Principles of Accounting Question Bank
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and practices of financial and managerial accounting. The course covers the accounting cycle, including recording, classifying, and summarizing business transactions, as well as the preparation and interpretation of financial statements. Students will learn about key topics such as assets, liabilities, equity, revenues, and expenses, and will gain an understanding of how accounting information is used in decision-making by internal and external stakeholders. Emphasis is placed on ethical accounting practices, the role of accounting standards, and the application of accounting principles in real-world business scenarios.
Recommended Textbook
Financial Accounting 13th Edition by Carl S. Warren
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17 Chapters
3045 Verified Questions
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Owner's withdrawals
A) increase expenses
B) decrease expenses
C) increase cash
D) decrease owner's equity
Answer: D
Q2) The excess of revenue over the expenses incurred in earning the revenue is called capital.
A)True
B)False
Answer: False
Q3) The objectivity concept requires that
A) business transactions must be consistent with the objectives of the entity
B) the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards
C) accounting principles must meet the objectives of the Security and Exchange Commission
D) amounts recorded in the financial statements must be based on independently verifiable evidence
Answer: D
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) A transaction that is recorded in the journal is called a journal entry.
A)True
B)False Answer: True
Q2) The normal balance of the drawing account is a debit.
A)True
B)False Answer: True
Q3) When an accounts payable account is paid in cash, the owner's equity in the business decreases.
A)True
B)False Answer: False
Q4) Expenses use up assets or consume services in the process of generating revenues.
A)True
B)False Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Explain the difference between accrual basis accounting and cash basis accounting. Answer: Accrual basis accounting reports revenues and expenses in the period in which the event happened regardless of when cash was received. Cash basis accounting reports revenues and expenses when cash is received or paid.
Q2) Which of the accounting steps in the accounting process below would be completed last?
A) preparing the adjusted trial balance
B) posting
C) preparing the financial statements
D) journalizing
Answer: C
Q3) A company realizes that the last two day's revenue for the month was billed but not recorded. The adjusting entry on December 31 is debit Accounts Receivable and credit Fees Earned.
A)True
B)False Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the statements below indicates that a company earned a net income for the period?
A) The sum of the credits exceeds the sum of the debits in the Balance Sheet columns on the work sheet.
B) The sum of the credits exceeds the sum of the debits in the Income Statement columns on the work sheet.
C) The sum of the debits exceeds the sum of the credits in the Income Statement columns on the work sheet.
D) Cash inflows exceeded cash outflows.
Q2) Accrued revenues are ordinarily listed on the balance sheet as current liabilities. A)True B)False
Q3) A post-closing trial balance should be prepared before the financial statements are prepared. A)True B)False
Q4) Explain how net income or loss is determined by using the work sheet.
Q5) Describe a classified balance sheet.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called a(n)
A) General ledger
B) Income Statement Ledger
C) Group Ledger
D) Subsidiary Ledger
Q2) Which of the following is always recorded in the general journal?
A) services rendered for cash
B) correction of error in billing client
C) purchases of equipment on account
D) purchases of equipment for cash
Q3) Each individual entry in the Revenue Journal is posted to
A) the Accounts Receivable controlling account
B) the accounts receivable subsidiary ledger
C) the Revenue controlling account
D) the accounts receivable subsidiary ledger and the controlling account
Q4) Closing journal entries are recorded in the general journal.
A)True
B)False
Q5) Define and describe an accounting system.
Page 7
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a
A) debit to Accounts Payable
B) debit to Merchandise Inventory
C) credit to Merchandise Inventory
D) credit to Sales
Q2) The term "inventory" can indicate
A) merchandise held for sale in the normal course of business
B) equipment used to manufacture products
C) supplies
D) any asset
Q3) If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75, processing the purchase order by the purchasing department costs $50, and the company receiving dock personnel cost $25, what is the total cost charged to the merchandise?
A) $3,825
B) $3,850
C) $3,875
D) $3,500
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Chapter 7: Inventories
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Sample Questions
Q1) In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold.
A)True
B)False
Q2) The two most widely used methods for determining the cost of inventory are
A) FIFO and LIFO
B) FIFO and average
C) LIFO and average
D) gross profit and average
Q3) A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are in the possession of the consignor.
A)True
B)False
Q4) Cost flow is in the reverse order in which costs were incurred when using A) weighted average
B) last-in, first-out
C) first-in, first-out
D) average cost
Q5) List three different security measures taken by stores to safeguard inventory.
