Accounting Principles and Practices

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Questions and Answers

What is the total amount of assets for ABC Company if the equity is $160,000 and the total liabilities are $90,000?

$300,000

$160,000

$250,000 (correct)

$210,000

What is the primary purpose of posting in accounting?

To record transactions in the journal.

To close the accounting period.

To create financial statements.

To transfer data to the ledger. (correct)

What effect does a debit have on liabilities and revenues?

They increase.

They decrease. (correct)

They remain unchanged.

They become assets.

If ZYX Tax Planning Service prepaid rent for six months, what is the balance in the Prepaid Rent account as of April 30, 2024?

$10,800 Signup and view all the answers

What is the correct journal entry for a cash payment of $750 to settle an Accounts Payable?

Cash 750 / Accounts Payable 750 Signup and view all the answers

Which of the following statements accurately defines residual value?

The expected value of a depreciable asset at the end of its useful life. Signup and view all the answers

What journal entry is needed to record annual depreciation if equipment purchased for $155,000 has a zero residual value over five years?

Depreciation Expense 31,000 / Accumulated Depreciation 31,000 Signup and view all the answers

What type of liability is unearned revenue?

Current liability Signup and view all the answers

What is the annual depreciation expense for an equipment that costs $155,000 with a useful life of 5 years and a residual value of $0?

$31,000 Signup and view all the answers

What is the ending balance in the Accounts Receivable account if the initial balance is $25,000 with additional postings of $3,000 and a payment of $5,000?

$23,000 Signup and view all the answers

How much interest expense must be accrued on a $12,000 note payable at 8% for three months?

$240 Signup and view all the answers

What is the accrued interest for a 5-month note of $6,500 at an 11% interest rate by the end of 2025?

$179 Signup and view all the answers

What is the maturity value of a 75-day note for $230,000 at a 4% interest?

$231,890 Signup and view all the answers

What is the amount of Supplies Expense during the accounting period if the beginning balance of Office Supplies is $6,000, purchases total $5,500, and inventory shows $2,200?

$4,200 Signup and view all the answers

Which journal entry is correct for the purchase of $800 of office supplies on account?

Office Supplies $800, Accounts Payable $800 Signup and view all the answers

If an office supply account receives an additional debit posting of $5,500, what is the total value of office supplies after this posting?

$11,500 Signup and view all the answers

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

To list accounts and their balances after closing entries Signup and view all the answers

What is the amount of the Supplies Expense after adjustments?

$9,300 Signup and view all the answers

Which of the following is considered a temporary account?

Revenues Signup and view all the answers

What will the Prepaid Insurance account balance be after adjustments on January 1, 2025?

$7,200 Signup and view all the answers

How is Gross Profit calculated?

Sales Revenue - Cost of Goods Sold Signup and view all the answers

If a company purchases inventory for $20,000 with terms of 2/10, n/30, how much is the purchase discount available if paid within 10 days after returning $3,000 in defective inventory?

$340 Signup and view all the answers

By how much will the capital account decrease if the owner withdraws $51,000 and the net income is $40,000?

$11,000 Signup and view all the answers

Which of the following is classified as a liability account?

Notes Payable Signup and view all the answers

In a perpetual inventory system, which journal entry correctly records a payment made for purchased inventory after the discount period?

Debit Accounts Payable, Credit Merchandise Inventory and Cash Signup and view all the answers

Which account would appear in the balance sheet debit column of the worksheet?

Prepaid Insurance Signup and view all the answers

What is the correct journal entry to record the return of defective inventory valued at $800?

Debit Accounts Payable $800, Credit Merchandise Inventory $800 Signup and view all the answers

Which statement correctly reflects a feature of the perpetual inventory system?

It provides ongoing updates of inventory levels Signup and view all the answers

What is the balance in the Income Summary account prior to closing if the company earns $12,000 in revenue and incurs $5,500 in expenses?

$6,500 Signup and view all the answers

Which of the following accurately describes the relationship shown in the balance sheet?

Assets equal liabilities plus equity. Signup and view all the answers

What does Cost of Goods Sold (COGS) refer to?

The cost of merchandise sold to customers Signup and view all the answers

What happens when a customer returns merchandise purchased with cash valued at $2,500 with a cost of $1,000?

Assets decrease by $1,000. Signup and view all the answers

What is the debit amount to Cash Short & Over based on the given cash balances?

$7 Signup and view all the answers

How much bad debts expense will the company report on the income statement after analysis?

$19,000 Signup and view all the answers

Which accounting method is not acceptable for estimating bad debt expense under GAAP?

Direct Write-Off Method Signup and view all the answers

How should the company record the $200 payment received from A.Dorothy after writing off her receivable?

Debit Accounts Receivable & Credit Allowance for Bad Debts Signup and view all the answers

What is referred to as 'freight in' in accounting terms?

