Accounting Midterm Exam Questions
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Questions and Answers

What is the correct equation that represents the relationship between assets, liabilities, and owner's equity?

  • Assets = Liabilities + Owner’s Equity (correct)
  • Assets - Liabilities = Owner’s Equity
  • Assets + Liabilities = Owner’s Equity
  • Assets + Owner’s Equity = Liabilities

Which account would be classified as a current asset?

  • Cash (correct)
  • Notes Payable
  • Accounts Payable
  • Accumulated Depreciation - Cars

What type of liability is represented by the account labeled 'Loans Payable'?

  • Equity
  • Operating Expense
  • Current Liability (correct)
  • Long Term Liability

What does the account 'Accumulated Depreciation – Equipment' represent?

<p>A reduction in the value of equipment. (B)</p> Signup and view all the answers

Which of the following accounts is NOT considered a long-term liability?

<p>Utilities Payable (D)</p> Signup and view all the answers

If Teddy Gomez opened a business by investing cash of P50,000 and cars worth P750,000, what is the total value of his assets?

<p>P800,000 (D)</p> Signup and view all the answers

In accounting, what is the purpose of the chart of accounts?

<p>To categorize all financial transactions for reporting. (C)</p> Signup and view all the answers

Which account represents an asset that acknowledges the possibility of uncollectible amounts?

<p>Allowance for Bad Accounts (A)</p> Signup and view all the answers

What defines current assets?

<p>Assets held for sale or in production within one accounting period. (A)</p> Signup and view all the answers

Which of the following is an example of prepaid expenses?

<p>Rent paid in advance for office space. (A)</p> Signup and view all the answers

Which category do tangible assets like buildings and machinery fall into?

<p>Non-current Assets (C)</p> Signup and view all the answers

What is the purpose of nominal accounts?

<p>To track financial performance for a specific accounting period. (B)</p> Signup and view all the answers

Which of the following statements about accumulated depreciation is correct?

<p>It is a contra asset account representing periodic depreciation. (B)</p> Signup and view all the answers

What distinguishes non-current assets from current assets?

<p>Non-current assets are expected to provide benefits for more than one accounting period. (A)</p> Signup and view all the answers

Which of the following is not included in the financial position of a business?

<p>Income from Sales (C)</p> Signup and view all the answers

What do permanent accounts carry over to the next accounting period?

<p>Real accounts or balance sheet accounts. (D)</p> Signup and view all the answers

What does the Statement of Financial Position report on a given date?

<p>The assets, liabilities, and equity of a company (D)</p> Signup and view all the answers

How frequently is the Statement of Financial Position typically prepared?

<p>Every accounting year-end (B)</p> Signup and view all the answers

Which accounting equation accurately represents the relationship between the basic accounting elements?

<p>Assets = Liabilities + Owner's Equity (C)</p> Signup and view all the answers

What is an account in the context of accounting elements?

<p>A brief description of items representing each accounting element (D)</p> Signup and view all the answers

What term describes the Statement of Financial Position as a snapshot of a company's financial status?

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

What is the primary purpose of the Statement of Financial Position?

<p>To indicate the liquidity or solvency of a business (C)</p> Signup and view all the answers

What is the capital account balance after accounting for drawings of P5,000 from an initial P800,000?

<p>P795,000 (D)</p> Signup and view all the answers

Which statement is not accurate regarding the Statement of Financial Position?

<p>It is prepared constantly after every transaction. (A)</p> Signup and view all the answers

What is the total increase in assets as indicated in the analysis?

<p>P1,000,000 (C)</p> Signup and view all the answers

In the T-Account structure, what does the left side represent?

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

Which of the following accounts is not classified as an expense from the list provided?

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

What is the purpose of using a T-Account in accounting?

<p>To analyze transactions by tracking increases and decreases in accounts (D)</p> Signup and view all the answers

Which account reflects an increase in Gomez's capital according to the analysis?

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

What was the amount borrowed from Calambank according to the analysis?

<p>P100,000 (D)</p> Signup and view all the answers

Which account would be credited when service income is recognized?

<p>Gomez, Capital (B)</p> Signup and view all the answers

What is the total amount of increases in expenses listed?

<p>P600,000 (A)</p> Signup and view all the answers

What is the purpose of the income summary account?

