Course Introduction
Principles of Accounting
Pre-Test Questions
Principles of Accounting introduces students to the foundational concepts and practices essential for recording, analyzing, and interpreting financial information. The course covers topics such as the accounting cycle, preparation of financial statements, the use of ledgers and journals, basic accounting principles, and the role of ethics in the profession. Students will gain practical skills in understanding how businesses track income and expenses, manage assets and liabilities, and use accounting data to make informed business decisions. This course serves as a critical stepping stone for further studies in accounting, finance, or business administration.
Recommended Textbook College Accounting A Practical Approach 12th Canadian Edition by Jeffrey Slater
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Page 2
Chapter 1: Accounting Concepts and Procedures
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Q1) The left side of the accounting equation must always equal the right side of the equation.
A)True
B)False
Answer: True
Q2) Cash withdrawals by the owner increase both equity and assets.
A)True
B)False
Answer: False
Q3) Withdrawals are business expenses that are included on the balance sheet.
A)True
B)False
Answer: False
Q4) Legal services were provided to a credit customer. How would this affect the accounting equation?
A)Cash and Accounts Receivable increase.
B)Accounts Payable and Capital increase.
C)Accounts Receivable and Revenue increase.
D)None of the above are correct.
Answer: C
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Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Q1) The trial balance is a financial statement.
A)True
B)False
Answer: False
Q2) The beginning balance in the Computers account was $2,000. The company purchased an additional $1000 worth of computers. The balance in the account is:
A)debit of $2,000.
B)credit of $3,000.
C)debit of $3,000.
D)credit of $2,000.
Answer: C
Q3) A list of all the accounts from the ledger with their ending balances is called a:
A)normal balance.
B)trial balance.
C)chart of accounts.
D)footing.
Answer: B
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Page 4
Chapter 3: Beginning the Accounting Cycle
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Q1) The journal entry to record a withdrawal by the owner would most commonly include:
A)a debit to Wage Expense and a credit to Cash.
B)a debit to Capital and a credit to Cash.
C)a debit to Withdrawals and a credit to Cash.
D)a debit to Cash and a credit to Wage Expense.
Answer: C
Q2) A credit to an asset account was posted to an expense account. This would cause:
A)assets to be overstated.
B)liabilities to be understated.
C)capital to be understated.
D)expenses to be overstated.
Answer: A
Q3) If you debit Prepaid Insurance, you most likely will:
A)credit Fees Earned.
B)debit Cash.
C)credit Insurance Expense.
D)credit Cash.
Answer: D
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Page 5
Chapter 4: The Accounting Cycle Continued
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Q1) An important function of the worksheet is for the accountant to find and correct errors before the financial statements are prepared.
A)True
B)False
Q2) Adjusting entries affect:
A)the balance sheet.
B)the income statement.
C)Neither of these answers is correct.
D)Both A and B are correct.
Q3) Accumulated Depreciation is found on which of the following financial statements?
A)Balance sheet
B)Income statement
C)Statement of Owner's Equity
D)All of these answers are correct.
Q4) Original cost of equipment is not adjusted on the worksheet.
A)True
B)False
Q5) What are the differences between depreciation expense and accumulated depreciation?
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Chapter 5: The Accounting Cycle Completed
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Q1) The final step in the accounting cycle is:
A)preparing the post-closing trial balance.
B)preparing the financial statements.
C)journalizing the closing entries.
D)journalizing the adjusting entries.
Q2) All permanent accounts can be found:
A)on the Income Statement.
B)on the Statement of Owner's Equity.
C)on the Balance Sheet.
D)Permanent accounts do not appear on the financial statements.
Q3) The entry to close the Withdrawal account was entered in reverse-the Withdrawal account was debited and Capital credited. The result of this error is that:
A)before closing it, Income Summary will have a credit balance.
B)before closing it, Income Summary will have a debit balance.
C)the end of period capital will be understated.
D)the end of period capital will be overstated.
Q4) A real account is the same as a permanent account.
A)True
B)False
Q5) What are the major goals of the closing process?
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Chapter 6: Banking Procedure and Control of Cash
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Q1) If a check marked NSF is returned from the bank, an adjusting entry crediting cash is needed.
A)True
B)False
Q2) What type of an account is the petty cash fund?
A)Revenue
B)Expense
C)Asset
D)Liability
Q3) The check is written and signed by the:
A)drawer.
B)drawee.
C)payee.
D)payer.
Q4) The credit recorded in the journal entry to establish the petty cash fund is to: A)Cash.
B)Petty Cash.
C)Postage Expense.
D)Withdrawals.
Q5) ________ Owner withdrew money from the company for personal use
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Q1) FICA taxes provide funding to the government to pay:
A)monthly retirement benefits for persons over age 62.
B)medical benefits for persons over age 65.
