Intuit Certified Bookkeeping - Domain 2, Lesson 2

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Questions and Answers

What was the total cash sales reported for the day?

$4,347 (correct)

$2,000

$2,400

$6,747

What type of assets are property and equipment categorized under?

Merchandise inventory

Intangible assets

Fixed assets (correct)

Current assets

Which account should be debited when recording the cost of fritters sold?

Fritter Sales Revenue

Frozen Fritter Inventory

Cost of Fritters Sold (correct)

Accounts Receivable

How does an increase in merchandise inventory affect the accounting equation?

Increases assets and increases owner's equity Signup and view all the answers

What is the total amount of receivable sales from Minnie’s Mall and Mood Food?

$2,400 Signup and view all the answers

Which of the following statements about merchandise versus property and equipment is true?

Merchandise is for sale, while property and equipment are used in operations Signup and view all the answers

Why is it important to separate property and equipment accounts from merchandise inventory accounts?

To maintain clarity in asset management Signup and view all the answers

What is the value of the frozen fritter inventory at the end of the business day?

$400 Signup and view all the answers

What happens to merchandise inventory when a sale is completed?

It is transferred to the cost of goods sold. Signup and view all the answers

Which accounting equation account is affected by the sale of inventory?

Revenues Signup and view all the answers

What characterizes the cost of goods sold account?

It has a natural debit balance. Signup and view all the answers

Which inventory valuation method involves counting the most recently purchased inventory first?

LIFO Signup and view all the answers

When merchandise is sold, which of the following must be recorded in addition to the sale?

Removal of the cost from the inventory account. Signup and view all the answers

In the context of inventory sales, what does 'natural debit balance' mean?

Accounts are primarily increased by debits. Signup and view all the answers

Why might a business prefer using FIFO instead of LIFO for inventory accounting?

To match current costs with current revenues better. Signup and view all the answers

What distinguishes inventory sales from property sales?

Inventory sales typically involve physical goods; property sales may not. Signup and view all the answers

Which accounting entry is necessary to record depreciation?

Increase depreciation expenses and decrease the associated asset account Signup and view all the answers

How does a credit purchase of merchandise inventory impact the accounting equation?

Raises both assets and liabilities while owner’s equity stays the same Signup and view all the answers

What does the term 'service life' refer to in accounting?

The amount of time an asset is expected to be useful Signup and view all the answers

Which of the following statements about merchandise inventory is true?

It does not affect the accounting equation on a cash purchase Signup and view all the answers

What asset types does PP&E encompass?

Property, plants, and equipment Signup and view all the answers

Which of the following represents the correct implications of a sales transaction on accounting equations?

Sales transactions affect assets and owner’s equity but not liabilities Signup and view all the answers

What is the primary depreciation method accepted by the IRS?

Modified Accelerated Cost Recovery System (MACRS) Signup and view all the answers

How is income derived from intellectual property regarded?

It is generated by allowing usage of that property or resource Signup and view all the answers

What type of income is classified as money earned without direct sales or services?

Passive income Signup and view all the answers

Which of the following correctly describes an interest expense?

Money paid by companies on borrowed funds Signup and view all the answers

How are property and equipment treated differently from merchandise inventory?

Property and equipment are for use, while merchandise is for sale Signup and view all the answers

What happens to a company's financial statements when there is a change in passive income?

It directly impacts the revenue section Signup and view all the answers

Which account is associated with the costs incurred in selling fritters?

Cost of Fritters Sold Signup and view all the answers

What is the main impact of depreciation on a company's financial statement?

It decreases owner's equity. Signup and view all the answers

Which depreciation method is accepted by the IRS for tax reporting purposes?

Modified Accelerated Cost Recovery System (MACRS) Signup and view all the answers

When merchandise is purchased on credit, which of the following occurs?

Both assets and liabilities increase. Signup and view all the answers

What does 'service life' refer to in the context of asset management?

The duration an asset is expected to be useful. Signup and view all the answers

In a straight-line depreciation method, how is the depreciation expense calculated?

An equal amount is depreciated over its useful life. Signup and view all the answers

How do expenses relate to net profit or loss?

Expenses lower net profit. Signup and view all the answers

Which statement correctly describes royalty income?

It comes from licensing intellectual property usage. Signup and view all the answers

What effect does a cash purchase of merchandise inventory have on the accounting equation?

It does not affect the balance of the accounting equation. Signup and view all the answers

What is the primary reason for grouping expenses on the income statement?

To control cost categories effectively Signup and view all the answers

Why are depreciation expenses categorized under operating, administrative, and other expenses?

