Introduction to Business Accounting Exam Preparation Guide
Course Introduction
Introduction to Business Accounting provides students with a foundational understanding of the principles, practices, and applications of accounting in the business environment. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, basic bookkeeping, internal controls, and the role of accounting in decision-making. Emphasis is placed on understanding how financial information is recorded, summarized, and reported to stakeholders. By the end of the course, students will develop practical skills in using accounting concepts and techniques to analyze and interpret business transactions, setting a strong groundwork for more advanced study in accounting and finance.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Q1) By definition,which of the following represents the owners of a company?
A)Employees
B)Customers
C)Shareholders
D)Creditors
Answer: C
Q2) The income statement shows whether or not a business can generate enough cash to pay its liabilities.
A)True
B)False
Answer: False
Q3) Which of the following is the CORRECT accounting equation?
A)Assets + Revenue = Liabilities + Expenses
B)Assets = Liabilities + Owners' equity
C)Assets + Revenue = Owners' equity
D)Assets + Liabilities = Owners' equity
Answer: B
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Page 3
Chapter 2: Recording Business Transactions
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Q1) Which of the following is NOT an example of a source document?
A)Bank deposit slip
B)Purchase invoice
C)Journal
D)Sales invoice
Answer: C
Q2) For Capital,the category of account and its normal balance are:
A)Assets and a debit balance.
B)Assets and a credit balance.
C)Liabilities and a credit balance.
D)Owners' equity and a credit balance.
Answer: D
Q3) In a typical chart of accounts,what information is provided along with the account name?
A)Dates of transactions
B)Account number
C)Account balance
D)Transaction amounts
Answer: B
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Page 4
Chapter 3: The Adjusting Process
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Q1) The financial statements should be prepared in this order: 1)income statement,2)balance sheet and 3)statement of changes in equity.
A)True
B)False
Answer: False
Q2) Smith owns manufacturing equipment that was bought for $11 760.It has an estimated useful life of seven years.Smith should record depreciation expense of $90 per month.
A)True
B)False
Answer: False
Q3) The end-of-period process starts with the:
A)balance sheet.
B)adjusted trial balance.
C)unadjusted trial balance.
D)income statement.
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Q1) 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
Q2) Which is NOT an example of a temporary account?
A)Electricity and gas expense
B)Service revenue
C)Wages expense
D)Accumulated depreciation
Q3) Under which of the following categories would Inventory appear?
A)Non-current assets
B)Non-current liabilities
C)Current assets
D)Current liabilities
Q4) As part of the closing process,revenues and expenses are closed to a temporary account called Profit (loss).
A)True
B)False
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Chapter 5: Retailing Operations
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Sample Questions
Q1) ABC Ltd has made credit sales of $2 200,including GST.ABC Ltd will credit sales revenue with:
A)$1 800
B)$2 200
C)$2 420
D)$2 000
Q2) The Inventory account balance is $50,000.An actual count of inventory reveals that actual inventory is $42,000.Which of the following would be included in the adjusting entry? (Assume a perpetual inventory system. )
A)a $8000 credit to Cost of sales
B)a $8000 credit to Inventory
C)a $42,000 credit to Inventory
D)a $50,000 debit to Cost of sales
Q3) Where do Inventory and Cost of sales appear?
A)On the balance sheet and income statement,respectively
B)On the income statement and cash flow statement,respectively
C)On the balance sheet and statement of changes in equity,respectively
D)On the statement of changes in equity and income statement,respectively
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Chapter 6: Retail Inventory
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Q1) The comparability principle states that a business should use the same accounting methods from period to period.
A)True
B)False
Q2) Which of the following requires that financial statements should report the LEAST favourable figures?
A)Relevance principle
B)Accounting conservatism
C)Comparability principle
D)Materiality concept
Q3) A new average cost is calculated after each purchase when a business is using which of the following methods?
A)First-in,first-out
B)Average cost
C)Specific unit cost
D)Last-in,first-out
Q4) Under last-in,first-out,the cost of sales is based on the oldest purchases.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Q1) Keeping accurate records of accounts receivable is an example of which feature of a good accounting information system?
