Accounting Concepts and Adjusting Entries Quiz
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Questions and Answers

What is the amount of the cheque that should be sent to the government?

$1,468

Which of the following accounts decrease Owner's Equity?

  • Expense Accounts
  • Drawing or Withdrawals Accounts
  • Loss Accounts
  • All of the above (correct)

    • Including a personal car on the business balance sheet is a violation of the Business Entity Concept.

    True (A)

    A credit to HST Recoverable means the business is using its recoverable HST to ______ taxes payable.

    <p>offset</p> Signup and view all the answers

    Match the following accounts with their typical debit or credit balance:

    <p>Accounts Payable = Credit Supplies = Debit Bank = Debit Car Expense = Debit</p> Signup and view all the answers

    What is the adjusted balance of the Prepaid Insurance account after the adjusting entry is made?

    <p>$400.00 (A)</p> Signup and view all the answers

    The adjusting entry for prepaid insurance will increase the balance of the Prepaid Insurance account.

    <p>False (B)</p> Signup and view all the answers

    What is the primary purpose of an adjusting entry in accounting?

    <p>To ensure that revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when cash is received or paid.</p> Signup and view all the answers

    The adjusting entry for prepaid insurance will debit ______ and credit ______.

    <p>Insurance Expense, Prepaid Insurance</p> Signup and view all the answers

    Match the following accounts with their corresponding account type:

    <p>Fees Earned = Revenue Account Advertising Expense = Expense Account Prepaid Insurance = Asset Account M. Harrison, Capital = Equity Account Bank Charges = Expense Account Supplies Expense = Expense Account Utilities Expense = Expense Account M. Harrison, Drawings = Equity Account Wages Expense = Expense Account Car Expense = Expense Account</p> Signup and view all the answers

    Why did the accounting clerk incorrectly credit Fees Earned when a customer paid $2,000 cash in advance for work to be performed in February 2023?

    <p>All of the above. (D)</p> Signup and view all the answers

    The payment of $2,000 received from the customer in December 2022 for work to be done in February 2023 should be recorded as a debit to Unearned Revenue.

    <p>True (A)</p> Signup and view all the answers

    What are the four closing entries commonly used in the closing process at the end of an accounting period?

    <p>The four closing entries are: Closing Revenue Accounts, Closing Expense Accounts, Closing Income Summary, and Closing Drawings.</p> Signup and view all the answers

    What is the first step in the revenue recognition model?

    <p>Identifying the contract with the customer (B)</p> Signup and view all the answers

    Revenue is recognized before satisfying the performance obligation.

    <p>False (B)</p> Signup and view all the answers

    What is the purpose of allocating the transaction price in the revenue recognition model?

    <p>To assign the expected payment between different performance obligations based on their selling prices.</p> Signup and view all the answers

    The __________ inventory taken on December 31st, 2022, amounted to $600.00.

    <p>supplies</p> Signup and view all the answers

    Match the following adjusting entries with their corresponding expenses or accounts:

    <p>Advertising Expense = 250.00 Telephone Expense = 50.00 Utilities Expense = 200.00 Accounts Payable = 500.00</p> Signup and view all the answers

    How much was the difference in supplies inventory that needed adjustment as of December 31, 2022?

    <p>$474.00 (A)</p> Signup and view all the answers

    The unexpired insurance as of December 31st was $400.

    <p>True (A)</p> Signup and view all the answers

    What is the total amount for the purchase invoices received in January 2023?

    <p>$500.00</p> Signup and view all the answers

    The revenue recognition principle dictates that revenue should be recognized when the goods are delivered or services are provided, regardless of when payment is received.

    <p>False (B)</p> Signup and view all the answers

    Misstating revenue can lead to significant consequences, including legal ______ and loss of investor confidence.

    <p>repercussions</p> Signup and view all the answers

    Why is it incorrect to include the $2,000,000 contract in the 2022 fiscal period?

    <p>The services related to the contract will not be performed until March 2023. (D)</p> Signup and view all the answers

    What is the primary accounting standard that provides guidance on recognizing revenue from contracts with customers?

    <p>IFRS 15 - Revenue from Contracts with Customers</p> Signup and view all the answers

    Match the accounting principle with its relevant description:

    <p>Revenue Recognition Principle = Dictates when revenue should be recognized in the financial statements Matching Principle = Expenses are recognized when the revenue they helped generate is earned Materiality = Information is considered material if it is likely to influence the decisions of users of financial statements Going Concern = Assumes that a business will continue operating indefinitely.</p> Signup and view all the answers

    Which of the following is NOT a potential consequence of misrepresenting revenue?

    <p>Increased profits for the company (B)</p> Signup and view all the answers

    The revenue recognition principle is only applicable to companies that provide services, not those that sell goods.

    <p>False (B)</p> Signup and view all the answers

    If the company wanted to recognize the revenue from the contract in 2022, what action could they take to comply with IFRS?

    <p>The company could record the potential revenue as an unearned revenue liability. This way, they acknowledge the obligation to provide services in the future, and the revenue would be recognized once the services are performed.</p> Signup and view all the answers

    What amount represents the total expenses for the period?

