VYC1 Principles of Accounting WGU - 712 Chapter Quizzes (with explanations). LATEST Version. Verified.

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VYC1 Principles of Accounting WGU - 712 Chapter Quizzes (with explanations). LATEST Version. Verified. The review of financial statements to assess their fairness and adherence to GAAP is: - ✔�... �-auditing An independent accountant who performs financial audits is a: - ✔✔-Certified Public Accountant (CPA) To become a Certified Public Accountant (CPA), an individual: - ✔✔-All of the above (fulfill the experience requirements of the state of practice, pass the Uniform CPA Examination, and must have a certain number of college credits in accounting courses) Which of the following is not a service typically provided by a public accounting firm? - ✔✔-Investing services (Typical Services: auditing, tax accounting, and management advisory services.) The entity that has final authority over the financial reporting of publicly owned corporations is the - ✔✔-Securities and Exchange Commission (SEC) Which of the following is not a provision of the Sarbanes-Oxley Act? - ✔✔-The Sarbanes-Oxley Act allows accountants to offer a broad range of consulting services to publicly traded companies that they audit (Provisions: The Sarbanes-Oxley Act requires accounting firms to change the lead audit or coordinating partner and the reviewing partner for a company every five years, It is a felony to "knowingly" destroy or create documents to "impede, obstruct or influence" any existing or contemplated federal investigation, and Wall Street investment firms are prohibited from retaliating against analysts who criticize investment-banking clients of the firm) Which of the following is a legitimate government agency? - ✔✔-Securities and Exchange Commission (SEC) The following are all characteristics of a sole proprietorship except: - ✔✔-A sole proprietorship is legally separate from its owner (Characteristics: the owner of a sole proprietorship is legally responsible for the debts of the business, the owner's income and the income of the business are combined to compute the total tax responsibility of the owner, and the life of the business ends when the owner is no longer willing or able to keep the business going) The financial statements submitted by a corporation to the SEC include the auditor's report. The auditor's report: - ✔✔-confirms that the financial information is prepared in conformity with generally accepted accounting principles The group of accounting educators who perform research to determine the possible effects on financial reporting and the economy, and then offer their opinions about proposed FASB statements is the: - ✔✔- American Accounting Association (AAA) Amounts that a business must pay in the future are known as: - ✔✔-accounts payable (Accounts payable are amounts a business must pay in the future. On the other hand, accounts receivable are claims for future collection from customers, capital is the financial investment in a business, and an expense is an outflow of cash, use of other assets, or incurring of a liability.) The balance sheet is also called: - ✔✔-the statement of financial position (The balance sheet reports that the resources owned by the business are equal to the claims due creditors plus the claims the owners hold on those resources) When the owner invests cash in a business, - ✔✔-assets and owner's equity increase. (When the owner invests cash in a business, the business receives property in the form of cash and the owner now has a financial interest in the business. The cash, an asset, increases. The owner's financial interest in the business, called equity or capital, also increases. The fundamental accounting equation remains in balance.) When equipment is purchased on credit, - ✔✔-assets and liabilities increase. (When equipment is purchased on credit, the business receives property in the form of equipment and a creditor now has a financial interest in the business. The equipment, an asset, increases. Purchasing on credit is also referred to as buying on account. Amounts that a business must pay in the future are known as accounts payable. Accounts payable, a liability, also increases. The fundamental accounting equation remains in balance.) When a business sells services on credit: - ✔✔-assets increase and revenues increase. (When a business sells services on credit, revenues increase because the company has earned the revenue. The customer has promised to pay in the future, and that claim for future collection is an asset, accounts receivable. The fundamental accounting equation remains in balance.) When a business collects an account receivable: - ✔✔-total assets do not change (The collection of accounts receivable increases the cash account but decreases accounts receivable by the same amount, resulting in no change for the total assets. Revenues and owner's equity are not affected by the collection, as the revenue is recorded when earned, not when the payment is received. The fundamental accounting equation remains in balance.) When the firm pays its utility bill upon receipt of that bill: - ✔✔-assets decrease and expenses increase. (The use of the utilities by the business is an expense. Note that expenses decrease (rather than increase) owner's equity. When a firm pays its utility bill upon receipt of that bill, the firm's cash, an asset, decreases. Utility expense increases. The fundamental accounting equation remains in balance.) When the owner withdraws cash for personal use: - ✔✔-assets decrease and owner's equity decreases (Withdrawals are funds taken from the business by the owner for personal use. When the owner withdraws cash for personal use, the firm's cash, an asset, decreases. Withdrawals are not a business expense, but a decrease in the owner's equity. The