assets and stockholders' equity decrease
B)Liabilities and stockholders' equity decrease
C)Assets decrease and liabilities increase
D)Assets increase and liabilities decrease

Question 65

All of the following are external events except:

A)a grocery store recognizes losses from spoilage.
B)a grocery store runs ads in a local newspaper.
C)a grocery store purchases produce from a local farmer.
D)a grocery store sells groceries to customers on credit.

Question 66

The purchase of office equipment on credit has what effect on the accounting equation?

A)Assets and stockholders' equity decrease
B)Liabilities increase and stockholders' equity decreases
C)Assets and liabilities increase
D)Assets and liabilities decrease

Question 67

Which of the following statements is true concerning assets?

A)Assets are measured using a time-period approach.
B)Assets are initially recorded at market value and then adjusted for inflation.
C)Assets are initially recorded using the historical cost principle.
D)Assets are initially recorded at market value,since historical cost tends to be too arbitrary.

Question 68

Homevestors purchased land for $400,000 in 2001.In 2013,an independent appraiser assessed the value of the land at 900,000.At what amount should the land be recorded on the company's 2013 financial statements?

A)At its cost of $400,000
B)At its $900,000 appraised value
C)At $500,000,the difference between the land's cost and assessed value
D)Whichever amount the company considers to be the best indicator of the land's true value.

Question 69

The principle of conservatism is concerned with

A)the avoidance of overstating assets or income in the preparation of financial statements.
B)the minimization of costs associated with providing financial information.
C)the company's ability to carry out its existing commitments.
D)the company's procedures for recording activities at their initial exchange price.

Question 70

Which of the following is an internal event?

A)Caddie salaries are paid by a country club.
B)Dividends are distributed to a company's stockholders.
C)Potatoes used to make French fries in a fast-food restaurant are purchased.
D)Products are transferred from the assembly area to the painting station.

Question 71

Which of the following statements is false with respect to the qualitative characteristics of useful accounting information?

A)Comparability is concerned with different companies using the same accounting methods;whereas,consistency is concerned with a single company using the same accounting methods over time.
B)Trade-offs are often necessary in evaluating relevant versus reliable information.
C)All external and internal events must be fully disclosed in the accounting system.
D)The full disclosure policy should be followed in all situations that would made a difference to financial statement users.

Question 72

During March,Honeybaked Spam purchased supplies for cash.The supplies will be used in April.What effect does this transaction have on the accounting equation at the time the supplies are purchased?

A)Assets increase and stockholders' equity decreases
B)Assets and liabilities increase
C)There is no effect on the accounting equation,as one asset account increases while another asset account decreases.
D)There is no effect on the accounting equation,as the transaction should not be recognized until April.

Question 73

Which of the following statements is true?

A)Only the effects of internal transactions must be recognized and recorded in the accounting system.
B)An internal transaction represents a business activity between an entity and its environment.
C)Evidence used to record transactions affecting a business entity comes from source documents.
D)Only the effects of external events must be recognized,measured,and recorded in an entity's accounting system.

Question 74

In order for accounting information to be useful in making informed decisions,it must be

A)Internal
B)Relevant
C)Reliable
D)Both relevant and reliable

Question 75

The Securities Exchange Commission (SEC)is concerned with

A)Developing a new conceptual framework in order to reduce differences in financial reports for global companies.
B)Setting accounting rules for all companies that are incorporated in the United States.
C)Setting accounting rules for publicly-traded companies in the United States.
D)Working to reduce differences in accounting reports issued by governmental units.

Question 76

Which of the following statements is false regarding the use of source documents?

A)Checks and deposit slips are the main source documents backing up the bank statement.
B)Retailers may use cash register tapes to recognize sales transactions.
C)Stock certificates provide evidence of being a creditor of the company.
D)Time cards may be used as a source of information to record wages.

Question 77

High Point Furniture Company manufactures furniture.The company has applied for a sizeable loan to expand its operations.Based on the company's annual report,the loan officer concludes that High Point is very profitable and appears to have a strong financial position.However,watching the nightly news on television that evening,the banker discovers that High Point is a defendant in a class action lawsuit related to defective products.Serious injuries were allegedly caused by the company's infant high chairs overturning.The television news report is an example of financial information that is

A)Predictable
B)Conservative
C)Relevant
D)Comparable

Question 78

Which of the following organizations is primarily responsible for establishing GAAP in the United States?

A)Securities Exchange Commission (SEC)
B)Financial Accounting Standards Board (FASB)
C)International Accounting Standards Board (IASB)
D)Internal Revenue Service (IRS)

Question 79

The going concern assumption is concerned with

A)The company's ability to continue operations long enough to carry out its existing obligations.
B)Any information that is capable of influencing the decisions of anyone using the financial statements.
C)Measuring ongoing business activities at their exchange price at the time of the initial external transaction.
D)offsetting management's natural optimism by providing a prudent approach to uncertainty in financial statement items.

Question 80

Which of the following is a constraint to the qualitative characteristics of useful accounting information?

A)Conservatism
B)Materiality
C)Relevance
D)Comparability