<p>To close income and expenses at the end of the period (C)</p> Signup and view all the answers

How are withdrawals by the owner recorded?

<p>In the drawing or withdrawal account (B)</p> Signup and view all the answers

What does the accounting equation represent?

<p>The relationship between assets, liabilities, and owner's equity (B)</p> Signup and view all the answers

Which of the following is NOT included in a journal entry?

<p>Total revenue for the period (D)</p> Signup and view all the answers

When recording increases in assets, how are these recorded?

<p>As a debit entry (A)</p> Signup and view all the answers

What happens to the owner's equity account when additional investments are made?

<p>It increases (D)</p> Signup and view all the answers

Which statement accurately reflects the relationship indicated by the accounting equation?

<p>Assets equal the sum of liabilities and owner's equity (B)</p> Signup and view all the answers

What does an increase in Uncollectible Accounts Expense signify?

<p>Decreased cash flow for the business (D)</p> Signup and view all the answers

What occurs when expenses exceed revenue?

<p>Net Loss (D)</p> Signup and view all the answers

What does a withdrawal by the owner do to Equity?

<p>Decreases Equity (C)</p> Signup and view all the answers

Which accounting equation represents the relationship among assets, liabilities, and owner's equity?

<p>A = L + OE (D)</p> Signup and view all the answers

What is the term for the total expenses incurred by the company?

<p>Expenses (D)</p> Signup and view all the answers

Which statement accurately describes the nature of current liabilities?

<p>Obligations due within one year (B)</p> Signup and view all the answers

What does an increase in bad debts indicate?

<p>Decreased cash flow (C)</p> Signup and view all the answers

What are real accounts primarily associated with?

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

How does the status of an asset change when it is used?

<p>It is reclassified as an expense (A)</p> Signup and view all the answers

Flashcards

Uncollectible Accounts Expense

The amount of receivables estimated to be uncollectible, recorded as an expense.

Interest Expense

An expense related to the use of borrowed funds.

Accounting Equation

The fundamental equation in accounting, stating that assets equal the sum of liabilities and owner's equity.

Income Summary

A temporary account used to close income and expense accounts at the end of the accounting period.

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Owner's Equity

Records the owner's investments, withdrawals, and profits or losses.

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Withdrawals

The owner's withdrawal of cash or other assets from the business. Recorded separately from the owner's equity account.

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Journal Entry

A chronological record of a business's transactions, showing debits and credits for each entry.

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General Journal

The simplest type of journal, used to record transactions chronologically.

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Current Assets

Assets held for sale in the ordinary course of business, in the process of production for such sale, or as materials/supplies to be consumed in production or rendering of services.

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Non-current Assets

Tangible assets held for use in production, supply of goods/services, rental to others, or administrative purposes. Expected to be used for more than one period.

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Prepaid Expenses

Expenses already paid by a business in advance. It represents future economic benefits and is an asset until it contributes to the earning process.

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Accumulated Depreciation

A contra account that accumulates the sum of periodic depreciation charges for an asset.

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Real Accounts

Accounts that represent the financial position of a business, including assets, liabilities, and owner's equity.

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Nominal Accounts

Accounts that show the financial performance of a business over a period (e.g., income statement).

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Balance Sheet

A document reporting the financial position of a business, including assets, liabilities, and owner's equity.

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Income Statement

A document that reports the financial performance of a business over a specific period (e.g., a year).

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What does 'Assets' mean?

The total value of all assets a business owns.

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Define 'Liabilities'.

The obligation of a business to pay money or provide services to others.

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What is 'Owner's Equity'?

The owner's investment in the business, including profits and losses.

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Explain the Accounting Equation.

The fundamental accounting equation that shows the relationship between assets, liabilities, and owner's equity. It states that assets are equal to the sum of liabilities and owner's equity.

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What is 'Revenue'?

The total value of goods and services a business has sold and collected payment for.

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What does 'Expense' mean?

The total cost incurred by a business in the course of generating revenue.

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Define 'Net Income'.

It's the difference between revenue and expenses. If revenue exceeds expenses, it results in a profit. If expenses exceed revenue, it results in a loss.

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What are 'Withdrawals'?

When the owner takes money or assets out of the business for personal use.

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What is a Statement of Financial Position?

A financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It provides a snapshot of the company's financial health.

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What are assets?

Resources owned by a company that are expected to provide future economic benefits.

