Accounting Principles Quiz

Questions and Answers

Which of the following items has no effect on retained earnings? (Select one)

Expense

Revenue

Land purchase (correct)

Dividends

Revenue recognition requires what?

That a company report a receivable on its statement of financial position

All of the choices are correct regarding revenue recognition (correct)

That revenue be recognized in the period in which it is earned

That revenues follow the expenses

What is La More's 2011 net income using accrual accounting? (Select one)

$3,125 (correct)

$5,375

$3,375

$5,125

The Unearned Service Revenue account is classified as a(n)?

Liability Signup and view all the answers

Should a journal entry be made on March 6 when Freeze Company hires a new employee? (Select one)

No, hiring an employee is an important event; however it is not an economic event that should be recorded Signup and view all the answers

What entry is made when Decker Industries purchased supplies of $500 on account? (Select one)

A debit to Supplies and a credit to Accounts Payable Signup and view all the answers

Accrued expenses are?

Incurred but not yet paid or recorded Signup and view all the answers

Depreciation is the process of?

Allocating the cost of an asset to expense over its useful life in a rational and systematic manner Signup and view all the answers

All of the following are characteristics of accounting information except?

Flexibility Signup and view all the answers

Debits?

Increase assets and decrease liabilities Signup and view all the answers

Net income results when?

Revenues > Expenses Signup and view all the answers

What did Barnes Company show as total credits on its trial balance? (Select one)

$33,400 Signup and view all the answers

Which accounts normally have credit balances?

Revenues, liabilities, and retained earnings Signup and view all the answers

The accounting equation may be expressed as?

Assets = Liabilities + Stockholders' Equity Signup and view all the answers

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.