Accounting and Finance Quiz

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Questions and Answers

What is the purpose of the Adjusted Trial Balance?

To prove the equality of the permanent account balances carried forward into the next period

To prepare the financial statements (correct)

To record expenses incurred but not yet paid

To update a revenue or expense account that is understated

What is the primary source of revenue for a merchandising company?

Sales revenue (correct)

Service revenue

Investment revenue

Interest revenue

What is the difference between a perpetual inventory system and a periodic inventory system?

Perpetual system is used by service companies, while periodic system is used by merchandising companies

Perpetual system keeps detailed records of inventory, while periodic system does not (correct)

Perpetual system is more costly than periodic system

Perpetual system only updates inventory records at the end of the period

What are the three costing methods used to compute ending inventory and cost of goods sold?

First-in, first-out (FIFO), Last-in, first-out (LIFO), and Average Cost Signup and view all the answers

What is the purpose of the post-closing trial balance?

To prove the equality of the permanent account balances carried forward into the next period Signup and view all the answers

What is the difference between accounts receivable and notes receivable?

Accounts receivable are formal instruments of credit as proof of debt, while notes receivable result from the sale of goods and services Signup and view all the answers

What is the purpose of the Sarbanes-Oxley Act of 2002 (SOX)?

To regulate financial reporting and corporate governance practices Signup and view all the answers

What are the components of an internal control system?

Control environment, risk assessment, control activities, information and communication, and monitoring Signup and view all the answers

What are the limitations of internal control?

Internal control systems can be affected by the human element Signup and view all the answers

What is the purpose of the post-closing trial balance?

To prove the equality of permanent account balances Signup and view all the answers

What is the primary source of revenue for a merchandising company?

Sales revenue Signup and view all the answers

What is the difference between accounts receivable and notes receivable?

Accounts receivable result from the sale of goods and services, while notes receivable use formal instruments of credit as proof of debt Signup and view all the answers

What is the purpose of the Sarbanes-Oxley Act of 2002?

To regulate financial reporting and corporate governance practices Signup and view all the answers

What are the two methods used to estimate uncollectible accounts receivable?

Percentage of sales and percentage of receivables Signup and view all the answers

What is the purpose of internal control systems?

To safeguard assets, enhance the accuracy and reliability of accounting records, increase the efficiency of operations, and ensure compliance with laws and regulations Signup and view all the answers

What is the difference between a perpetual inventory system and a periodic inventory system?

The former maintains detailed records of the cost of each inventory purchase and sale, while the latter does not keep detailed records of the goods on hand Signup and view all the answers

What is the total cost of merchandise sold during the period called?

Cost of goods sold Signup and view all the answers

What is the purpose of the Adjusted Trial Balance?

It is the primary basis for the preparation of the financial statements Signup and view all the answers

Study Notes

Accounting Cycle, Merchandising Operations, Inventory, and Internal Control

Accumulated Depreciation - Equipment is a contra asset account that appears just after Equipment on the balance sheet.
Companies record a receipt of cash before revenue has been earned as a liability called unearned revenue, and adjust it later to record the revenue that has been earned.
Companies make adjusting entries for accruals to update a revenue or expense account that is understated and record revenues earned but not yet received in cash or recorded as revenue.
Companies record expenses incurred but not yet paid in cash or recorded as an expense (i.e., accrued expense), and adjust it later to recognize the expenses.
After all adjusting entries are journalized and posted, the company prepares another trial balance from the ledger accounts called the Adjusted Trial Balance, which is the primary basis for the preparation of the financial statements.
Financial statements that are prepared directly from the Adjusted Trial Balance include the Income Statement, Retained Earnings Statement, and Balance Sheet, while the Statement of Cash Flows is prepared separately.
At the end of the accounting period, companies transfer the temporary account balances to the permanent stockholders’ equity account called Retained Earnings and produce a zero balance in each temporary account.
The purpose of the post-closing trial balance is to prove the equality of the permanent account balances that the company carries forward into the next accounting period, and all temporary accounts will have zero balances.
Merchandising companies buy and sell goods, with the primary source of revenues referred to as sales revenue or sales.
Cost of goods sold is the total cost of merchandise sold during the period, and the operating cycle of a merchandising company is usually longer than that of a service company.
Companies use either a perpetual inventory system or a periodic inventory system to account for inventory, with the former maintaining detailed records of the cost of each inventory purchase and sale and the latter not keeping detailed records of the goods on hand.
After a company has determined the number of inventory units on hand, it must apply unit costs to these quantities to compute ending inventory and cost of goods sold using the following costing methods: First-in, first-out (FIFO), Last-in, first-out (LIFO), and Average Cost.
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. The Sarbanes-Oxley Act of 2002 (SOX) is a U.S. law that regulates financial reporting and corporate governance practices.Fraud and Internal Control, Reporting and Analyzing Receivables
Fraud occurs due to the opportunity, financial pressure, and rationalization of an employee that results in personal benefit to the employee at a cost to the employer.
The Sarbanes-Oxley Act has attempted to reduce fraud by requiring publicly traded US corporations to maintain an adequate system of internal control, and independent outside auditors must attest to the adequacy of the internal control system.
Internal control is the methods and measures adopted to safeguard assets, enhance the accuracy and reliability of accounting records, increase the efficiency of operations, and ensure compliance with laws and regulations.
Internal control systems have five primary components: control environment, risk assessment, control activities, information and communication, and monitoring.
Six principles of internal control activities include the establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls.
Limitations of internal control include costs exceeding benefit, the human element, and the size of the business.
Receivables are amounts due from individuals and other companies that are expected to be collected in cash.
Accounts receivable result from the sale of goods and services, while notes receivable use formal instruments of credit as proof of debt, and other receivables include nontrade items like interest, loans to officers, advances to employees, and income taxes refundable.
Accounting issues related to accounts receivable include recognizing and valuing them.
Companies record accounts receivable at the point of sale of merchandise on account, while service organizations record them when they provide service on account.
Companies estimate uncollectible accounts receivable at the end of the period using either a percentage of sales or a percentage of receivables, and they use the allowance method to account for uncollectible accounts.
Notes receivable are written promises to pay, and companies may grant credit in exchange for a promissory note.

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Description

Test your knowledge on Accounting Cycle, Merchandising Operations, Inventory, and Internal Control with this informative quiz! From understanding the basics of the accounting cycle to learning about the different inventory costing methods, this quiz covers a wide range of topics related to accounting and finance. You'll also get to test your knowledge on internal control systems, fraud prevention, and reporting and analyzing receivables. So, whether you're a student of accounting or a professional in the field, take this quiz to see how much