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What are liabilities?

Obligations that a company owes to others, representing debts that need to be repaid.

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What is the accounting equation?

The fundamental accounting equation that shows the relationship between assets, liabilities, and owner's equity.

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What is liquidity?

A company's ability to meet its short-term financial obligations.

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What is solvency?

A company's ability to meet its long-term financial obligations.

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What are the key financial statements?

Financial statements that summarize a company's financial performance over a period of time, such as an income statement, statement of changes in equity, and statement of cash flows.

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What are Current Assets?

Tangible assets used in the day-to-day operations of a business, expected to be consumed or sold within a year.

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What are Plant and Equipment Assets?

Tangible assets used for a longer period, often exceeding a year, and help generate revenue.

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What are Current Liabilities?

Obligations due within a year, such as accounts payable and salaries payable.

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What are Long-Term Liabilities?

Obligations due after a year, such as mortgage payable and long-term loans.

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What is a T-Account?

A visual representation of an account, with two sides: debit (left) for increases and credit (right) for decreases. It helps analyze the movement of money within an account.

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What is the debit side?

The left side of a T-Account, where increases in assets, expenses, and drawings are recorded.

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What is the credit side?

The right side of a T-Account, where increases in liabilities, equity, and revenue are recorded.

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What is debiting?

The act of adding to an account balance, like increasing assets or expenses.

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What is crediting?

The act of subtracting from an account balance, like increasing liabilities or equity.

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What is a transaction that increases both assets and liabilities?

A transaction involving an increase in assets and an equal increase in liabilities. Example: Borrowing money from a bank increases cash (asset) and loans payable (liability).

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What is a transaction that increases both assets and owner's equity?

A transaction involving an increase in assets and an equal increase in owner's equity. Example: Investing money in a business increases cash (asset) and owner's equity.

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What is a transaction that increases assets and decreases owner's equity?

A transaction involving an increase in assets and an equal decrease in owner's equity. Example: Withdrawing money from the business reduces cash (asset) and owner's equity.

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Study Notes

Multiple Choice Questions

  • Midterm exam, 50% multiple choice, 50% computational
  • Accounting titles required
  • Columnar sheet format

Assets

  • Computer equipment is an asset.
  • Capital = Assets - Liabilities

Liabilities

  • Money borrowed by the firm, not yet prepaid, is a liability.

Accounting Equation

  • Assets = Liabilities + Owner's Equity

Debit and Credit

  • Decreases in any given liability account are credited.
  • The word "debit" typically means increase and "credit" typically means decrease.

Transactions

  • Purchasing a service vehicle on account increases assets and liabilities.
  • Recording a full payment of an account receivable leaves total assets unchanged.
  • Purchasing supplies with cash increases supplies and decreases cash.

Transactions Affecting Owner's Equity

  • Investing 50,000 into a business increases assets and owner's equity by that amount.
  • Owner withdraws 5,000 for personal use reduces assets and owner's equity by 5,000.

Income Statement

  • An income statement does not include asset accounts.
  • Land is not subject to depreciation.
  • Intangible assets cover all types

Current Assets

  • Cash includes coins, currencies, and bank deposits.
  • Accounts receivable are expected future payments from customers.
  • Inventories are all types of goods (raw materials, work-in-progress, finished goods).

Expenses

  • Paying employees increases expenses.
  • Withdrawals reduce assets.

Computations

  • Assets (760,000) - Liabilities (360,000) = Owner's Equity (400,000)
  • Assets (860,000) - Liabilities (268,000) = Owner's Equity (592,000)

Real Accounts

  • Called balance sheet accounts or permanent accounts meaning they are carried on to the next accounting year.
  • Show financial position (assets, liabilities, and equity) of the business.

Nominal Accounts

  • Also called income statement accounts or temporary accounts.
  • Show financial performance for the accounting period. (income, expenses, withdrawals)

Current Assets

  • Cash (includes coins, currency, checks, money orders, bank deposits, and drafts)
  • Cash equivalents (short-term, highly liquid investments)
  • Notes receivable
  • Accounts receivable

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Acctg Midterm Exam PDF

Description

Test your knowledge with our midterm exam focused on essential accounting concepts. This quiz covers topics including assets, liabilities, the accounting equation, and transactions affecting owner's equity. Perfect for students preparing for their accounting assessments.

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