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Retl 261: Test
Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities. |
True |
Managerial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users. |
True |
The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities. |
True |
Internal users include lenders, shareholders, brokers and managers |
False |
In the partnership form of business, the owners are called stockholders |
False |
A customer's promise to pay is called an account payable to the seller |
False |
Withdrawals by the owner are a business expense |
False |
Unearned revenues are liabilities. |
True |
When a company provides services for which cash will not be received until some future date, the company should record the amount charged as unearned revenue. |
False |
An account balance is the difference between the debits and credits for an account including any beginning balance. |
True |
Debits increase asset and expense accounts. |
True |
The time period assumption assumes that an organization's activities can be divided into specific time periods. |
True |
Interim statements report a company's business activities for a one-year period. |
False |
A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks |
True |
Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded |
True |
Income Summary is a temporary account only used for the closing process. |
True |
Revenue accounts should begin each accounting period with zero balances. |
True |
A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. |
True |
A company has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6. |
True
Current Ratio = Current Assets/Current Liabilities
Current Ratio = $15,000/$9,500 = 1.6 |
A work sheet is a tool to help organize information needed in adjusting the accounts and preparing the financial statements. |
True |
The work sheet is a required report. |
False |
Merchandise inventory consists of products that a company acquires to resell to customers. |
True |
A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers. |
False |
A company had sales and cost of goods sold of $350,000 and $200,000, respectively. Its gross profit equals $150,000. |
True |
Gross profit is also called gross margin. |
True |
Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller. |
True |
Purchase allowances refer to merchandise a buyer acquires but then returns to the seller. |
False |
Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days. |
True |
The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination. |
True |
The cost of an inventory item includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale. |
True |
Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor. |
False |
Incidental costs often added to the costs of inventory include import duties, freight, storage, and insurance. |
True |
The consistency concept prescribes that a company use the same accounting methods period after period, so that financial statements are comparable across periods. |
True |
A company has inventory with a market value of $217,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $217,000. |
True |
The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365. |
True |
An advantage of LIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement. |
True |
Proper internal control means that responsibility for a task is clearly established and assigned to one person. |
True |
Technology such as cash registers, check protectors, time clocks and personal identification scanners can improve internal control. |
True |
Good internal control dictates that a person who controls an asset also maintains that asset's accounting records. |
False |
Separation of duties divides responsibility for a transaction or a series of related transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud. |
True |
The payee is the person who signs a check, authorizing its payment. |
False |
A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations. |
True |
If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue. |
False |
The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared. |
True |
Accounts receivable occur from credit sales to customers. |
True |
The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in fraction of year. |
True |
A company had net sales of $500,000 and an average accounts receivable of $80,000. Its accounts receivable turnover equals 6.25. |
True
Accounts Receivable Turnover = Net Sales/Average Accounts Receivable
Accounts Receivable Turnover = $500,000/$80,000 = 6.25 |
The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection. |
True |
A company has sales of $350,000 and estimates that 0.7% of its sales are uncollectible. The estimated amount of bad debts expense is $2,450. |
True
$350,000 * .007 = $2,450 |
Notes receivable are always classified as current liabilities. |
False |
he matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period |
True |
A company borrowed $1,000 by signing a six month promissory note at 5% interest. The total amount of interest is $25. |
True
$1,000 * .05 * 6/12 = $25 |
Plant assets refer to intangible assets that are used in the operations of a business. |
True |
Depreciation measures the actual decline in market value of an asset |
False |
Inadequacy refers to the insufficient capacity of a company's plant assets to meet the company's growing productive demands |
True |
Depreciation expense is calculated using estimates of an asset's salvage value and useful life. |
True |
Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities. |
False |
A single liability can be divided between current and noncurrent liabilities. |
True |
A company can have a liability even if the amount of the obligation is unknown. |
True |
A lawsuit is an example of a contingent liability for the defendant. |
True |
The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible. |
True |