Basic Financial Accounting Exam
Preparation Guide
Course Introduction
Basic Financial Accounting introduces students to the fundamental principles and practices of financial accounting. The course covers topics such as the accounting cycle, preparation and analysis of financial statements, and the underlying concepts of assets, liabilities, equity, revenues, and expenses. Students learn how to record business transactions, understand the role of accounting in decision-making, and apply generally accepted accounting principles (GAAP). By the end of the course, learners gain the skills necessary to interpret and communicate financial information effectively within various organizational contexts.
Recommended Textbook Financial Accounting 1st Canadian Edition by Jeffrey Waybright
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12 Chapters
1471 Verified Questions
1471 Flashcards
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) Accountants are required to use __________ judgment in many situations.
Answer: professional
Q2) What is the purpose of financial accounting information?
Answer: To help investors, creditors, and others to make decisions
Q3) Casey invested $5,000 into his business. How will this impact the accounting equation?
Answer: Increase assets and increase shareholders' equity.
Q4) Jenny opens her business by investing $12,000. How does this affect the accounting equation?
A) Increase in assets; increase in shareholders' equity.
B) Increase in liabilities; increase in shareholders' equity.
C) Decrease in assets; increase in shareholders' equity.
D) Increase in assets; decrease in shareholders' equity.
E) The accounting equation does not change.
Answer: A
Q5) Which of the financial statements includes a listing of assets owned by the company?
Answer: Statement of financial position or balance sheet (both names are interchangeable).
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) All payables are listed as __________.
Answer: liabilities
Q2) Salary expenses of $675 were paid in cash. The journal entry would include a __________.
Answer: debit to salary expense $675 and a credit to cash $675
Q3) Name the three major parts of a T-account.
Answer: 1. A title
2. A debit side
3. A credit side
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Q4) The act of recording a transaction is called "journalizing".
A)True
B)False
Answer: True
Q5) The columns on a trial balance represent __________.
Answer: debits and credits.
Q6) Payment of a telephone bill represents a(n) __________.
Answer: expense
Q7) The __________ keeps a running balance of an individual account. Answer: general ledger
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Chapter 3: Adjusting and Closing Entries
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127 Verified Questions
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Sample Questions
Q1) Journalize the following entries for March 31. Explanations are not required.
a. A machine costing $7,000 with no salvage value was purchased on March 1 and straight-line depreciation is being used. The life is 5 years.
b. Unearned revenue was earned at the rate of $300 per month, starting November 1.
c. Wages incurred but not paid are $2,300.
Answer: 11ea4bf1_a927_7c64_a578_272369da2553_TB2774_00
Q2) Unearned ticket revenue must be adjusted to show how much of the deferred revenue has been earned during the period.
A)True
B)False
Answer: True
Q3) After preparing the adjusted trial balance, those figures are used to complete the balance sheet only.
A)True
B)False
Answer: False
Q4) Depreciation would be an example of a(n) __________.
Answer: deferred expense
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Page 5
Chapter 4: Ethics, Internal Control, and Cash
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Sample Questions
Q1) A business has great control over perceived pressure felt by an employee.
A)True
B)False
Q2) An employee who pockets cash received from a customer without recording the transaction is conducting a __________.
Q3) Casey Company's bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50. Casey's book balance shows outstanding cheques of $5,288 and deposits in transit of $9,325. The bank side reconciliation would show cash of __________.
Q4) The cash register provides control over the cash receipts for a retail business.
A)True
B)False
Q5) In dealing with ethics, saying "Do as I say, not as I do" works very well.
A)True
B)False
Q6) In a broad sense, fraud is the use of deception or trickery for personal gain.
A)True
B)False
Q7) Cash is the first asset listed on the balance sheet. Explain why.
Q8) In Canada, external auditors must now report to __________.
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Chapter 5: Accounting for a Merchandising Business
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Sample Questions
Q1) When a company repays the seller for shipping costs on an FOB shipping transaction, which of the following is true?
A) A purchase discount can still be taken net of the prepaid shipping charges.
B) A purchase discount can still be taken on the gross amount of the invoice.
C) A purchase discount cannot be taken when shipping charges are prepaid.
D) The shipping costs do not affect the invoice cost.
E) The shipping costs are not added to the cost of the inventory.
Q2) A record to keep the amount owed to each supplier is called a(n):
A) accounts receivable subsidiary ledger.
B) accounts payable subsidiary ledger.
C) transportation ledger.
D) general ledger for accounts payable.
E) trial balance.
Q3) ABC Corporation has received an invoice for $4,500 with terms of 3/15, n/50. If ABC pays the invoice on the seventeenth day, the Cash account will be credited for what value?
Q4) A discount offered by a supplier as an inducement for prompt payment of an invoice is called a(n):
Q5) An invoice states 5/15, n/60. What does the 15 refer to?
Q6) If a company has a current ratio of 0.8, what does this mean ?
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Chapter 6: Inventory
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138 Flashcards
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Sample Questions
Q1) GAAP allows two different kinds of inventory costing methods.
A)True
B)False
Q2) An error in the reported inventory will cause errors in all of the following EXCEPT the: A) balance sheet.
B) statement of retained earnings.
C) following year's financial statements.
D) cash account.
E) income statement.
Q3) The inventory system whereby the merchandise inventory account balance is merely a record of the most recent physical inventory count is called the:
Q4) Making notes in the financial statements to explain the justification of valuation changes and other financial decisions would be an example of: A) conservatism.
