Business Accounting
Study Guide Questions
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of financial and managerial accounting within a business context. The course covers essential topics such as double-entry bookkeeping, preparation and analysis of financial statements, accruals and deferrals, and the role of accounting in decision-making. Students will explore the ethical and regulatory environment of accounting, gain insight into budgeting and performance evaluation, and learn how accounting information supports effective management and strategic planning. By the end of the course, students will be equipped with practical skills to record, interpret, and analyze financial data, supporting sound business operations and organizational success.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) Certified Management Accountant
A)Specializes in accounting and financial management knowledge
B)Serves the general public
C)Performs reviews of companies to ensure compliance to rules and regulations
D)Compiles financial statements, interacts with auditors, oversees regulatory reporting Answer: A
Q2) Managerial accounting focuses on information needed by lenders,customers,and the federal government.
A)True
B)False Answer: False
Q3) An audit is an examination of a company's financial statements and records.
A)True
B)False Answer: True
Q4) A payable is always a liability.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) An asset account is increased by a debit.
A)True
B)False Answer: True
Q2) A business makes a cash payment of $12,000 to a creditor.Which of the following accounts is credited?
A)Cash
B)Accounts Payable
C)Bank
D)Accounts Receivable
Answer: A
Q3) A chart of accounts is a detailed record of the changes in a particular asset,liability,or equity account during a specified period.
A)True
B)False Answer: False
Q4) Each category of the accounting equation contains accounts.
A)True
B)False Answer: True
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) For accounting purposes,depreciation refers to the process of ________.
A)allocating the cost of a plant asset to expense over its useful life
B)recording the decline in the market value of an asset to its book value
C)estimating an asset's current market value
D)determining the selling price of an asset
Answer: A
Q2) To match expenses against revenues means to add expenses paid in cash during one month to revenues earned during that same month.
A)True
B)False
Answer: False
Q3) On July 1,Delta Company prepaid rent for an equipment storage building.Delta paid $20,000 to rent the building from July 1 through the end of the year.Prepare the journal entry needed on July 1 when the payment is made.(Ignore explanation).Assume the deferred expense is initially recorded as an asset.
Answer: 11ea8a75_4258_e4bf_a2a1_b7e0e5b38c9b_TB6701_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following are NOT included in a post-closing trial balance?
A)Assets and liabilities
B)Owner,Capital and assets
C)Owner,Capital and liabilities
D)Revenues and expenses
Q2) Revenue may be called Profit and Net Income may be called Turnover in an income statement prepared under IFRS.
A)True
B)False
Q3) In which of the columns of a worksheet would a net loss be found?
A)in the balance sheet credit column and the income statement debit column
B)in the balance sheet debit column and the income statement credit column
C)in the unadjusted trial balance credit column,the adjusted trial balance credit column,and the balance sheet credit column
D)in the unadjusted trial balance debit column,the adjusted trial balance debit column,and the balance sheet debit column
Q4) List the steps of the accounting cycle that take place at the end of the period.
Q5) Which accounts are closed at the end of the accounting period? Why is it necessary to close these accounts?
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Chapter 5: Merchandising Operations
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Q1) The term "freight out" refers to ________.
A)transportation costs on purchases
B)cost of inventory purchased
C)costs that are not actually paid in cash
D)transportation costs on sales
Q2) In a perpetual inventory system,the Cost of Goods Sold account is debited at the time of each sale.
A)True
B)False
Q3) Merchandise inventory accounting systems can be broadly categorized into two types.They are ________.
A)FIFO and LIFO
B)perpetual and periodic
C)wholesale and retail
D)manufacturer and producer
Q4) Operating expenses include ________.
A)cost of goods sold
B)expenses that occur in an entity's major line of business
C)cost of goods sold,selling expenses,and administrative expenses
D)loss on sale of plant asset
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Chapter 6: Merchandise Inventory
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Q1) Companies try to manage their inventory levels such that they will have just enough inventory to meet customer demand without investing large amounts of money in inventory or having it sit on the shelves gathering dust.
A)True
B)False
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of cost of goods sold in the current period.
A)True
B)False
Q3) Companies can choose between reporting ending Merchandise Inventory using specific identification,FIFO,LIFO,weighted-average,or lower-of-cost-or-market.