A)favourable cost-benefit relationship
B)flexibility
C)control
D)compatibility
Q2) Posting the entries in the sales journal to the general ledger:
A)should be done on a daily basis.
B)should be done at the end of each month.
C)should be done only at the end of the accounting period.
D)should be done on a weekly basis.
Q3) Big Industries purchased products from Small Suppliers,paying $5 000 in cash and promising to pay the remaining $5 000 in 30 days.Assuming the use of special journals,this entry would be recorded by Big Industries in the:
A)purchases journal.
B)general journal.
C)cash payments journal.
D)Both A and C
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Chapter 8: Internal Control and Cash
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Q1) As part of the internal control over cash receipts by mail,the mailroom sends both the customer cheques and the remittance advices to the accounting department.
A)True
B)False
Q2) Keeping office supplies under lock and key is representative of:
A)promoting operations efficiency.
B)following company policies.
C)safeguarding assets.
D)ensuring accurate,reliable accounting records.
Q3) Cash in the bank is more liquid than a petty cash fund.
A)True
B)False
Q4) The bank statement reveals an EFT received from a customer that has not yet been recorded in the ledger.How would this information be included on the bank reconciliation?
A)An addition on the bank side
B)A deduction on the book side
C)A deduction on the bank side
D)An addition on the book side
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Chapter 9: Receivables
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Q1) A company uses the direct write-off method to account for bad debts.Bad debts expense will be estimated as a percentage of sales.
A)True
B)False
Q2) The acid-test ratio is also known as the quick ratio.
A)True
B)False
Q3) When a business accepts credit cards from customers in payment of sales,the business has to pay a fee to the credit card processor.
A)True
B)False
Q4) A company may collect its own receivables or alternatively hire a third-party collection agency to do this for a fee.
A)True
B)False
Q5) The ageing of accounts method is a balance sheet approach of estimating bad debts.
A)True
B)False
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Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Q1) Normal expenditures for repairs and maintenance should be capitalised.
A)True
B)False
Q2) When an asset is fully depreciated,no further depreciation expense is recorded.
A)True
B)False
Q3) A loss on the sale of an item of property,plant and equipment is recorded when the sale price exceeds the carrying amount.
A)True
B)False
Q4) A coal mine costs $1,008,000 and is estimated to hold 51,000 tonnes of coal.There is no residual value.10,000 tonnes are extracted and sold during the first year of operations.Calculate depletion per unit.
A)$19.76
B)$14.82
C)$9.88
D)$4.94
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Chapter 11: Current Liabilities and Payroll
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Q1) A $40,000,three-month,8% note payable was issued on 1 December 2017.What is the amount of accrued interest on 31 December 2017?
A)$267
B)$400
C)$428
D)$200
Q2) Unearned revenue is an obligation to provide goods or services to the customer.
A)True
B)False
Q3) Synergy Appliances sells dishwashers with a four year warranty.In 2016,sales revenue for dishwashers is $97,000.The company estimates warranty expense at 4.5% of revenues.What is the 2016 warranty expense?
A)$0
B)$3423.53
C)$1091.25
D)$4365
Q4) Payroll tax is paid by the employee and 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 January 2017,Zing Services issued $167,000 of six year debentures with a stated rate of 12%.The market rate at time of issue was 11%,so the debentures were issued with a premium and sold for $191,110.Zing uses the effective-interest method to amortise debentures premium.Half-yearly interest payments are made on 30 June and 31 December of each year.How much Interest expense will be recorded when the first interest payment is made? (Round to the nearest dollar. )
A)$10,020
B)$10,511
C)$11,467
D)$9185
Q2) The time value of money is related to which of the following concepts?
A)Money loses value over time as it is spent.
B)Money loses its purchasing power because of inflation.
C)Money earns interest over time and grows in value.
D)Money can buy extra time.
Q3) The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.
A)True
B)False
Page 14
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Chapter 13: Partnerships
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Q1) When a partner withdraws from a partnership at book value,the partner will take a distribution of assets in the value of his or her capital account balance.
