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web.groovymark@gmail.com
- December 8, 2024
Question 01
What is included in the owner’s equity section of a corporation’s balance sheet?
- A) Accounts Receivable
- B) Mortgage Payable
- C) Retained Earnings
- D) Unearned Revenue
Answer: C) Retained Earnings
Explanation: The owner's equity section of a balance sheet includes retained earnings, which represent cumulative earnings that the company has not distributed as dividends but retained for future use.
Question 02
What does the balance sheet primarily report?
- A) Net income for the period
- B) Financial position of the company at a point in time
- C) Cash inflows and outflows
- D) Changes in stockholder equity
Answer: B) Financial position of the company
Explanation: The balance sheet reports the financial position of a company at a specific point in time, showing the assets, liabilities
Question 03
How is gross profit computed?
- A) Sales minus Cost of Goods Sold
- B) Total Revenue minus Operating Expenses
- C) Net Income minus Expenses
- D) Sales minus Total Liabilities
Answer: A) Sales minus Cost of Goods Sold
Explanation: Gross profit is calculated by subtracting the cost of goods sold from total sales, showing the profit before operating expenses.
Question 04
What is reported in a multiple-step income statement that is not reported in a single-step income statement?
- A) Net Income
- B) Gross Profit
- C) Revenue
- D) Operating Expenses
Answer: B) Gross Profit
Explanation: A multiple-step income statement provides a breakdown of gross profit, which is not presented in a single-step income statement.
Question 05
What cash flow category contains activities where cash is obtained from or repaid to owners or creditors?
- A) Operating Activities
- B) Investing Activities
- C) Financing Activities
- D) Net Operating Income
Answer: C) Financing Activities
Explanation: Financing activities include transactions where cash is obtained from or repaid to owners or creditors, such as issuing stock or repaying loans.
Question 06
What is an example of a company’s investing activities?
- A) Paying dividends
- B) Purchasing new machinery
- C) Paying wages
- D) Receiving payment from customers
Answer: B) Purchasing new machinery
Explanation: Investing activities involve the purchase and sale of long-term assets like machinery, buildings, or equipment.
Question 07
What type of activity is recorded under financing activities on the statement of cash flows?
- A) Issuing new stock
- B) Purchasing inventory
- C) Paying rent
- D) Receiving interest income
Answer: A) Issuing new stock
Explanation: Issuing new stock is considered a financing activity, as it involves generating funds by offering shares of the company to investors.
Question 08
How are expenses typically recorded with debits and credits?
- A) Debit an expense account
- B) Credit an expense account
- C) Debit a liability account
- D) Credit an asset account
Answer: A) Debit an expense account
Explanation: Expenses are recorded as a debit because they reduce equity by increasing the total costs of a company.
Question 09
Which account appears on the post-closing trial balance?
- A) Dividends
- B) Retained Earnings
- C) Sales Revenue
- D) Cost of Goods Sold
Answer: B) Retained Earnings
Explanation: After closing entries are made, only permanent accounts, like retained earnings, appear on the post-closing trial balance.
Question 10
Which method of estimating bad debts involves analyzing the percentage of accounts receivable?
- A) Direct Write-Off Method
- B) Percentage of Sales Method
- C) Allowance Method
- D) Percentage of Accounts Receivable Method
Answer: D) Percentage of Accounts Receivable Method
Explanation: The percentage of accounts receivable method estimates bad debts based on a percentage of the outstanding accounts receivable balance.
Question 11
What does the term “unearned revenue” refer to?
- A) Revenue received after services are provided
- B) Revenue collected but not yet earned
- C) Revenue collected for services rendered
- D) Revenue not collected by the company
Answer: B) Revenue collected but not yet earned
Explanation: Unearned revenue is money collected in advance of providing goods or services, and it is recorded as a liability until earned.
Question 12
Which of the following accounts is a nominal account?
- A) Sales Revenue
- B) Cash
- C) Retained Earnings
- D) Accounts Payable
Answer: A) Sales Revenue
Explanation: Nominal accounts, such as sales revenue, are temporary accounts that are closed to retained earnings at the end of an accounting period.
Question 13
What is the proper way to record an increase in an asset account and a decrease in a liability account?
- A) Debit an asset; Credit a liability
- B) Credit an asset; Debit a liability
- C) Debit both asset and liability accounts
- D) Credit both asset and liability accounts
Answer: A) Debit an asset; Credit a liability
Explanation: Debits increase asset accounts, and credits decrease liability accounts, following the double-entry accounting system.
Question 14
How does a company record the purchase of inventory when it is paid partly in cash and partly on account?
- A) Debit inventory; Credit accounts payable
- B) Debit cash; Credit inventory
- C) Debit inventory; Credit cash and accounts payable
- D) Credit inventory; Debit accounts payable
Answer: C) Debit inventory; Credit cash and accounts payable
Explanation: When inventory is purchased, it is debited to the inventory account, and the amounts paid are credited to cash and accounts payable.
Question 15
How is revenue typically recorded with debits and credits?
- A) Debit revenue
- B) Credit revenue
- C) Debit an asset
- D) Credit an expense
Answer: B) Credit revenue
Explanation: Revenue is recorded as a credit because it increases equity through income generation.
Question 16
What is needed in the journal entry to record payroll tax expense?
- A) Debit payroll tax expense
- B) Credit payroll tax expense
- C) Debit salaries payable
- D) Credit cash
Answer: A) Debit payroll tax expense
Explanation: Payroll tax expense is debited because it increases the expense account, reflecting the company's obligation to pay payroll taxes.
Question 17
How should a company’s accountant record an increase in accounts payable?
- A) Debit accounts payable
- B) Credit accounts payable
- C) Debit inventory
- D) Credit cash
Answer: B) Credit accounts payable
Explanation: Accounts payable is credited to show an increase in the company's obligation to pay a liability in the future.
Question 18
How does the matching principle impact financial reporting?
- A) Expenses are recorded in the same period as the related revenue
- B) Revenues are recorded when earned, and expenses when paid
- C) Expenses are recorded when paid, regardless of revenue
- D) Revenues are recorded when cash is received
Answer: A) Expenses are recorded in the same period as the related revenue
Explanation: The matching principle ensures that all costs and expenses incurred to generate revenue are recorded in the same accounting period as the related revenue.
Question 19
Which of the following accounts is closed at the end of the accounting period?
- A) Retained Earnings
- B) Sales Revenue
- C) Accounts Payable
- D) Inventory
Answer: B) Sales Revenue
Explanation: Sales revenue is a nominal account, which means it is closed to retained earnings at the end of the accounting period.
Question 20
What is a post-closing trial balance?
- A) A report that shows all accounts, including temporary accounts
- B) A report listing all real account balances after closing entries are made
- C) A report summarizing all nominal accounts
- D) A report listing only revenue and expense accounts
Answer: B) A report listing all real account balances after closing entries are made
Explanation: The post-closing trial balance only includes real (permanent) accounts after nominal (temporary) accounts have been closed.