A)True
B)False
Q4) A company should not change the inventory costing method each period in order to maximize net income.This is an example of the disclosure principle.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Q1) Positive cost/benefit relationship
A)Can accommodate changes in the business over time.
B)Provides information that will improve decision making and reduce uncertainty.
C)Benefits received outweigh the cost of the system.
D)Works smoothly with the business's employees and organization structure.
E)Provides safeguards for a business's assets and reduces the likelihood of fraud and errors.
Q2) To safeguard a business's assets and reduce the likelihood of fraud and errors,its accounting information system ________.
A)should be manual
B)must be flexible to accommodate changes in a business over time
C)should work smoothly with the business's employees
D)must provide adequate controls of a business's assets and data
Q3) An automobile parts retailer purchases merchandise inventory on account.When using a manual accounting information system,this transaction is recorded in the ________.
A)purchases journal
B)general journal
C)cash payments journal
D)sales journal
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A cash equivalent is a highly liquid investment that can be converted into cash in one year or less.
A)True
B)False
Q2) Which of the following would be included in the journal to record an NSF check?
A)a debit to Accounts Payable and a credit to Cash
B)a debit to Accounts Receivable and a credit to Cash
C)a debit to Cash and a credit to Accounts Receivable
D)a debit to Bank Expense and a credit to Cash
Q3) When replenishing the petty cash fund,the company debits the Petty Cash account and credits the Cash account.
A)True
B)False
Q4) The bank statement ________.
A)must include physical copies of canceled checks
B)must be mailed to customers each month
C)does not include an ending balance of the customer's account because the bank cannot determine which checks have been cashed during the statement period
D)may show service charges,EFT collections from customers,and EFT withdrawals
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Chapter 9: Receivables
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Sample Questions
Q1) Which of the following is TRUE of the balance sheet presentation of the Allowance for Bad Debts?
A)It is reported as a current liability.
B)It is reported as an operating expense.
C)It is reported as a separate,independent line item under current assets.
D)It is shown as a contra account related to accounts receivable.
Q2) The Allowance for Bad Debts account has a credit balance of $8000 before the adjusting entry for bad debts expense.After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of-receivables method,the company's management estimates that uncollectible accounts will be $15,000.What will be the balance of the Allowance for Bad Debts reported on the balance sheet?
A)$15,000
B)$7000
C)$23,000
D)$13,500
Q3) Credit cards reduce the customer's bank account immediately but allow the customer to pay electronically instead of with currency or writing a check.
A)True
B)False
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Page 11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) Which of the following is TRUE when the estimate of an asset's useful life is changed?
A)The new estimate is ignored until the last year of the asset's life.
B)The depreciation expense in the prior years are restated.
C)Prior years' financial statements must be restated.
D)The asset's remaining depreciable book value will be spread over the asset's remaining life.
Q2) Depreciation means that the business sets aside cash to replace an asset when it is used up.
A)True
B)False
Q3) On January 1,2017 Hilldale Company had total assets of $365,000.During the year,the company purchased new machinery worth $83,000 and promised to pay the amount due after two years.Throughout the year,it earned revenue of $60,000 every month.Calculate the asset turnover ratio.
A)1.01 times
B)1.81 times
C)1.77 times
D)1.61 times
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Chapter 11: Current Liabilities and Payroll
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Q1) The matching principle requires businesses to record Warranty Expense when the warranty costs are incurred.
A)True
B)False
Q2) The journal entry for accrued interest on a note payable includes ________.
A)a debit to Interest Expense and credit to Cash
B)a debit to Interest Expense and credit to Interest Payable
C)a debit to Interest Payable and credit to Cash
D)a credit to Interest Expense and debit to Notes Payable
Q3) A contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this is not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.
A)True
B)False
Q4) Investors use the times-interest-earned ratio to evaluate a company's ability to pay interest expense.
A)True
B)False
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Chapter 12: Partnerships
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Sample
Questions
Q1) Harry,Tony,and Liza run a partnership firm.In the process of liquidation,the partnership sells non-cash assets,having a book value of $78,000,for $86,000.Which of the following is TRUE of the journal entries?