Transportation cost to bring goods to a warehouse Signup and view all the answers

Which type of journal is used to record the purchase of computers on account?

Purchases Journal Signup and view all the answers

What does the Allowance for Bad Debts account represent in accounting?

Estimated uncollectible accounts receivable Signup and view all the answers

What is the purpose of source documents in an accounting information system?

To offer evidence and data for transactions Signup and view all the answers

What does a subsidiary ledger provide?

Details on individual balances that support ledger totals Signup and view all the answers

Which inventory costing method calculates a new average cost after each purchase?

Weighted-Average Signup and view all the answers

What is the market value for inventory valued at lower-of-cost-or-market under U.S. GAAP?

Current Replacement Cost Signup and view all the answers

What is the calculated Cost of Goods Sold when using the last-in, first-out method for 200 units sold?

$9,350 Signup and view all the answers

What requirement does the Sarbanes-Oxley Act impose on auditors?

Evaluate and report on internal controls Signup and view all the answers

What would be reported as Merchandise Inventory if the cost of an item is $110 and the current replacement cost is $90?

$90 Signup and view all the answers

Which inventory costing method will minimize income tax expenses during rising inventory costs?

Last-In, First-Out (LIFO) Signup and view all the answers

How should a company calculate the Weighted-Average Unit Cost?

Total Cost / Number of Units Available for Sale Signup and view all the answers

Study Notes

Accounting Equation

Assets = Liabilities + Equity
Equity of ABC Company is $160,000
Total liabilities are $90,000
Total assets are $250,000 (160,000 + 90,000)

Posting

Transferring data from the journal to the ledger is called posting

Journal Entry (Cash Received for Services)

Cash 900
Service Revenue 900

GAAP

Generally Accepted Accounting Principles (GAAP)
Liabilities and revenues decrease with debits

Unearned Revenue

Liability created when customers pay in advance for services or goods

Journal Entry (Payment for Supplies)

Accounts Payable 750
Cash 750

Prepaid Rent

ZYX Tax Planning service prepaid rent of $32,400
Rent is $5,400 per month, beginning January 1, 2024
Balance of Prepaid Rent account on April 30, 2024 was $10,800 (32,400 - 21,600)

Depreciation

Accumulated Depreciation is a record of all depreciation expenses
Residual value is the expected value of a depreciable asset at the end of its useful life.
Equipment purchased for $155,000, depreciated over 5 years
Straight-line depreciation: (Cost-Residual value) / Useful life,
Depreciation expense for the first year is $31,000, and
Accumulated depreciation is also $31,000

Accounts Receivable

Balance of Accounts Receivable is $23,000 (25,000 + 3,000) – 5,000)

Notes Payable (Interest Calculation)

One-year note payable of $12,000 at 8% interest
Interest expense accrued on May 31 is $240

Account Receivable Note

Note of $6,500 for 5 months at 11% accepted on October 1, 2025
Accrued interest as of December 31, 2025 is $240. (6500 X 0.11 X (3/12))

Bank Note

Maturity value of the note is $231,890. (230,000 X 0.04 X 75/365 = 1,890.41 + 230,000 = 231,890)

Office Supplies

Office supplies purchased on account are $800
Beginning balance of Office Supplies account is $6,000
Purchases during the accounting period is $5,500
Ending balance on hand is $2,200
Supplies expense for the accounting period is $9,300 (6000 + 5500 – 2200)

Prepaid Insurance

Prepaid insurance of $9,600 for one year, covering from Oct 1, 2024
Balance in Prepaid Insurance account on Jan 1, 2025 is $7,200

Capital Account

Net income of 40,000andownerwithdrawalof40,000 and owner withdrawal of 40,000andownerwithdrawalof51,000
Capital account decreases by $11,000 (51,000 - 40,000)

Worksheet

Helps prepare financial statements
Net income is in the balance sheet credit column and debit column of income statement
Balance in Income Summary account before closing is $6,500

Adjusting Entries

Adjust for estimated returns, and merchandise returned by customer
Returns payable and merchandise inventory accounts involved

Perpetual Inventory System

Inventory system that maintains a running computerized record of merchandise

Cost of Goods Sold

Cost of merchandise sold to customer.
Gross profit = Sales Revenue - Cost of Goods Sold.

Bank Reconciliation

Reconciles the bank statement balance to the depositor’s book balance.
Deposits in transit: Deposits recorded in the depositor's books but not yet by the bank
Outstanding checks: Checks written by the depositor but not yet cashed by the bank
Adjusted book balance is $6,935 (7000 - 100 + 35)
NSF check: A check returned by a bank because of insufficient funds.
Accounts Receivable and cash involved.

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Description

Test your knowledge on key accounting concepts such as the accounting equation, GAAP, and journal entries. This quiz covers topics like assets, liabilities, equity, unearned revenue, and depreciation. Ideal for accounting students and professionals looking to refresh their skills.