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web.groovymark@gmail.com
- December 8, 2024
Question 21
What does a debit to the accounts payable account represent?
- A) An increase in liabilities
- B) A decrease in liabilities
- C) An increase in assets
- D) A decrease in equity
Answer: B) A decrease in liabilities
Explanation: A debit to accounts payable decreases the amount owed to creditors.
Question 22
When a company records depreciation, which account is credited?
- A) Depreciation expense
- B) Accumulated depreciation
- C) Equipment
- D) Cash
Answer: B) Accumulated depreciation
Explanation: Depreciation expense is debited, and accumulated depreciation is credited as a contra-asset account.
Question 23
Which financial statement shows a company’s financial position at a specific point in time?
- A) Income statement
- B) Statement of cash flows
- C) Balance sheet
- D) Statement of retained earnings
Answer: C) Balance sheet
Explanation: The balance sheet provides a snapshot of a company’s financial position at a specific date.
Question 24
How does the periodic inventory system record purchases of inventory?
- A) Directly into the inventory account
- B) Into a purchases account
- C) Into the cost of goods sold account
- D) Into the retained earnings account
Answer: B) Into a purchases account
Explanation: In the periodic system, purchases are recorded in a temporary purchases account, which is later adjusted.
Question 25
What is goodwill?
- A) Tangible asset
- B) Current liability
- C) Long-term liability
- D) Intangible asset
Answer: D) Intangible asset
Explanation: Goodwill is an intangible asset that arises when a company purchases another company at a premium.
Question 26
Which account is debited when a company purchases supplies on account?
- A) Accounts receivable
- B) Cash
- C) Supplies
- D) Accounts payable
Answer: C) Supplies
Explanation: Supplies (an asset) are debited to increase the account, and accounts payable (a liability) is credited.
Question 27
What is the correct journal entry when a company pays off accounts payable?
- A) Debit cash, credit accounts payable
- B) Debit accounts payable, credit cash
- C) Debit supplies, credit accounts payable
- D) Debit accounts receivable, credit accounts payable
Answer: B) Debit accounts payable, credit cash
Explanation: Paying off accounts payable reduces the liability (debit) and reduces cash (credit).
Question 28
Which account is debited when a company receives cash for a service that has not yet been performed?
- A) Cash
- B) Unearned revenue
- C) Service revenue
- D) Accounts payable
Answer: A) Cash
Explanation: Cash is debited because it is received, while unearned revenue is credited to recognize the liability.
Question 29
What is the effect on assets when a company receives payment from a customer on account?
- A) Increases assets
- B) Decreases assets
- C) No effect on assets
- D) Decreases liabilities
Answer: C) No effect on assets
Explanation: One asset (cash) increases, while another (accounts receivable) decreases, with no net effect on total assets.
Question 30
How is the cost of goods sold classified on the income statement?
- A) As an operating expense
- B) As a liability
- C) As an expense
- D) As revenue
Answer: C) As an expense
Explanation: Cost of goods sold is an expense that represents the cost of producing goods sold by a company.
Question 31
Which financial statement provides details about a company’s performance over a period of time?
- A) Income statement
- B) Balance sheet
- C) Statement of cash flows
- D) Statement of retained earnings
Answer: A) Income statement
Explanation: The income statement shows revenues, expenses, and net income or loss over a period.
Question 32
What is the accounting treatment for dividends declared but not yet paid?
- A) Debit retained earnings, credit cash
- B) Debit dividends payable, credit retained earnings
- C) Debit dividends, credit dividends payable
- D) Debit dividends payable, credit dividends
Answer: C) Debit dividends, credit dividends payable
Explanation: Declaring dividends creates a liability (dividends payable) and reduces retained earnings through dividends.
Question 33
When a company receives payment from a customer on account, which accounts are affected?
- A) Debit cash, credit accounts receivable
- B) Debit accounts payable, credit cash
- C) Debit cash, credit accounts payable
- D) Debit revenue, credit accounts receivable
Answer: A) Debit cash, credit accounts receivable
Explanation: Cash increases (debit) and accounts receivable decreases (credit) when the customer pays on account.
Question 34
What is the correct journal entry for the purchase of a machine for $10,000 cash?
- A) Debit cash, credit machinery
- B) Debit accounts payable, credit machinery
- C) Debit machinery, credit cash
- D) Debit machinery, credit accounts payable
Answer: C) Debit machinery, credit cash
Explanation: Purchasing machinery increases the asset account (machinery) and decreases cash.
Question 35
Which of the following is a component of stockholders’ equity?
- A) Accounts receivable
- B) Retained earnings
- C) Accounts payable
- D) Cash
Answer: B) Retained earnings
Explanation: Retained earnings are a component of stockholders' equity, representing accumulated profits not distributed as dividends.
Question 36
What is the correct entry when a company pays for rent in advance?
- A) Debit prepaid rent, credit cash
- B) Debit rent expense, credit prepaid rent
- C) Debit cash, credit prepaid rent
- D) Debit rent expense, credit cash
Answer: A) Debit prepaid rent, credit cash
Explanation: Prepaid rent is an asset that increases (debit), and cash decreases (credit) when rent is paid in advance.
Question 37
How does the periodic inventory system differ from the perpetual inventory system?
- A) The periodic system updates inventory constantly, and the perpetual system updates inventory at the end of the period
- B) The periodic system updates inventory at the end of the period, and the perpetual system updates constantly
- C) The periodic system uses a physical count of inventory, and the perpetual system does not
- D) The perpetual system uses LIFO, and the periodic system uses FIFO
Answer: B) The periodic system updates inventory at the end of the period, and the perpetual system updates constantly
Explanation: The periodic system records inventory purchases and sales at the end of the accounting period, while the perpetual system continuously updates inventory.
Question 38
What is the purpose of the statement of retained earnings?
- A) To report revenues and expenses for the year
- B) To report the financial position of the company
- C) To show changes in retained earnings over a period of time
- D) To provide details on cash inflows and outflows
Answer: C) To show changes in retained earnings over a period of time
Explanation: The statement of retained earnings shows how retained earnings changed over the accounting period due to net income and dividends.
Question 39
How is sales tax collected from customers reported in the financial statements?
- A) As revenue
- B) As a liability
- C) As an expense
- D) As an asset
Answer: B) As a liability
Explanation: Sales tax is collected on behalf of the government, and the amount collected is reported as a liability until it is remitted.
Question 40
What happens when a company records bad debt expense using the allowance method?
- A) Accounts receivable decreases
- B) A contra-asset account increases
- C) Revenue increases
- D) Equity decreases
Answer: B) A contra-asset account increases
Explanation: Bad debt expense is recorded by increasing the allowance for doubtful accounts, which is a contra-asset account that reduces accounts receivable.