Because assets serve different purposes within the company Signup and view all the answers

When recording a cash sale, which entry is made in the journal?

Debit cash and credit revenue Signup and view all the answers

How is the cost of goods sold accounted for when inventory is sold?

It is debited from cost of goods sold and credited from merchandise inventory Signup and view all the answers

What is the natural balance of a merchandise inventory account?

Debit balance Signup and view all the answers

If a company sells inventory for cash, what is the immediate effect on the cash account?

It increases Signup and view all the answers

What is the first step in completing the recording process for a sales transaction?

Determine the cash sales amount Signup and view all the answers

What distinguishes a cash sale from a sale on account?

Sales on account involve future payment Signup and view all the answers

What defines passive income for companies?

Money earned from interest and royalties without active selling Signup and view all the answers

Which of the following best describes royalty income?

A fee paid for the use of intellectual property Signup and view all the answers

What is the role of interest expenses in a company's financials?

They account for money paid as interest on borrowed funds Signup and view all the answers

How are property and equipment categorized in accounting?

As fixed assets used in business operations Signup and view all the answers

Which of the following accurately distinguishes merchandise inventory from property and equipment?

Merchandise is intended for sale, while property and equipment are used Signup and view all the answers

What is the reason for grouping expenses according to purpose on the income statement?

It enables owners to control cost categories. Signup and view all the answers

When recording a cash sale, which accounts are affected?

Cash account and revenue account. Signup and view all the answers

What is the natural debit balance characteristic of merchandise inventory?

It indicates that inventory is an asset. Signup and view all the answers

What must be recorded when inventory is sold in addition to the sale transaction itself?

A credit to merchandise inventory and a debit to cost of goods sold. Signup and view all the answers

How does a sale recorded as a debit to accounts receivable affect total assets?

It increases total assets. Signup and view all the answers

What does it mean when sales transactions are said to result in a credit to revenue accounts?

The revenue account balance is increased, indicating income. Signup and view all the answers

What accounting entry is required once a sale is completed and merchandise is sold?

A debit to cost of goods sold and a credit to merchandise inventory. Signup and view all the answers

What is the primary method of depreciation accepted by the IRS for tax reporting purposes?

Modified Accelerated Cost Recovery System (MACRS) Signup and view all the answers

How does depreciation impact owner's equity?

It reduces owner's equity. Signup and view all the answers

Which of the following statements is true regarding cash versus credit purchases of merchandise inventory?

Credit purchases increase both assets and liabilities. Signup and view all the answers

What is the correct definition of service life in accounting?

The time an asset will be beneficial to a company. Signup and view all the answers

What best defines royalty income?

Income earned from allowing others to use intellectual property. Signup and view all the answers

What happens after an asset is depreciated over its useful life?

Its recorded value decreases on the balance sheet. Signup and view all the answers

What effect does the straight-line depreciation method have on asset valuation over time?

Constant reduction in asset value. Signup and view all the answers

What is the relationship between assets, liabilities, and owner's equity?

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

Study Notes

Intuit Certified Bookkeeping Professional - Domain 2, Lesson 2

Depreciation: Assets depreciate at a consistent rate over their useful life. Accountants decrease a long-term asset's value by increasing depreciation expense.
Income Statements: Assets must always equal the sum of liabilities and owner's equity, according to sales transaction effects.
Merchandise Inventory: Cash purchases of inventory don't change the accounting equation, but credit purchases do impact both merchandise inventory and owner's equity.
Property, Plant, and Equipment (PP&E): This includes property, buildings, and equipment.
Intellectual Property/Resources: Income is earned by allowing others to utilize intellectual property or resources.
Service Life: The period an asset is useful to a company.
Depreciation Methods: Several methods are used, like Modified Accelerated Cost Recovery System (MACRS), straight-line, sum-of-the-years digits, units of production, and double-declining balance.
Depreciation on Income Statements: Depreciation expenses are listed on income statements alongside other expenses, categorized by similar purposes. Net profit or loss comes after expenses and before revenues.
Depreciation and Owner's Equity: Depreciation reduces owner's equity because it decreases net income.
Expenses and Revenue: Net profit/loss is a result of revenue less expenses.
Income Statement Expense Categorization: Expenses should be grouped by purpose for better cost control. This is easier for bookkeepers than alphabetical listing. Grouping is useful for owners because categorization helps control and understand cost categories.
Sales Transactions: Sales can be cash sales or on account. The accounts affected are revenue and either cash or accounts receivable (assets).
Merchandise Inventory and Sales: Recording a sale involves reducing inventory and noting the cost of goods sold.
Common Property, Equipment, and Other Assets: These assets aren't intended for sale, but rather for use. They are valued separately from inventory.
Intellectual Property (IP): A return to the owner on an intellectual property asset can be received as a form of compensation.
Interest Expense: Businesses will pay interest when they owe money that's been borrowed.
Receivables: Accounts generated by allowing customers to pay at a later date for goods or services.
Other Income/Expenses: Include various different types of income and expenses that are not directly related to sales and inventory.

