Accounting Principles
Pre-Test Questions
Course Introduction
Accounting Principles introduces students to the foundational concepts and practices of financial accounting. The course covers key topics such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, revenue recognition, and the application of generally accepted accounting principles (GAAP). Students will learn how to record, classify, and summarize business transactions, understand the role of accounting in decision-making, and interpret financial information to assess an organizations performance and financial position. This course provides essential skills for pursuing further studies in accounting, finance, or business.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) The Australian conceptual framework encompasses non-profit organisations as well as for-profit ones.
A)True
B)False
Answer: True
Q2) The proprietor of Martin Supply Service took a $5 000 cash withdrawal.What is the effect of the withdrawal on the accounts of the business?
A)Cash account increases;Accounts receivable decreases.
B)Cash account decreases;Owners' capital account decreases.
C)Accounts payable increases;Owners' capital account decreases.
D)Cash account increases;Owners' capital account decreases.
Answer: B
Q3) The explanation of why the profit differs from change in cash balance for the period is explained in which of the following statements?
A)Balance sheet
B)Income statement
C)Cash flow statement
D)Statement of changes in equity
Answer: C
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A business pays cash back to the owner.Which account is debited?
A)Service revenue
B)Cash
C)Drawings
D)Accounts payable
Answer: C
Q2) Journalising a transaction means:
A)recording the transaction,including a brief explanation.
B)calculating the balance in an account.
C)copying the information from the journal to the ledger.
D)finding the account number in the chart of accounts.
Answer: A
Q3) The accounting process of copying a transaction from the journal to the ledger is called:
A)proofing.
B)footing.
C)posting.
D)journalising.
Answer: C
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Overstating expenses could be an unethical strategy used to improve the profit result.
A)True
B)False
Answer: False
Q2) Under accrual basis accounting,revenue is recorded ONLY when cash is received.
A)True
B)False
Answer: False
Q3) In the case of a prepaid expense,the adjusting entry required at the end of a period consists of a credit to Prepaid expense.
A)True
B)False
Answer: True
Q4) The end-of-period process starts with the:
A)balance sheet.
B)adjusted trial balance.
C)unadjusted trial balance.
D)income statement.
Answer: C
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Capital is a permanent account.
A)True
B)False
Q2) The Net profit of Sarah for the year is $40,000.The withdrawals Sarah made during the year amounted to $51,000.Which of the following statements is true of the effect of these transactions on Sarah,capital?
A)Sarah,capital account decreases by $40,000.
B)Sarah,capital account increases by $51,000.
C)Sarah,capital account decreases by $11,000.
D)Sarah,capital account increases by $40,000.
Q3) Which of the following accounts will be closed by crediting the Income summary account?
A)Accounts payable
B)Service revenue
C)Depreciation expense
D)Accumulated depreciation
Q4) Prepaid rent is usually a non-current asset.
A)True
B)False
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Chapter 5: Retailing Operations
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Sample Questions
Q1) A firm sold inventory for $350 that cost $221.The entry to record the cost of the inventory sold would be a:
A)debit to Cost of sales and a credit to Inventory for $221.
B)debit to Cash and a credit to Sales for $350.
C)debit to Sales and a credit to Cash for $350.
D)debit to Inventory for $221 and a credit to Cost of sales for $221.
Q2) A small increase in the gross profit percentage could indicate:
A)a decrease in profit.
B)a significant rise in profit.
C)lower inventory turnover.
D)a decrease in overhead expenses.
Q3) Which of the following describes Net sales revenue?
A)Sales less Cost of sales
B)Sales less Sales discounts
C)Sales less Sales discounts less Sales returns and allowances
D)Sales less Sales returns and allowances
Q4) In a perpetual inventory system,the entry to record the inventory purchased includes a credit to Cost of sales.
A)True
B)False
Page 7
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Chapter 6: Retail Inventory
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Sample Questions
Q1) In a period of rising costs,FIFO produces lower Cost of sales and higher Gross profit than LIFO.
A)True
B)False
Q2) Which of the following states that a company must perform strictly proper accounting ONLY for items that are significant to the company's financial statements?
