Accounting Principles Quiz

Study Notes

Retained Earnings

Land purchases have no effect on retained earnings.
Retained earnings are influenced by expenses, dividends, and revenues.

Revenue Recognition

Revenue must be recognized in the period it is earned.
Accurate reporting requires recognizing a receivable on the statement of financial position.
All choices mentioned are correct regarding revenue recognition.

Net Income Calculation

La More Company had sales of $4,500 on account; collected $2,000 for future services; paid $1,375 in salaries; and purchased airline tickets for $250.
Using accrual accounting, La More's 2011 net income totals $3,125.

Unearned Service Revenue

The Unearned Service Revenue account is classified as a liability.
It reflects services owed to customers that have been paid in advance.

Employee Hiring Journal Entry

Hiring an employee does not require a journal entry upon hiring, as it's not recognized as an economic event yet.
All obligations must have a measurable dollar amount to be recorded in accounting.

Purchase of Supplies

Decker Industries’ purchase of supplies for $500 on account is recorded with a debit to Supplies and a credit to Accounts Payable.

Accrued Expenses

Accrued expenses are costs incurred but not yet paid or recorded in the financial statements.

Depreciation

Depreciation allocates the cost of an asset to expense over its useful life in a systematic manner.

Characteristics of Accounting Information

Flexibility is not considered a primary characteristic of accounting information; key characteristics include reliability, comparability, and relevance.

Debits and Credits

Debits increase assets and decrease liabilities, while credits increase liabilities and revenues.

Net Income Determination

Net income results when revenues exceed expenses.

Trial Balance Credits

Total credits on Barnes Company’s trial balance amount to $33,400, including common stock and service revenues.

Accounts with Credit Balances

Accounts typically maintaining credit balances include revenues, liabilities, and retained earnings.

Accounting Equation

The accounting equation is expressed as Assets = Liabilities + Stockholders' Equity, representing the foundational balance in accounting.

Description

Test your understanding of key accounting concepts including retained earnings, revenue recognition, and net income calculation. This quiz covers essential topics for mastering financial statements and journal entries related to employee hiring and unearned revenue.