    <p>$5,056.25 (B)</p> Signup and view all the answers

    The net income is calculated by subtracting expenses from revenue.

    <p>True (A)</p> Signup and view all the answers

    What is the purpose of closing the Drawings account?

    <p>To ensure that the drawings do not affect the net income calculation for the period.</p> Signup and view all the answers

    The revenue earned during the period amounts to ______.

    <p>$80,821.19</p> Signup and view all the answers

    Which account is credited to reflect the transfer of net income?

    <p>M.Harrison Capital (B)</p> Signup and view all the answers

    Match the following accounts with their respective actions during closing entries:

    <p>Fees Earned = Closed to Income Summary Income Summary = Closed to Capital Expenses = Closed to Income Summary Drawings = Closed to Capital</p> Signup and view all the answers

    The total revenue earned was less than the total expenses.

    <p>False (B)</p> Signup and view all the answers

    What is the balance in the M.Harrison, Drawings account before closing?

    <p>$3,500.00</p> Signup and view all the answers

    What is the owner's equity when total assets are $73,359.00 and total liabilities are $43,727.00?

    <p>$29,632.00 (B)</p> Signup and view all the answers

    A credit entry incorrectly recorded as a debit is an example of a transposition error.

    <p>True (A)</p> Signup and view all the answers

    What is the result of an error in the amount invoiced to a client?

    <p>An exceptional balance in the Accounts Receivable account.</p> Signup and view all the answers

    Owner’s equity is calculated using the formula: Total Assets - Total _____

    <p>Liabilities</p> Signup and view all the answers

    Which of the following would NOT cause an exceptional balance in Accounts Receivable?

    <p>Client's payment recorded correctly (C)</p> Signup and view all the answers

    Match the following items with the correct financial term:

    <p>Accounts Receivable = Money owed to a business by customers Accounts Payable = Money a business owes to suppliers Owner's Equity = Residual interest in the assets of the entity Liabilities = Obligations of the business</p> Signup and view all the answers

    If a seller makes a sale subject to HST, it only affects the seller's accounts.

    <p>False (B)</p> Signup and view all the answers

    What does the Revenue Recognition Principle dictate regarding sales?

    <p>Revenue should be recognized when it is earned, regardless of when cash is received.</p> Signup and view all the answers

    Study Notes

    Sole Proprietorship

    • A business owned and operated by one person
    • Simplest business structure
    • Examples include freelancers and small shop owners

    Corporation

    • A separate legal entity from its owners (shareholders)
    • Shareholders are not liable for the company's debts
    • Examples include Apple Inc. and Microsoft

    Partnership

    • A business owned and operated by two or more people
    • Shared responsibilities, profits, and liabilities
    • Examples include law firms and accounting firms

    Government Agency

    • A government organization performing specific tasks (e.g., regulation, administration, service)
    • Funded by taxpayers
    • Examples include the IRS and education departments

    Assets

    • Resources with economic value, expected to benefit the business in the future
    • Examples include cash, inventory, and equipment

    Liabilities

    • Financial obligations to other parties
    • Settled through the transfer of assets, services, or money
    • Examples include loans, accounts payable, and accrued expenses

    Revenue Account

    • Records income generated from business operations
    • Represents inflows increasing equity
    • Examples include sales revenue, interest income, and service revenue

    Expense Account

    • Tracks money spent to generate revenue
    • Expenses decrease equity
    • Examples include rent expense, salary expense, and cost of goods sold

    Continuing Concern Concept

    • Assumes a business will operate indefinitely unless evidence suggests otherwise
    • Assets are valued based on intended use in ongoing operations, not liquidation value

    Separate Identity Assumption

    • A business is separate from its owners for accounting purposes
    • Transactions of the business are recorded independently of personal transactions or owners

    Principle of Conservation

    • Accountants anticipate losses, not gains
    • Revenues and assets are understated while expenses and liabilities are overstated
    • When there is uncertainty, revenues and assets are understated and expenses or liabilities are overstated;
    • Examples include inventory being recorded at the lower of cost or market value

    Business Entity Concept

    • A business is treated as a separate accounting entity, independent of its owners
    • This ensures only business transactions are recorded in the business's books

    Matching Principle

    • Matches expenses with the revenues they generate
    • Ensures accurate profit reporting by aligning costs with corresponding revenues
    • Example includes salaries for employees are expenses for any services rendered in January

    Fiscal Period Concept

    • Divides accounting activities into specific, consistent time periods
    • Measures financial performance and position
    • Example includes a company preparing financial statements from January 1st to December 31st

    Time Period Principle

    • Divides the entity's economic activities into regular time periods
    • Ensures consistency and comparability over time
    • Examples include preparing monthly and quarterly income statements for performance evaluation

    Revenue Recognition Principle

    • Revenue is recognized when earned, regardless of when payment is received
    • Ensures revenue is reported in the correct period

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    Description

    Test your knowledge on essential accounting concepts, including adjusting entries and owner’s equity. This quiz covers various topics such as prepaid insurance, HST recoverable, and account types. Perfect for students in accounting courses or professionals looking to refresh their skills.

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