A)Comparability principle
B)Relevance principle
C)Accounting conservatism
D)Materiality concept
Q3) Which of the following assets must be reported at the lower-of-cost-and-net-realisable-value?
A)Inventory
B)Prepaid insurance
C)Accounts receivable
D)Cash
Q4) Gross profit is Sales revenue divided by Cost of sales.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which column in the cash payments journal involves a posting to both the general ledger and the subsidiary ledger?
A)Cash credit column
B)Other accounts debit column
C)Accounts payable debit column
D)Inventory debit column
Q2) Design of an accounting information system begins with a trial balance.
A)True
B)False
Q3) Rockhill Industries received payment after the expiration of the discount period from a customer who had purchased goods on credit.The sales invoice was for $3 000 and credit terms were 3/15 n/30.Ignore GST.In the cash receipts journal:
A)$3 000 will appear in the accounts receivable credit column.
B)$3 000 will appear in the sales revenue credit column.
C)$3 000 will appear in the accounts receivable debit column.
D)none of the above
Q4) Sales discount is recorded in the general journal.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) If a system of internal controls is too strict or complex,it may harm efficiency and not be cost-effective.
A)True
B)False
Q2) Which of the following is NOT included in a voucher?
A)An approval signature
B)A cheque
C)A description of the goods or services being purchased
D)The invoice number
Q3) Daily cash shorts and cash overs should cancel each other out over time.
A)True
B)False
Q4) On a bank reconciliation,deposits in transit are subtracted on the book side of the reconciliation.
A)True B)False
Q5) Internal auditors evaluate company controls to ensure the accuracy of financial statements.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) On 1 December 2016,Parsons Ltd sold machinery to a customer for $25,000.The customer could not pay at the time of sale but agreed to pay 11 months later and signed a 11-month bill at 8% interest.What was the total amount of cash collected by Parsons on the maturity of the bill?
A)$1833.33333
B)$27,000
C)$23,166.6667
D)$26,833.3333
Q2) A company has net credit sales of $1,200,000,beginning net accounts receivable of $260,000 and ending net accounts receivable of $203,000.What is the days' sales in receivables? Use a 365-day year.(Round to the nearest day. )
A)62 days
B)79 days
C)70 days
D)141 days
Q3) The percentage of sales method calculates bad debts expense by analysing accounts receivable.
A)True
B)False
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Page 11
Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Sample Questions
Q1) A revaluation decrement increases the carrying amount of an asset.
A)True
B)False
Q2) When an item of property,plant and equipment is sold,if the carrying amount is higher than the sales price,there will be a loss on sale.
A)True
B)False
Q3) The decline in value of a trademark is accounted for by:
A)depreciation.
B)amortisation.
C)deterioration.
D)depletion.
Q4) A loss occurs on the exchange of an item of property,plant and equipment if the market value of the new asset received is greater than the total amount given up in the exchange.
A)True B)False
Q5) Goodwill is NOT amortised-but evaluated-each year for a decline in value.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following occurs when a company records accrued interest expense on a loan payable?
A)Loan payable is credited.
B)Cash is debited.
C)Interest payable is credited.
D)Interest expense is credited.
Q2) In which of the following periods should the estimated warranty liability be debited?
A)The period when cash is paid to repair or replace the product
B)The period when the product is sold
C)The period when the product is shipped to the customer
D)The period when cash is collected for the sale of the product
Q3) Gross pay is the total amount of salary,wages,commissions and bonuses earned by an employee during a pay period.
A)True
B)False
Q4) PAYG tax is paid by the employer only and is not deducted from gross pay.
A)True
B)False
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Chapter 12: Non-Current Liabilities, Debentures Payable
and Classification of Liabilities on the Balance Sheet
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Q1) On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?
A)$20,000 shown as current liability only
B)$4000 shown as current liability;$16,000 shown as long-term liability
C)the entire $20,000 shown as long-term liability
D)$4000 shown as current liability;$20,000 shown as long-term liability
Q2) Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.
A)True
B)False
Q3) The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable account is a debit of $1 500.The debenture carrying amount is $51 500.