fundamental accounting equation remains in balance.) Assume that, after analyzing its business transaction, a firm has the following ending balances: accounts payable $3,400, accounts receivable $2,000, cash $1,000, capital $3,600, equipment $3,000, prepaid rent $600, and supplies $400. What is the total amount of assets that will be reported on the firm's balance sheet? - ✔✔-$7,000 (The assets reported on the balance sheet would include: cash $1,000, accounts receivable $2,000, supplies $400, prepaid rent $600, and equipment $3,000. These assets would total $7,000. The fundamental accounting equation remains in balance since assets of $7,000 equal liabilities (accounts payable) of $3,400 plus owner's equity (capital) of $3,600.) Assume that a firm has the following information in its analysis of its business transactions during its first year of business: fees income of $7,000, an investment by the owner of $5,000, salaries expenses of $4,000, and withdrawals of $2,000. What is the total amount of owner's equity that will be reported on the firm's balance sheet? - ✔✔-$6,000 (The statement of owner's equity for the first year of operations would report the following: beginning capital of $0 (since it is a new company) plus investments of $5,000 plus net income of $3,000 (or revenues of $7,000 minus expenses of $4,000) less withdrawals of $2,000 equals ending capital of $6,000. That ending capital balance would then appear in the owner's equity section of the firm's balance sheet.) When J. Simmons, the owner, invests in her business, the transaction would be entered on the: - ✔✔- right side of the J. Simmons, Capital T account. (When J. Simmons, the owner, invests in her business, the transaction would be entered on the left side of the Cash account (to increase that asset account) and the right side of the J. Simmons, Capital T account (to increase that owner's equity account)) Modern products paid cash to a creditor. To record this transaction, the accountant would: - ✔✔-debit Accounts Payable and credit Cash. (Cash is reduced by the payment, and therefore the cash account, an asset, is credited. The amount owed the creditor is reduced by the payment, and therefore the account payable account is debited.) The normal balance of an account is the: - ✔✔-increase side of the account (The normal balance of an account is the increase side of the account.) Which of the following types of accounts normally have debit balances? - ✔✔-Expenses and assets (Asset, expenses, and the owner's drawings account normally have debit balances because those accounts increase with debits. On the other hand, liabilities, revenues, and the owner's capital account normally have credit balances because those accounts increase with credits.) Which of the following groups contain only accounts that normally have credit balances? - ✔✔-Fees Income and John Smith, Capital (Liabilities (such as Accounts Payable), revenues (such as Fees Income), and the owner's capital account (such as John Smith, Capital) normally have credit balances because those accounts increase with credits. On the other hand, assets (such as Accounts Receivable and Equipment), expenses (such as Salaries Expense), and the owner's Drawing account normally have debit balances because those accounts increase with debits.) Which of the following decreases owner's equity? - ✔✔-Expenses (Not: Revenue, Liabilities, or Cash) (Expenses and withdrawals decrease owner's equity. Revenues increase (rather than decrease) owner's equity. Cash is an asset, and in and of itself, has no impact on owner's equity. Likewise, liabilities have no impact on the total of owner's equity, without knowing what else might have been impacted when the liability was created.) If the trial balance totals are not equal, the error may have been caused by a transposition if the difference is evenly divisible by: - ✔✔-9 (A transposition is an accounting error involving misplaced digits in a number. If the difference is evenly divisible by 9, there might be a transposition. A transposition occurs when the digits of a number are switched. For example if 357 is written or input as 375, the difference is 18, which is evenly divisible by 9.) The three financial statements are linked together because the: - ✔✔-net income from the income statement is used on the statement of owner's equity and the ending balance of the capital account, computed on the statement of owner's equity, is used on the balance sheet. Which of the following accounts is not a permanent account? - ✔✔-Salaries Expense (Permanent: Cash, Accounts Payable, and Thomas Bernard, Capital) (Accounts are classified as permanent accounts or temporary accounts. Revenue and expense accounts appear on the income statement. The drawing account appears on the statement of owner's equity. These accounts classify and summarize changes in owner's equity during the period. They are called temporary accounts or nominal accounts because the balances in these accounts are transferred to the capital account at the end of the accounting period. In the next period, these accounts start with zero balances. Salaries expense is a temporary account and, as such, is not a permanent account. On the other hand, asset, liability, and owner's equity accounts appear on the balance sheet at the end of an accounting period. The balances of these accounts are then carried forward to start the new period. Because they continue from one accounting period to the next, these accounts are called permanent accounts or real accounts. Cash, Accounts Payable, and Thomas Bernard, Capital are all permanent accounts.) The Net Income amount from the Income Statement is used as a line item on which statement? - ✔✔- The statement of owner's equity (The amount of net income is added to beginning capital on the statement of owner's