A)Cash will be credited by $8000.
B)Non-cash assets will be credited for $86,000.
C)Cash will be credited for $78,000.
D)Non-cash assets will be credited for $78,000.
Q2) When a partner withdraws his or her partnership interest for cash,the liabilities in the balance sheet remain unchanged.
A)True B)False
Q3) Admission of a new partner to a partnership,by purchasing an existing partner's interest,simply transfers capital from one partner's account to another. A)True B)False
Q4) Capital deficiency refers to a partnership's claim against a partner. A)True B)False
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Page 14
Chapter 13: Corporations
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Q1) Paid-in capital consists of ________.
A)amounts received from customers
B)amounts raised by issuing bonds or preferred stocks
C)earnings generated by the corporation
D)amounts received from stockholders in exchange for stock
Q2) Paid-in capital and retained earnings are internally generated equity.
A)True
B)False
Q3) Which of the following is TRUE of a stock split and a stock dividend?
A)A stock split will increase total stockholders' equity,but a stock dividend will not.
B)Neither a stock split nor a stock dividend will increase total stockholders' equity.
C)A stock dividend will increase total stockholders' equity,but a stock split will not.
D)A stock split will decrease retained earnings,but a stock dividend will not.
Q4) Higher start-up costs and expensive government regulations are disadvantages of corporations.
A)True
B)False
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15
Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2018,Westside Sales issued $16,000 in bonds for $19,800.These are eight-year bonds with a stated interest rate of 10% that pay semiannual interest.Westside Sales uses the straight-line method to amortize the bond premium.After the first interest payment on June 30,2018,what is the bond carrying amount? (Round your intermediate answers to the nearest dollar. )
A)$19,800
B)$19,562
C)$16,238
D)$16,000
Q2) On January 1,2018,Wonderland Sales issued $30,000 in bonds for $22,300.These are eight-year bonds with a stated interest rate of 12% and pay semiannual interest.Wonderland Sales uses the straight-line method to amortize the bond discount.What is the bond carrying amount after the first interest payment on June 30,2018? (Round your intermediate answers to the nearest dollar. )
A)$30,000
B)$18,931
C)$22,781
D)$26,631
Q3) When computing a bond's cash flow for interest,which interest rate is used? Why?
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Page 16
Chapter 15: Investments
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Q1) Sparklers Services,Inc.pays $1,350,000 to acquire 35% of voting stock of Global Investments,Inc.on March 5,2018.When this transaction is recorded,the ________.
A)total equity will increase
B)total assets will increase
C)total assets will decrease
D)total cash will decrease
Q2) Held-to-maturity debt investments are normally reported at ________.
A)current market value
B)average cost
C)amortized cost
D)historical cost
Q3) A(n)________ is an example of equity securities.
A)preferred stock
B)municipal bond
C)corporate bond
D)Treasury bill
Q4) Creditors invest in a company and hope to receive a return on their investment.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) Arkansas Company is preparing its statement of cash flows using the indirect method.Refer to the following information: 1.Repayments on Long-term Notes Payable $58,000
2)New borrowing on Long-term Notes Payable $19,000
Which of the following statements is correct?
A)Net cash used for financing activities is $(39,000).
B)Net cash used for investing activities will is $58,000.
C)Net cash provided by financing activities is $39,000.
D)Net cash provided by investing activities is $39,000.
Q2) Investors who want to know the amount of cash a company has available for new opportunities,such as expanding into a new sales region,should analyze the company's free cash flow.
A)True
B)False
Q3) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
Q4) The balance sheet shows why cash increased or decreased.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) To accurately determine the financial performance of a company,it is necessary to compare its performance from year to year,with a competing company,and with the same industry as a whole.
A)True
B)False
Q2) An annual report provides information about a company's financial condition.
A)True
B)False
Q3) Which of the following items is a measure of a company's ability to collect receivables?
A)inventory turnover ratio
B)current ratio
C)days' sales in receivables
D)account receivable balance
Q4) The asset turnover ratio is a way to evaluate how well a company can pay its short-term liabilities.
A)True
B)False
Q5) What is a common-size statement? Why are these statements useful?
Q6) What is an annual report? Briefly describe the key parts of the annual report.
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