C)benefits for person who have become disabled.
D)All of the above are correct.
Q2) Which of the following taxes has a maximum amount an employee must pay in a year?
A)Federal income tax
B)FICA-Medicare tax
C)FICA-OASDI tax
D)State Income tax
Q3) Todd earns an hourly rate of $20 and had taxes withheld totaling $200. What would his net earnings be if he worked 44 hours (assuming double time over 40 hours)?
A)$760
B)$780
C)$720
D)$860
Q4) The employees collectively earn a gross wage of $90,000 for the pay period. But the employer says that they cost $97,000. Discuss the discrepancy.
Page 9
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Chapter 8: Paying, Recording, and Reporting Payroll and Payroll Taxes: the Conclusion of the Payroll Process
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Q1) The W-3 is also known as the Transmittal of Income and Tax Statement.
A)True
B)False
Q2) Premiums for worker's compensation insurance may be adjusted based on actual payroll amounts at the end of the year.
A)True
B)False
Q3) Compute the employees' FICA-OASDI. ________
Q4) Compute the total federal income tax. ________
Q5) Compute the total regular earnings. ________
Q6) Form SS-4 is:
A)completed to obtain an EIN.
B)submitted to summarize the W-2 forms to the Social Security Administration.
C)submitted quarterly to pay FIT and FICA taxes.
D)submitted annually to pay unemployment taxes.
Q7) Wages and Salaries Expense is:
A)equal to net pay.
B)equal to gross pay.
C)equal to the employer's taxes.
D)None of the above are correct. Page 10
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Chapter 9: Sales and Cash Receipts
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Q1) Sold Merchandise for Cash subject to a sales tax accepting cash. This will be recorded with:
A)a credit to an asset account.
B)a debit to a liability account.
C)a debit to Capital.
D)None of these are correct.
Q2) When using a subsidiary ledger, the Accounts Receivable account in the general ledger is called the:
A)master account.
B)subsidiary account.
C)receivable account.
D)controlling account.
Q3) Credit terms of 1/10, n/30 mean that:
A)1% discount is allowed if the bill is paid within between 10 and 30 days.
B)a 1% discount is allowed if the bill is paid within 30 days.
C)a 1% discount is allowed if the bill is paid after 10 days.
D)a 1% discount is allowed if the customer pays the bill within 10 days, or the entre amount is due within 30 days.
Q4) Compare and discuss a discount period versus a credit period.
Q5) Explain how the record keeping differs between a cash sale and a credit sale.
Page 12
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Chapter 10: Purchases and Cash Payments
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Q1) Clothes' R Us bought some new clothes for its fashion line and is required to pay the freight costs. The freight terms are:
A)F.O.B. destination.
B)F.O.B. shipping point.
C)3/10, n/30.
D)None of these are correct.
Q2) When using a perpetual inventory method, what account(s)must be updated when a sale is recognized?
A)Cost of Goods Sold
B)Supplies
C)Merchandise Inventory
D)Both A and C are correct.
Q3) An invoice approval form is used by accounting to check the invoice before approving it for payment.
A)True
B)False
Q4) Payment for merchandise should not be made until approval is given.
A)True
B)False
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Q1) Under the accrual system, expenses are recorded when incurred.
A)True
B)False
Q2) If $6,000 was the beginning inventory, purchases were $10,000 and sales were $7,000. How much was ending inventory last accounting period?
A)$9,000
B)$6,000
C)$0
D)$3,000
Q3) Interest Expense is:
A)a cost of borrowing money.
B)included in the "Other Expenses" on the income statement.
C)has a normal debit balance.
D)All of the above are correct.
Q4) On the worksheet the beginning Merchandise Inventory account appears in:
A)the adjustment column.
B)the trial balance and the balance sheet columns.
C)the trial balance and adjustment columns.
D)All of these answers are correct.
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Q5) Discuss the reasons a company would consider using a periodic inventory system.
Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Q1) Net Sales are:
A)Gross Sales + Sales Discounts + Sales Returns and Allowances.
B)Gross Sales - Sales Discounts - Sales Returns and Allowances.
C)Revenue - Sales Discounts + Sales Returns and Allowances.
D)Gross Sales + Sales Discounts - Sales Returns and Allowances.
Q2) Which of the following accounts will appear on the post-closing trial balance?
A)Capital
B)Purchases
C)Sales
D)Withdrawals
Q3) A company paid next month's rent in advance. This would be classified as a(n):
A)current asset.
B)Expense.
C)Revenue.
D)current liability.
Q4) In which section does Interest Revenue appear in the Income Statement?
A)Other Income
B)Other Expense
C)Selling Expenses
D)Administrative Expenses
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Chapter 13: Accounting for Bad Debts
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Q1) A detailed analysis of Accounts Receivable to determine how long each account has been outstanding is called:
A)analyzing the Accounts Receivable.