equity in order to derive the ending balance of the owner's capital.) When an entry is made in the general journal, - ✔✔-accounts to be debited should be listed first (Instructions for making entries in the journal include the following: After writing the day of the transaction in the Date column, enter the account to be debited. Write the account name close to the left margin of the Description column, and enter the amount on the same line in the Debit column. Then, enter the account to be credited on the line beneath the debit. Indent the account name about one-half inch from the left margin. Enter the amount on the same line in the Credit column. Accordingly, the account or accounts to be debited should be listed before the accounts to be credited.) The journal entry to record the sale of services on credit should include a: - ✔✔-debit to Accounts Receivable and a credit to Fees Income (The journal entry to record the sale of services on credit should include a debit to Accounts Receivable (to increase this asset account) and a credit to Fees Income (to increase this revenue account, which increases owner's equity)) The journal entry to record the payment of a monthly utility bill would include a: - ✔✔-debit to Utilities Expense and a credit to Cash The journal entry to record the payment of a monthly utility bill would include a debit to Utilities Expense (to increase this expense account, which decreases owner's equity) and a credit to Cash (to decrease this asset account)) The journal entry to record the receipt of cash from clients on account would include a: - ✔✔-debit to Cash and a credit to Accounts Receivable (The journal entry to record the receipt of cash from clients on account would include a debit to Cash (to increase this asset account) and a credit to Accounts Receivable (to decrease this asset account)) The journal entry to record the withdrawal of cash by Sue Snow, the owner, to pay a personal utility bill would include a: - ✔✔-debit to Sue Snow, Drawing and a credit to Cash (The journal entry to record the withdrawal of cash by Sue Snow, the owner, to pay a personal utility bill would include a debit to Sue Snow, Drawing (to increase this account, which decreases owner's equity) and a credit to Cash (to decrease this asset account). The payment of personal expenses cannot be recorded as an expense of the business.) The journal entry to record a payment made in January for rent for the months of February and March would include a: - ✔✔-debit to Prepaid Rent and a credit to Cash (The journal entry to record a payment made in January for rent for the months of February and March would include a debit to Prepaid Rent (which increases this asset account) and a credit to Cash (which decreases this asset account). The amount cannot be recorded as an expense until the month in which the office space is occupied.) The Accounts Payable account has a $5,000 credit balance. An entry for the payment of $2,000 on the amount owed is recorded and posted. The new balance of the Accounts Payable account is: - ✔✔-a $3,000 credit balance (The payment would reduce the normal credit balance of the accounts payable account by $2000, with the remainder of $3,000, a normal credit balance. ($5,000 - $2,000 = $3,000)) The Posting Reference column of a journal is used to: - ✔✔-record the number of the ledger account to which the information is posted (The posting reference recorded in the journal is the general ledger account number that was impacted by the account listed in journal and is used to trace the transaction to its impact on account balances.) The process of transferring data from the journal to the ledger is known as: - ✔✔-posting A firm purchased telephone equipment for cash. By mistake, the person who recorded the transaction debited Utilities Expense instead of Office Equipment. The error was discovered after the data posted. The correcting entry should contain: - ✔✔-a debit to Office Equipment and a credit to Utilities Expense. (Office Equipment should be increased with a debit, and Utilities Expense decreased with a credit.) If a worksheet is prepared, there is no need to separately prepare a(n): - ✔✔-trial balance (A worksheet is a form used to gather all data needed at the end of an accounting period to prepare the financial statements. In addition to the Account Name column, this worksheet contains five sections: Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet. Each section includes a Debit column and a Credit column. Accordingly, if you prepare a worksheet, there is no need to prepare a separate trial balance.) Centrum Services purchased $36,000 worth of equipment. The equipment has an estimated useful life of five years and no salvage value. Using the straight-line method, the depreciation for the first month is: - ✔✔-$600 (The formula for straight-line depreciation is (Cost minus Salvage value) divided by Estimated useful life. As such, the annual depreciation is ($36,000 minus $0) divided by 5 years equals $7,200 per year. Depreciation for the first month would be $7,200 per year divided by 12 equals $600 per month.) On a worksheet, the adjusting entry to account for depreciation of equipment consists of a: - ✔✔-debit to Depreciation Expense and a credit to Accumulated Depreciation (The adjusting entry to account for depreciation of equipment consists of a debit to Depreciation Expense and a credit to Accumulated Depreciation.) The adjusting entry to account for use of prepaid insurance consists of: - ✔✔-a debit to Insurance Expense and a credit to Prepaid Insurance (The journal entry increases insurance expense to reflect the insurance used by debiting the insurance account, and the asset account prepaid insurance is credited to reduce that balance.) If an adjusting entry relating to prepaid insurance is not entered onto the