A)True
B)False
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Page 14
Chapter 13: Partnerships
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Sample Questions
Q1) Kenny and Jeff formed a partnership business.During the year,Kenny and Jeff withdrew $25,000 and $18,000,respectively.Which of the following will be included in the journal entry to record the withdrawals?
A)credit to Kenny,drawings for $21,500
B)credit to Jeff,drawings for $18,000
C)debit to Kenny,drawings for $25,000
D)debit to Jeff,drawings for $21,500
Q2) Andre,Beau and Caroline share profits and losses of their partnership as 2:3:6.If the net profit is $1,200,000,calculate the profit share of Caroline.
A)$327,273
B)$218,182
C)$109,091
D)$654,545
Q3) Each partner in a partnership:
A)shares in a jointly held capital account.
B)pays his or her share of the partnership business profit tax.
C)has co-ownership of the assets of the partnership.
D)has limited liability for the debts of the business.
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Page 15
Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) Which of the following describes the term share capital?
A)The shares that have been sold for the highest price.
B)The total amount of shares that has been authorised by the Corporations Act.
C)The total amount of shares that has not been sold yet.
D)The amounts received from the shareholders.
Q2) Lerner Company had the following transactions in 2016,its first year of operations.
? Issued 22,000 ordinary shares.The issue price of the shares was $16.00 per share.
? Issued 1500 preference shares for $170 per share.
? Earned net profit of $35,000.
? Paid no dividends.
At the end of 2016,what is the total amount of paid-up capital?
A)$352,000
B)$277,000
C)$642,000
D)$607,000
Q3) All forms and classes of shares carry voting rights.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Sample Questions
Q1) Which of the following occurs when a company distributes a share dividend?
A)Shareholders' equity increases.
B)Shareholders' equity remains unchanged.
C)Total liabilities increase.
D)Total assets decrease.
Q2) Which of the following would be included in the entry to record a 2-for-1 share split?
A)Retained earnings would be debited.
B)Ordinary share capital would be credited.
C)Retained earnings would be credited.
D)There is no journal entry to record a share split.
Q3) The entry to record an appropriation of retained earnings requires a debit to Retained earnings and a credit to Cash.
A)True
B)False
Q4) One of the reasons for a share buy-back is to avoid a hostile takeover by an outside party.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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Q1) Which of the following are the activities that are included in the operating activities section of the cash flow statement?
A)Activities that obtain the cash needed to launch and sustain the business are included in the operating activities section.
B)Activities that increase or decrease non-current assets are included in the operating activities section.
C)Activities that pertain to construction of new facilities are included in the operating activities section.
D)Activities that create revenue or expenses in the entity's major line of business are included in the operating activities section.
Q2) Free cash flow is the same thing as cash flow from operating activities. A)True
B)False
Q3) The financing activities section of the cash flow statement includes paying dividends and paying off loans.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) AASB 101 requires a summary of significant accounting policies to be included in the director's report that accompanies the financial statements.
A)True
B)False
Q2) In Australia,in recent years,there has been a move to show some assets at current cost rather than at historical cost.This is because the need for relevancy sometimes outweighs the requirement for reliability.
A)True
B)False
Q3) A business decides to expense the cost of minor repair tools rather than capitalise them.This is an example of which principle?
A)materiality
B)understandability
C)relevance
D)matching
Q4) AASB stands for Australian Accounting Standards Board.
A)True
B)False
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Chapter 18: Financial Statement Analysis
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Q1) When a potential investor is evaluating the market value of a share,the book value per share is an important metric to consider.
A)True
B)False
Q2) Which of the following factors might suggest that a company is having difficulty selling its inventory?
A)An increase in total debt
B)An increase in receivables
C)An increase in interest expense
D)A buildup of inventory balances
Q3) e-Ray Ltd has net sales on account of $1,900,000.The average net accounts receivable are $660,000.Calculate the days' sales in receivables.
A)365 days
B)350.4 days
C)126.7 days
D)2.88 days
Q4) A common-size statement reports only percentages-no dollar amounts.
A)True
B)False
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