B)aging the uncollectible accounts.
C)aging the Accounts Receivable.
D)taking a percentage of sales on account.
Q2) Using the balance sheet approach, the balance in Allowance for Doubtful Accounts is taken into consideration when finding the adjustment.
A)True
B)False
Q3) Collected from a customer previously written off under the direct write off method. Debit account ________ Credit account ________
Q4) The Allowance for Doubtful accounts is shown on the income statement. A)True
B)False
Q5) The normal balance of the Bad Debts Expense account is a debit. A)True B)False
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Chapter 14: Notes Receivable and Notes Payable
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Q1) Steadman's Computer endorses a customer's note dated June 17 to the bank on August The interest rate on the note is 10%, and the bank discount rate is 12%. The note matures on September 6. The discount period is:
A)21 days.
B)60 days.
C)81 days.
D)0 days.
Q2) The discount period on a discounted note is:
A)the same as the original period of the note.
B)the time between the original date and the discount date.
C)the time between the discount date and the maturity date.
D)the original note period minus 10 days.
Q3) A $6,500, 12% note dated April 23 for 88 days was discounted on June 2 at 14%. The amount of the discount (using a 360-day year)is:
A)$780.00.
B)$190.67.
C)$124.89.
D)$115.56.
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Chapter 15: Accounting for Merchandise Inventory
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Q1) In a perpetual inventory system, Cost of Goods Sold is an account in the general ledger.
A)True
B)False
Q2) Inventory purchases are entered in the Merchandise Inventory account at the expected sales price amount.
A)True
B)False
Q3) The specific identification method is a compromise between LIFO and FIFO.
A)True
B)False
Q4) When a perpetual inventory system is used, a physical inventory should be taken at least annually.
A)True
B)False
Q5) If the ending inventory is overstated in period 1:
A)beginning inventory in period 2 is overstated.
B)goods available for sale in period 2 are overstated.
C)cost of goods sold in period 2 is overstated.
D)All of these answers are correct.
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Chapter 16: Accounting for Property, Plant, Equipment, and Intangible Assets
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Q1) All of the following are intangible assets except:
A)patents.
B)copyrights.
C)franchises.
D)accounts receivable.
Q2) Assembly costs, and any other costs necessary to get a machine ready for operation, except for freight costs, would be added to the cost of the machine.
A)True
B)False
Q3) In the last year of useful life, the salvage value was ignored using double-declining-balance depreciation. This error would cause:
A)the period's depreciation expense to be overstated.
B)the period's depreciation expense to be understated.
C)the period end assets to be overstated.
D)None of these are correct.
Q4) Accumulated depletion should be reported as a(an)________ on the income statement.
Q5) Define and compare capital expenditures and revenue expenditures.
Q6) A budgeted item such as a building is listed as a ________.
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Chapter 17: Partnership
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Q1) If the retiring partner's interest is sold to one of the remaining partners, the retiring partner's equity is merely transferred to the other partner.
A)True
B)False
Q2) Partners are required to report their share of earnings on their personal tax return.
A)True
B)False
Q3) Using its book value, Partner C invested equipment which had been valued over the past year using straight-line when declining balance was appropriate. This error would cause:
A)future period's net income to be understated.
B)future period's net income to be overstated.
C)this period end assets to be understated.
D)None of these are correct.
Q4) A partnership is defined by the Uniform Partnership Act.
A)True
B)False
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Chapter 18: Corporations: Organizations and Stock
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Q1) The sale of common stock above par was recorded by crediting Common Stock for the total amount. This error would cause:
A)the period end stockholders' equity to be overstated.
B)the period end stockholders' equity to be understated.
C)the period's net income to be understated.
D)None of these are correct.
Q2) ABC sells 400 shares of its $23 par common stock for $27. The entry would entail a credit(s)of:
A)Cash of $9,200.
B)Paid-in Capital in Excess of Par-Common for $800; Common Stock for $10,800.
C)Paid-in Capital in Excess of Par-Common for $1,600; Common Stock for $9,200.
D)Common Stock for $10,800.
Q3) Number of preferred shares times par value times dividend rate is the formula used to determine dividends to be paid.
A)True
B)False
Q4) A corporation shares its profits with stockholders in the form of dividends.
A)True
B)False
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Chapter 19: Corporations: Stock Values, Dividends, Treasury
Stocks, and Retained Earnings
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Q1) ABC Corporation offered a four-for-one stock split. The number of outstanding shares before the split was 15,000 and the par value was $20 per share. After the split, what was the par value and number of shares?
A)3,750 shares and $80 per share
B)60,000 shares and $80 per share
C)60,000 shares and $5 per share
D)3,750 shares and $5 per share
Q2) Farm and Supply reissued 100 shares of treasury stock at $20 that had been reacquired for $15 per share. What is the entry?