worksheet, assets on the balance sheet: - ✔✔-will be overstated (The adjusting entry to account for expired insurance consists of a debit to Insurance Expense (to increase that expense account) and a credit to Prepaid Insurance (to decrease that asset account). If that adjusting entry is not made, the Insurance Expense account will be understated (which means that net income and owner's equity will be overstated) and the Prepaid Insurance account will be overstated (which means that total assets will also be overstated)) The adjusting entry to account for use of supplies consists of a: - ✔✔-debit to Supplies Expense and a credit to Supplies (The adjusting entry to account for the use of supplies consists of a debit to Supplies Expense (to increase that expense account) and a credit to Supplies (to decrease that asset account)) If an account has a debit balance in the Trial Balance section of the worksheet, the amount (that is, the adjusted account balance) that will be entered in the Adjusted Trial Balance section: - ✔✔-depends on the nature of the entry in the Adjustments section (If an account has a debit balance in the Trial Balance section of the worksheet, the amount (that is, the adjusted account balance) that will be entered in the Adjusted Trial Balance section depends on the nature of the entry in the Adjustments section. If there is a debit entry in the Adjustments section, that debit would be added to the debit account balance. If there is a credit entry in the Adjustments section, that credit would be subtracted from the debit account balance.) After all account balances have been transferred from the Adjusted Trial Balance section of the worksheet to the financial statement sections, the Income Statement section of the worksheet includes the following totals. The Credit column total is $120,000 and the total of the Debit column is $80,000. The Income Statement section of the worksheet: - ✔✔-would be completed by entering $40,000 in the Debit column with the words "Net Income" in the Account Name column (The totals of the Income Statement section columns are used to determine the net income or net loss. The smaller column total is subtracted from the larger one and the difference is entered on the line below the smaller total. Then, "Net Income" or "Net Loss" is entered the Account Name column. In this case the total of the Credit column of $120,000 (which represents revenue) exceeds the total of the Debit column of $80,000 (which represents expenses). The difference between the two amounts is a net income of $40,000. The $40,000 would be entered in the in the Debit column of the Income Statement section so the debit and credit columns will balance, with the words "Net Income" added to the Account Name column.) On the worksheet, the Balance Sheet columns should balance: - ✔✔-after the net income amount is added to the Balance Sheet Credit column (Net income is added to credit column for the balance sheet on the worksheet, as that net income will be added to owner's equity, which is increased by credits.) The book value of long-term assets is reported on: - ✔✔-the balance sheet (The balance sheet will report the balance in the long-term asset accounts on one line, and then the balance in the contra asset account accumulated depreciation on the next, and then report the difference between the two, the book value, as the amount in the right hand column of the balance sheet.) One purpose of closing entries is to - ✔✔-transfer the results of operations to owner's equity. (Closing entries (1) transfer the results of operations (net income or net loss) to owner's equity, and (2) reduce revenue, expense, and drawing account balances to zero. Asset, liability, and owner's equity accounts appear on the balance sheet at the end of an accounting period. The balances of these accounts are then carried forward to start the new period. Because they continue from one accounting period to the next, these accounts are called permanent accounts or real accounts. As such, the asset, liability and owner's equity (owner's capital) accounts are not closed (that is, their balances are not reduced to zero). Also, note that adjusting (rather than closing) entries are made to update accounts for items that were not recorded during the accounting period and, as such, help to ensure that complete and accurate figures appear in the financial statements.) The Fees Income account is closed by - ✔✔-debiting Fees Income and crediting Income Summary. (The entry to close the Fees Income account, a temporary account with a credit balance, includes a debit to Fees Income and a credit to Income Summary for the total account balance in the Fees Income account.) The owner's drawing account is closed by - ✔✔-debiting the owner's capital account and crediting the owner's drawing account. (The entry to close the owner's drawing account, a temporary account with a debit balance, includes a debit to the owner's capital account and a credit to the owner's drawing account for the total account balance in the owner's drawing account.) Which of the following accounts would be closed? - ✔✔-Supplies Expense (Recall from chapter 3 that accounts are classified as permanent accounts or temporary accounts. Asset, liability, and owner's equity accounts appear on the balance sheet at the end of an accounting period. The balances of these accounts are then carried forward to start the new period. Because they continue from one accounting period to the next, these accounts are called permanent accounts or real accounts. Revenue and expense accounts appear on the income statement. The drawing account appears on the statement of owner's equity. These accounts classify and summarize changes in owner's equity during the period. They are called temporary accounts or nominal accounts because the balances