Accounting 4

  1. Financial accounting is focused on the __________ financial statements of a company.
  2. Large corporations must follow the ___________ basis of accounting..
  3. .
    Corporations whose stock is publicly traded must have their financial statements ________ by independent certified public accountants.
  4. The U.S. government agency with authority over the financial reporting
    requirements of publicly traded corporations is the _______.
  5. The non-government organization that researches and develops new accounting standards is the _______.
  6. The acronym for the common rules and standards that companies must follow when preparing its external financial statements is ______.
  7. The profitability of a company for a specified period of time is reported on the ___________ statement.
    Income Statement
  8. The main components or elements of the income statement are ___________, ___________, _________, and __________.
    Revenue, Expenses, Gains, Losses
  9. Prepaid insurance is reported as an _________ on a company's balance sheet.
  10. The word "___________" is often in the title of liability accounts.
  11. The statement of cash flows explains the changes in cash and cash ______________ during the specified time interval.
  12. The first section of the statement of cash flows is the ____________ activities.
  13. Client Jay pays ABC Co. $1,000 in December for ABC to perform services
    for Jay in 45 days. ABC uses the accrual basis of accounting. In
    December ABC will debit Cash for $1,000. What will be the other account
    involved in the December accounting entry prepared by ABC (and what
    type of account is it)?
    Unearned Revenues (liability) should be credited,  Company has not earned the money and must provide service in the future.
  14. ABC Co. performed services for Client Kay in December and billed Kay
    $4,000 with terms of net 30 days. ABC follows the accrual basis of
    accounting. In January ABC received the $4,000 from Kay. In January
    ABC will debit Cash, since cash was received. What account should ABC
    credit in the January entry?
    Accounts Receivable  -   In Jan ABC collects account receivable.  The receivable was established in Dec when the service was performed which established a right to receive the money in Jan.
  15. ABC Co. follows the accrual basis of accounting and performs a service
    on account (on credit) in December. The service was billed at the
    agreed upon amount of $3,500. ABC Co. debited Accounts Receivable for
    $3,500 and credited Service Revenue for $3,500. The effect of this
    entry on the balance sheet of ABC is to increase assets by $3,500 and to
  16. Increase owner's (stockholders') equity by $3,500
  17. Which of the following would not be a current asset?

    Accounts Receivable
    Prepaid Insurance
    Land (Land will not turn into cash within one year)
  18. Which of the following would normally be a current liability?

    Note Payable due in two years
    Unearned Revenue
    Unearned Revenue (will most likely be earned within one year of the balance sheet date)
  19. When an owner draws
    $5,000 from a sole proprietorship or when a corporation declares and
    pays a $5,000 dividend, the asset Cash decreases by $5,000. What is the
    other effect on the balance sheet?

    Owner's/stockholders' equity decreases
    Owners stockholders equity will decrease to keep the balance sheet in balance
  20. ABC Co. incurs cleanup
    expense of $500 on December 30. The supplier's invoice states that the
    $500 is due by January 10 and ABC will pay the invoice on January 9.
    ABC follows the accrual basis of accounting and its accounting year ends
    on December 31. What is the effect of the cleanup service on the
    December balance sheet of ABC?

    Assets decreased
    Liabilities increased
    No effect on owner's equity
    Liabilities increased.  In December an expense and liability is recorded.  liabilities increased owners equity decreased.
  21. Deferred credits will appear on the balance sheet with the

    Owner's/Stockholders' Equity
  22. Notes Payable could not appear as a line on the balance sheet in which classification?

    Current Assets
    Current Liabilities
    Long-term Liabilities
    Current Assets
  23. On December 1, ABC Co.
    hired Juanita Perez to begin working on January 2 at a monthly salary
    of $4,000. ABC's balance sheet of December 31 will show a liability of

    No Liability
    No Liability
  24. ABC Co. has current
    assets of $50,000 and total assets of $150,000. ABC has current
    liabilities of $30,000 and total liabilities of $80,000. What is the
    amount of ABC's owner's equity?

  25. The _____________ of a corporation is the total amount of stockholders' equity reported on the balance sheet.
    book value
  26. Which of the following names is NOT associated with the income statement?

    P & L
    Statement of Financial Position
    Statement of Operations
    Statement of Financial position
  27. The income statement heading will specify which of the following?

    a POINT in time
    a PERIOD of time
    a PERIOD of time
  28. Amounts earned by a company in its main operating activities are

  29. A company disposes of
    equipment that it no longer uses in its business. The amount received
    by the company is more than the amount the asset is carried at in the
    accounting records. The company will report a(n)

    gain - because the sale of equipment is outside of the main business activities and the amount received was greater than the amount for which the asset was carried on the company books.  The amount of the gain is the amount by which the proceeds from the sale exceed the amount carried on the books.
  30. On December 1 a
    company borrowed $100,000 at 12% per year. The interest will be paid
    quarterly, with the first payment due on March 1. What should the
    company report on its income statement for December?


    Interest Expense of $1,000
    income statement must record the interest incurred regardless of the date the interest was paid.  100,000*.12 *1/12 = 1000
  31. Is a retailer's Interest Expense an operating expense or a non-operating expense?

    operating expense

    non-operating expense
    non-operating expense
  32. The income statement line gross profit will appear on which income statement format?

    multiple-step - it will appear as a result of subtracting the cost of goods sold from net sales.
  33. The income statement
    format that segregates the operating revenues and expenses from the
    non-operating revenues and expenses is the

    Multi step
  34. ______________ shows operating revenues and expenses separate from non operating revenues and expenses
    multiple step
  35. Interest earned on investments would appear in which section of a retailer's multiple-step income statement?

    would not appear
    non operating
  36. Under the accrual basis of accounting, revenues are recognized in the accounting period in which

    cash is received
    revenues are earned
    revenues are earned
  37. Net Sales minus the Cost of Goods Sold equals

    gross profit

    income from operations
    net income
    gross profit
  38. The combination of Selling Expenses and Administrative Expenses is referred to as

    general expenses
    operating expenses
    total expenses
    operating expenses
  39. Which basis of accounting best measures profitability during a short time interval?

    accrual basis
    cash basis
  40. Gross Profit minus Operating Expenses is best defined as

    net income
    net sales
    operating income
    operating income
  41. When an entire division of a company is eliminated, it is referred to as a(n)

    discontinued operation
    extraordinary item
    change in accounting principle
    discontinued operation
  42. A gain or loss that is unusual in nature and infrequent in occurrence is a(n)

    discontinued operation
    extraordinary item
    change in accounting principle
    extraordinary item
  43. When a company changes its book depreciation from an accelerated method to the straight-line method, it is considered to be a(n)

    discontinued operation
    extraordinary item
    change in accounting principle
    change in accounting principle
  44. If a company's stock is publicly traded, it is a requirement that the ________ ___ ______ appear on the income statement?
    earnings per share
  45. It is acceptable that some of the expenses reported on the ____________ be estimates?
    income statement
Card Set
Accounting 4
Accounting Definitions