A)Debit Cash $2,000; credit Treasury Stock-Common $1,500, Paid-In Capital from Treasury Stock $500
B)Debit Cash $2,000; credit Treasury Stock-Common $2,000
C)Debit Cash $1,500; Paid-In Capital from Treasury Stock $500, credit Treasury Stock-Common $2,000
D)None of these answers are correct.
Q3) A prior period adjustment is corrected to the ending balance of Retained Earnings. A)True B)False
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Chapter 20: Corporations and Bonds Payable
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Q1) On October 1, Allan Company issued 8%, 10-year, $300,000 bonds at 105. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:
A)$0.
B)$24,000.
C)$12,000.
D)$6,000.
Q2) The information on the bond certificate written by the corporation in a formal agreement is called:
A)a bond contract.
B)a bondholder's agreement.
C)a bond indenture.
D)a bond quote.
Q3) When making the adjustment for accrued interest, the Bond Premium account was not taken into account. This error would cause:
A)the period end assets to be overstated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of the above are correct.
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Chapter 21: Statement of Cash Flows
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Q1) Of the following, which has a positive effect on the computation of cash flow from operations using the indirect method?
A)Increase in Inventory
B)Decrease in Accounts Payable
C)Increase in Accounts Receivable
D)Decrease in Prepaid Insurance
Q2) Which of the following, under the indirect method, is not a proper adjustment to net income to arrive at cash flow from operations?
A)Adding a decrease in inventory
B)Adding an increase in salaries payable
C)Deducting a increase in prepaid expense
D)All are proper adjustments to net income.
Q3) Under the direct method, each line of the income statement is converted to cash paid or received.
A)True
B)False
Q4) Financing activities include transactions with owners and creditors.
A)True
B)False
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Chapter 22: Analyzing Financial Statements
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Q1) Comparative reports in which each item is expressed as a percentage of a base amount without dollar amounts are called:
A)comparative financial statements.
B)common-size statements.
C)cash flow analysis.
D)horizontal analysis.
Q2) The lower the times interest earned ratio, the more likely:
A)a default in payment will occur.
B)a business needs to borrow money.
C)a business will suffer a loss.
D)interest payments can be made.
Q3) Asset management ratios measure:
A)a company's ability to earn a profit.
B)a company's ability to meet short-term obligations.
C)how well a company is using debt versus equity.
D)how effectively a company is using its assets.
Q4) The acid test ratio is usually higher than the current ratio.
A)True
B)False
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Chapter 23: The Voucher System
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Q1) In a voucher system, the controlling account in the general ledger is:
A)Cash.
B)Accounts Payable.
C)Accounts Receivable.
D)Vouchers Payable.
Q2) On June 2, Sandoval Corporation purchased $7,000 of merchandise from Johnston Company, terms 2/10, n/30 and prepared voucher #402. Sandoval returned $400 of the supplies on June 8, because of poor quality. Sandoval cancelled voucher #402 and replaced it with #415.
Required: Prepare journal entries to record the above transactions. Assume Sandoval uses the net approach method for recording purchases. Omit explanations.
Q3) The check register would contain a column for all except:
A)the payee name.
B)a debit to Vouchers Payable.
C)a credit to Cash.
D)All of the above would be included in columns.
Q4) The voucher system is a form of internal control.
A)True
B)False
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Chapter 24: Departmental Accounting
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Q1) What is the total gross profit of the company if there are three departments (A, B, and C)and the net sales are $200,000, $164,000, and $286,000, respectively, and cost of goods sold is $86,000, $92,000, and $82,000, respectively?
A)$390,000
B)$650,000
C)$400,000
D)$260,000
Q2) To determine how each profit center is performing, management would analyze the: A)income tax rate.
B)indirect expenses.
C)gross profit for each profit center.
D)other expenses.
Q3) On a departmental income statement, contribution margin minus total indirect expenses equals:
A)departmental contribution margin.
B)net income.
C)income before taxes.
D)income taxes.
Q4) Explain the difference between a "cost center" and a "profit center."
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Chapter 25: Manufacturing Accounting
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Q1) Manufacturing cost includes:
A)raw material.
B)direct labor.
C)manufacturing overhead.
D)All of these answers are correct.
Q2) Finished Goods is debited when products are sold and credited when the products are transferred from Work-in-Process.
A)True
B)False
Q3) Charged direct labor to production.
Q4) The work-in-process beginning inventory was overstated. This error will cause:
A)the cost of goods manufactured to be understated.
B)the cost of goods sold to be overstated.
C)the net income to be overstated.
D)Answers B and C are correct.
Q5) Describe the three elements of manufacturing cost.
Q6) Sold products on account.
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