A)True
B)False
Q2) When one person purchases the partnership interest of a partner,a new partnership agreement will have to be created.
A)True
B)False
Q3) When a partner withdraws from the partnership for a settlement that is less than his or her capital balance,the difference between the exiting partner's capital and the settlement amount is added to the capital of the remaining partners.
A)True
B)False
Q4) A partnership agreement includes all of the following EXCEPT the:
A)provisions for the issue of ordinary shares.
B)method of sharing profits and losses.
C)procedures for liquidating the partnership.
D)name and initial investment of each partner.
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Which of the following represents one of the basic rights of shareholders?
A)Shareholders may authorise a business contract on behalf of the company.
B)Shareholders can maintain their proportionate ownership if the company issues new shares.
C)Shareholders may sell their shares back to the company if they wish.
D)Shareholders may determine at what price the company issues shares.
Q2) Which of the following is the correct description of dividends in arrears,as it applies to cumulative preference shares?
A)The amount of dividends that will be paid in the coming year
B)The cumulative amount of dividends which were not paid in previous years
C)The amount of dividends that were paid late
D)The cumulative amount of dividends that were paid in previous years
Q3) Deferred tax can either be an asset or a liability.
A)True
B)False
Q4) Which of the following occurs when a previously declared dividend is paid?
A)Liabilities increase
B)Liabilities decrease
C)Assets increase
D)Equity increases
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Chapter 15: Companies: Capital Management and the Income
Statement
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Sample Questions
Q1) An appropriation guarantees that cash will be available either for a specific or general purpose in the future.
A)True
B)False
Q2) Gordon Company reported the following equity section on its current balance sheet.The ordinary share is currently selling for $12.50 per share. \[\begin{array} { | l | l | }
\hline \text { Prdinary share at } \$ 5 \text { per share, } 154,000 \text { shares issued } & \$ 770,000 \\
\hline \text { Paid-up capital } & 137,000 \\
\hline \text { Retained earnings } & 290,000 \\
\hline \text { Total shareholders' equity } & \$ 1,197,000 \\ \hline
\end{array}\] After a 2-for-1 stock split,what would be the number of issued shares?
A)308,000
B)137,000
C)274,000
D)291,000
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Chapter 16: The Cash Flow Statement
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Sample Questions
Q1) Free cash flow is equal to the cash flow from operating activities less cash payments:
A)for inventory purchases.
B)for planned investments and cash dividends.
C)to retire bonds.
D)for planned salary raises.
Q2) Which of the following sections from the cash flow statement includes activities that increase and decrease non-current assets?
A)The financing section
B)The investing section
C)The non-cash investing and financing section
D)The operating section
Q3) The cash flow from investing activities appears exactly the same whether the company uses the direct or the indirect method to prepare the cash flow statement.
A)True
B)False
Q4) Issuing preference shares to shareholders would be a financing activity.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) 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
Q2) The basic accounting concepts and principles:
A)explain the difference between managerial and financial accounting.
B)provide financial information about the reporting entity that is useful to existing and potential investors,lenders and other creditors in making decisions about providing resources to the entity.
C)are an important way in which management discharges its accountability to investors and other outside users.
D)provide a structure for helping us to judge whether specific rules and methods for calculating and reporting accounting information are consistent with each other.
Q3) 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 preparing an annual report,the earnings per share amount is generally shown on a company's income statement.
A)True
B)False
Q2) The dividend yield is used for which kind of evaluation?
A)The overall profitability of a company
B)Evaluating shares in a company from an investor's perspective
C)The ability of a company to pay its non-current liabilities
D)The ability of a company to pay its current liabilities
Q3) What kind of information does a company's rate of return on net sales provide?
A)How effectively a company collects cash on credit sales
B)What proportion of each dollar of sales revenue generates gross profit
C)The proportion of sales returns and allowances to gross sales revenue
D)What proportion of each dollar of sales revenue generates profit
Q4) The current ratio is used for which kind of evaluation?
A)The ability of a company to collect its receivables
B)The ability of a company to pay its current liabilities
C)Evaluating shares in a company from an investor's perspective
D)The overall profitability of a company
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