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Description

Test your knowledge on key accounting concepts such as depreciation, income statements, and merchandise inventory. This quiz covers essential aspects of Property, Plant, and Equipment, as well as intellectual property. Prepare to deepen your understanding of accounting principles as a Bookkeeping Professional.

Intuit Certified Bookkeeping - Domain 2, Lesson 2

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Podcast

Questions and Answers

What was the total cash sales reported for the day?

What type of assets are property and equipment categorized under?

Which account should be debited when recording the cost of fritters sold?

How does an increase in merchandise inventory affect the accounting equation?

What is the total amount of receivable sales from Minnie’s Mall and Mood Food?

Which of the following statements about merchandise versus property and equipment is true?

Why is it important to separate property and equipment accounts from merchandise inventory accounts?

What is the value of the frozen fritter inventory at the end of the business day?

What happens to merchandise inventory when a sale is completed?

Which accounting equation account is affected by the sale of inventory?

What characterizes the cost of goods sold account?

Which inventory valuation method involves counting the most recently purchased inventory first?

When merchandise is sold, which of the following must be recorded in addition to the sale?

In the context of inventory sales, what does 'natural debit balance' mean?

Why might a business prefer using FIFO instead of LIFO for inventory accounting?

What distinguishes inventory sales from property sales?

Which accounting entry is necessary to record depreciation?

How does a credit purchase of merchandise inventory impact the accounting equation?

What does the term 'service life' refer to in accounting?

Which of the following statements about merchandise inventory is true?

What asset types does PP&E encompass?

Which of the following represents the correct implications of a sales transaction on accounting equations?

What is the primary depreciation method accepted by the IRS?

How is income derived from intellectual property regarded?

What type of income is classified as money earned without direct sales or services?

Which of the following correctly describes an interest expense?

How are property and equipment treated differently from merchandise inventory?

What happens to a company's financial statements when there is a change in passive income?

Which account is associated with the costs incurred in selling fritters?

What is the main impact of depreciation on a company's financial statement?

Which depreciation method is accepted by the IRS for tax reporting purposes?

When merchandise is purchased on credit, which of the following occurs?

What does 'service life' refer to in the context of asset management?

In a straight-line depreciation method, how is the depreciation expense calculated?

How do expenses relate to net profit or loss?

Which statement correctly describes royalty income?

What effect does a cash purchase of merchandise inventory have on the accounting equation?

What is the primary reason for grouping expenses on the income statement?

Why are depreciation expenses categorized under operating, administrative, and other expenses?

When recording a cash sale, which entry is made in the journal?

How is the cost of goods sold accounted for when inventory is sold?

What is the natural balance of a merchandise inventory account?

If a company sells inventory for cash, what is the immediate effect on the cash account?

What is the first step in completing the recording process for a sales transaction?

What distinguishes a cash sale from a sale on account?

What defines passive income for companies?

Which of the following best describes royalty income?

What is the role of interest expenses in a company's financials?

How are property and equipment categorized in accounting?

Which of the following accurately distinguishes merchandise inventory from property and equipment?

What is the reason for grouping expenses according to purpose on the income statement?

When recording a cash sale, which accounts are affected?

What is the natural debit balance characteristic of merchandise inventory?

What must be recorded when inventory is sold in addition to the sale transaction itself?

How does a sale recorded as a debit to accounts receivable affect total assets?

What does it mean when sales transactions are said to result in a credit to revenue accounts?

What accounting entry is required once a sale is completed and merchandise is sold?

What is the primary method of depreciation accepted by the IRS for tax reporting purposes?

How does depreciation impact owner's equity?

Which of the following statements is true regarding cash versus credit purchases of merchandise inventory?

What is the correct definition of service life in accounting?

What best defines royalty income?

What happens after an asset is depreciated over its useful life?

What effect does the straight-line depreciation method have on asset valuation over time?

What is the relationship between assets, liabilities, and owner's equity?

Study Notes

Intuit Certified Bookkeeping Professional - Domain 2, Lesson 2

Studying That Suits You

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