B) consistency.
C) materiality.
D) full disclosure.
E) cost principle.
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Page 8
Chapter 7: Sales and Receivables
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Sample Questions
Q1) Journalize the following transactions for Allan Company using the allowance method:
April 21 Sold $560 of merchandise on account to Bill Smith.
June 30 Bill Smith filed bankruptcy and his account was written off.
August 1 Replaced Joe's $4,500 receivable balance with a 4%- 8month note.
Dec 31 Recorded Bad Debts Expense based on 6% of credit sales of $120,000
Dec 31 Recorded interest on the note.
Q2) Using a 360-day year, the maturity value of a 69-day note for $1,500 at 7% annual interest is (rounded to the nearest cent):
Q3) Another name for the quick ratio is the acid-test ratio. A)True
B)False
Q4) What is the maturity date of a 4-month promissory note dated on July 17?
Q5) A company has a quick ratio of 1.23. What does this mean?
Q6) What account is credited in the Allowance method of recording uncollectible accounts when an uncollectible customer account is written off?
Q7) Under the percentage of sales method, how is Bad Debts Expense calculated?
Q8) How is the "net realizable value" of accounts receivable computed ?
Q9) What is considered to be a safe quick ratio?
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Chapter 8: Long-Term Assets
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Sample Questions
Q1) Expenditures incurred, such as changing the oil and filter on a delivery truck, would be considered ordinary repairs.
A)True
B)False
Q2) What needs to be recorded before the disposal of the asset can be recorded?
Q3) The cost of removing unwanted buildings from land would be allocated to which account?
Q4) Coal, oil, and timber are:
A) amortized.
B) depleted.
C) depreciated.
D) expensed.
E) written off.
Q5) Neither land nor land improvements are depreciated.
A)True
B)False
Q6) Would adding 30 rooms to an existing hotel be considered a betterment or an extraordinary repair?
Q7) What type of account is Accumulated Depletion?
Q8) What are the three common ways that an asset can be disposed of?
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Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) The percentage of total assets of a company that it would take to pay off all of the company's liabilities is called the debt ratio.
A)True
B)False
Q2) Identify whether each of the below items would be a known, estimated, or contingent liability:
1. A manufacturing company offers a one-year warranty on their product.
2. A lawsuit has been filed against Voltage Energy, a private company, for polluting a creek in a local community. The amount is estimated at $125,000 and there is a 70%-95% likelihood of the obligation occurring.
3. ABC Co. purchased machinery for $125,000 paying $75,000 in cash and borrowing the remainder by signing a one-year 5% note payable.
Q3) When the likelihood of an obligation occurring is possible, under Canadian ASPE what is the accounting treatment?
Q4) What effect will there be on reported liabilities and net income if a company does NOT accrue warranty expense?
Q5) According to the text, which current liability is generally listed first?
Q6) What is a major difference between an account payable and a note payable?
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Sample Questions
Q1) Describe the two sources of shareholders' equity.
Q2) What are the three dates associated with a stock dividend?
Q3) ABC Co. declares a $0.50 per share cash dividend on its common shares, of which 100,000 shares are outstanding. Record the journal entry to avoid a year-end closing entry of the dividends account.
Q4) Earnings that a shareholder receives from a corporation is an example of which shareholder right?
A) Vote
B) Dividends
C) Liquidation
D) Preemption
E) Retained earnings
Q5) ABC Company declares a 2-for-1 stock split of its common shares. The company has 100,000 common shares authorized and 40,000 common shares issued and outstanding. How many shares are authorized and outstanding after the split?
Q6) Shareholders receiving their proportionate share of any assets left after a company goes out of business is an example of which shareholder right?
Q7) Where is the Treasury Shares account reported on the Balance Sheet?
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Chapter 11: The Cash Flow Statement
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Sample Questions
Q1) Under the indirect method of cash flow, which of the following adjustments would NOT be made to net income when computing cash from operating activities?
A) Adding an increase in accounts payable
B) Adding depreciation expense
C) Adding a decrease in accounts payable
D) Subtracting the gain on sale of land
E) Proceeds from the sale of a long-lived asset
Q2) Current assets on the balance sheet would be affected by and be part of operating activities.
A)True
B)False
Q3) What are the similarities between the direct and indirect methods?
Q4) Activities that increase and decrease as a result of selling a company's shares are __________ activities.
Q5) Isaiah Corporation's Accounts Receivable increased by $35,000 and its Accounts Payable decreased by $18,000. What is the net effect on cash from operations under the indirect method?
Q6) What type of business activity would issuing stock be classified as on the cash flow statement?
Page 13
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) What is other income/(expenses)? Provide three examples?
Q2) Horizontal analysis is only done on the income statement.
A)True
B)False
Q3) If cash is $4,450 in 2010 and $3,670 in 2009, what is the percentage increase or decrease from 2009 to 2010?
Q4) Predictions about a company's future earnings can best be inferred from the:
A) cumulative effect of changes in accounting principles section.
B) discontinued operations section.
C) continuing operations section.
D) extraordinary items section.
E) earnings per share.
Q5) Tayler Company's cash reported on the balance sheets for 2009 and 2010 was as follows: $235,000 in 2009; $245,300 in 2010. The percentage change for cash from 2009 to 2010 was __________.
Q6) Common-size statements should NOT be used to compare a company's performance against the industry average.
A)True
B)False
Page 14
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