Accounting Principles Quiz

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Questions and Answers

If an adjusting entry's debit is to an expense account, then the credit must be to a:

  • Prepaid Expense (correct)
  • Liability (correct)
  • Equity
  • Asset

What is permitted under current U.S. GAAP?

Accrual-basis accounting

A classified balance sheet shows subtotals for current ______ and current ______.

assets and liabilities

The closing entry for expense accounts involves the following journal entry.

<p>Debit: Retained earnings, Credit: Expenses</p> Signup and view all the answers

Which line items appear in an income statement? (Select all that apply)

<p>Income Tax Expense (A), Sales Revenue (B), Salaries Expense (C)</p> Signup and view all the answers

If Neumann Corporation purchases supplies that will be used during the following quarter, how should these supplies be recorded?

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

Reporting revenues only when cash is received and expenses only when cash is paid is called the ______ basis of accounting.

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

If a company determines that it has $1,400 of supplies on hand at the end of the period, then it has $1,400 in supplies remaining at the end of the period.

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

What is the price earned from selling goods or services to customers?

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

An Income statement reports what?

<p>Revenue minus expenses</p> Signup and view all the answers

A Balance sheet reports what?

<p>Assets, liabilities, stockholders' equity</p> Signup and view all the answers

What is the order in which liability accounts would appear on a company's balance sheet?

<p>In the order that the payable is due the soonest.</p> Signup and view all the answers

Match the following long-term assets sub-categories:

<p>Property, plant, and equipment = Long-term assets Long-term investments = Long-term assets Intangible assets = Long-term assets</p> Signup and view all the answers

What journal entry includes a debit to Prepaid Rent and a credit to Cash?

<p>Pizza Company prepaid 3 months' store rent.</p> Signup and view all the answers

An asset that can quickly be turned into cash has the characteristic of:

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

Match the account with the correct terms: Temporary

<p>Revenues = Temporary accounts Expenses = Temporary accounts Dividends = Temporary accounts</p> Signup and view all the answers

Match the account with the correct terms: Permanent

<p>Assets = Permanent accounts Liabilities = Permanent accounts Equity = Permanent accounts</p> Signup and view all the answers

If revenues are greater than expenses, then the company generated net income. If expenses are greater than revenues, the company generated a net:

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

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Study Notes

Adjusting Entries

  • If an adjusting entry's debit is to an expense account, the credit must either be to a prepaid expense or a liability.

Accounting Principles

  • Current U.S. GAAP permits accrual-basis accounting, recognizing revenues and expenses when incurred, regardless of cash movement.

Classified Balance Sheet

  • A classified balance sheet displays subtotals for current assets and current liabilities.

Closing Entries

  • The closing entry for expense accounts includes a debit to retained earnings and a credit to expenses.

Income Statement Components

  • Key line items on an income statement include sales revenue, salaries expense, and income tax expense.

Supplies Accounting

  • When supplies are purchased, they are recorded as an asset until used in the following quarter.

Cash Basis Accounting

  • Cash basis accounting recognizes revenues and expenses only when cash is exchanged.

Supplies on Hand

  • If a company has $1,400 of supplies on hand at the end of the period, that amount accurately represents remaining supplies.

Definition of Revenue

  • Revenue refers to the income earned from selling goods or services to customers.

Income Statement Summary

  • An income statement summarizes financial performance by reporting revenues minus expenses.

Balance Sheet Overview

  • A balance sheet provides a snapshot of a company's assets, liabilities, and stockholders' equity at a specific point in time.

Liability Presentation

  • Liability accounts appear on the balance sheet in the order of their due dates, from soonest to latest.

Long-term Asset Categories

  • Long-term assets on a classified balance sheet may include property, plant and equipment, long-term investments, and intangible assets.

Journal Entries for Prepaid Rent

  • Prepaid rent is recorded by debiting Prepaid Rent and crediting Cash, indicating a decrease in cash flow.

Liquidity of Assets

  • An asset that can quickly be converted into cash is characterized by high liquidity.

Temporary Accounts

  • Temporary accounts include revenues, expenses, and dividends, which are reset at the end of each accounting period.

Permanent Accounts

  • Permanent accounts consist of assets, liabilities, and equity, maintaining their balances over accounting periods.

Net Income and Loss

  • If revenues exceed expenses, the outcome is net income, whereas if expenses surpass revenues, the result is a net loss.

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