in these accounts are transferred to the capital account at the end of the accounting period. The Supplies Expense account is a temporary account and is closed at the end of the accounting period.) The entry to close the Income Summary account may include - ✔✔-a debit to Income Summary and a credit to the owner's capital account. (After the revenue and expense accounts are closed, if revenues are greater than expenses, the Income Summary account will have a credit balance, which represents the net income. The entry to transfer net income to owner's equity includes a debit to Income Summary and a credit to the owner's capital account. The Cash account, an asset and permanent account, would not appear in any of the closing entries. The entry to close the owner's drawing account, which has a debit balance, includes a debit to the owner's capital account and a credit to the owner's drawing account. That closing entry does not include the Income Summary account because withdrawals do not appear on the income statement and, as such, are not part of the calculation of the net income or loss.) The entry to transfer a net loss to the owner's capital account would include a debit to - ✔✔-the owner's capital account and a credit to Income Summary. (After the revenue and expense accounts are closed, if expenses are greater than revenues, the Income Summary account will have a debit balance, which represents the net loss. The entry to transfer net loss to owner's equity would then include a debit to the owner's capital account and a credit to Income Summary.) After the closing entries are posted to the ledger, each expense account will have - ✔✔-None of these are correct (a credit balance, a debit balance, or either a debit or a credit balance) (After the closing entries are posted to the ledger, each expense account will have a zero balance, as all temporary accounts are reduced to a zero balance in the closing process.) Which of the following accounts will appear on the post-closing trial balance? - ✔✔-The owner's capital account (Asset, liability, and owner's equity accounts appear on the balance sheet at the end of an accounting period. The balances of these accounts are then carried forward to start the new period. Because they continue from one accounting period to the next, these accounts are called permanent accounts or real accounts. The owner's capital account, an owner's equity and permanent account, is not closed. Note that many students struggle with this concept since the owner's capital account appears in the last two closing entries. The owner's capital account appears in the third closing entry because this entry transfers net income (or net loss) to owner's equity by crediting (or increasing) the owner's capital account for the amount of the net income (or debiting the owner's capital account for the amount of the net loss). Likewise, the fourth closing entry includes the owner's capital account because this entry transfers the owner's withdrawals to owner's equity by debiting (or decreasing) the owner's capital account for the amount of the withdrawals. (Remember that you don't want to wipe out the owner's equity by closing the capital account!) Revenue and expense accounts appear on the income statement. The drawing account appears on the statement of owner's equity. These accounts classify and summarize changes in owner's equity during the period. They are called temporary accounts or nominal accounts because the balances in these accounts are transferred to the capital account at the end of the accounting period. In the next period, these accounts start with zero balances. The owner's drawing account, Fees Income, and Rent Expense are temporary accounts that must be closed at the end of the period. As such, since they then have zero balances, these accounts would not be listed on the post-closing trial balance.) Which of the following statements about the interpretation of the financial statements is not correct? - ✔✔-Interpreting the financial statements can only be performed by auditors. (Interpreting the financial statements is the final step in the accounting cycle. To interpret the financial statements means to understand and explain the meaning and importance of information in accounting reports. The interpretation can be performed by any user of the financial statements, not just by the company's auditors.) Which of the following statements is not correct? - ✔✔-The balance of the owner's capital account, as reflected on the postclosing trial balance, will match the amount reported on the income statement. (The balance of the owner's equity account is reported on the statement of owner's equity and the balance sheet, but not the income statement.) A firm that sells goods that it purchases for re-sale is a - ✔✔-merchandising business. The Sales Returns and Allowances account is classified as - ✔✔-a contra revenue account. (The Sales Returns and Allowances account has the effect of reducing revenue and is, therefore, a contra revenue account because it has a debit balance, which is contrary, or opposite to the normal balance for a revenue account.) At the end of the month, after the equality of the debits and credits recorded in the sales journal is proved by comparing the column totals, the summary posting from the sales journal would include a - ✔✔-debit to Accounts Receivable, a credit to Sales Tax Payable, and a credit to Sales. (At the end of the month, after the equality of the debits and credits recorded in the sales journal is proved by comparing the column totals, the summary posting from the sales journal would include a debit to Accounts Receivable, a credit to Sales Tax Payable, and a credit to Sales.) Detailed information about the transactions with credit cus [Show More]

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