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Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A business that requires all cash payments be made by check can use a petty cash system.
A)True
B)False
Q2) Roper Electronics received its bank statement for the month of August with an ending balance of $11,740.00. Roper determined that check #613 for $155.00 and check #601 for $420.00 were both outstanding. Also, a $6,900.00 deposit for August 30th was in transit as of the end of the month. Northern Regional Bank also collected a $5,000.00 notes receivable on August 1st that was issued March 1st at 12% annual interest. No interest revenue has been accrued on this note and Northern Regional Bank charged a $35.00 fee for the collection service.The bank statement reveals a bank service charge of $20.00. A customer check for $68.00 was returned with the bank statement marked "NSF". The ending balance of the Roper cash account is $12,938.00. Complete a bank/account reconciliation and prepare any necessary journal entries for the reconciliation.
Q3) Sarbanes-Oxley's purpose is to improve financial reporting.
A)True
B)False
Q4) Why would a bank require a company to maintain a compensating balance?
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Chapter 9: Receivables
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Sample Questions
Q1) Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.
A)True
B)False
Q2) If the maker of a note fails to pay the debt on the due date, the note is said to be dishonored.
A)True
B)False
Q3) The journal entry to record a note received from a customer to replace an account is
A) debit Notes Receivable; credit Accounts Receivable
B) debit Accounts Receivable; credit Notes Receivable
C) debit Cash; credit Notes Receivable
D) debit Notes Receivable; credit Notes Payable
Q4) The accounts receivables turnover ratio is computed by dividing total gross sales by the average net receivables during the year.
A)True
B)False
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11
Chapter 10: Fixed Assets and Intangible Assets
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Sample Questions
Q1) The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value.
A)True
B)False
Q2) On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.
A) Accumulated Depreciation Dr. $310,000
B) Loss on Disposal of Asset Dr. $260,000
C) Equipment Cr. $310,000
D) Gain on Disposal of Asset Cr. $50,000
Q3) Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."
Q4) Minerals removed from the earth are classified as intangible assets.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.
A)True
B)False
Q2) Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet as either a long-term or a current liability.
A)True
B)False
Q3) Vacation pay payable is reported on the balance sheet as a(n)
A) current liability or long-term liability, depending upon when the vacations will be taken by employees
B) current liability
C) expense
D) long-term liability
Q4) One of the more popular defined contribution plans is the 401k plan.
A)True
B)False
Q5) List five internal controls that relate directly to payroll.
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) An advantage of the partnership form of business is that each partner's potential loss is limited to that partner's investment in the partnership.
A)True
B)False
Q2) Pia and Ramona are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000. What is Ramona's capital balance after closing Income Summary to Capital?
A) $110,000
B) $146,000
C) $106,000
D) $150,000
Q3) Revenue per employee may be used to measure partnership (LLC) efficiency. A)True
B)False
Q4) If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency.
A)True
B)False
14
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Treasury stock should be reported in the financial statements of a corporation as a(n)
A) investment.
B) liability.
C) current asset.
D) deduction from stockholders's equity.
Q2) Which of the following is not classified as paid-in capital on the balance sheet?
A) common stock
B) common stock distributable
C) donated capital
D) treasury stock
Q3) The cost method of accounting for the purchase and sale of treasury stock is a commonly used method.
A)True
B)False
Q4) The issuance of common stock affects both paid-in capital and retained earnings.
A)True
B)False
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) A corporation often issues callable bonds to protect itself against significant declines in future interest rates.
A)True
B)False
Q2) When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was
A) $1,052,310
B) $1,154,387
C) $1,000,000
D) $ 720,495
Q3) When the maturities of a bond issue are spread over several dates, the bonds are called
A) serial bonds
B) bearer bonds
C) debenture bonds
D) term bonds
Q4) (a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000.
(b) Prepare the journal entry to issue $100,000 bonds which sold for $104,000.
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Temporary investments are recorded at their cost which would include broker's commissions.
A)True
B)False
Q2) Although marketable securities may be retained for several years, they continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.
A)True
B)False
Q3) Held to maturity securities
A) are reported at fair market value
B) include stocks as well as bonds
C) may be reported as current or noncurrent assets
D) all of the above
Q4) Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.
Q5) Comprehensive income does not affect net income or retained earnings.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Which one of the following below would not be classified as an operating activity?
A) interest expense
B) income taxes
C) payment of dividends
D) selling expenses
Q2) A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities
Q3) Which of the following would not be found in a Schedule of Noncash Investing and Financing Activities, reported at the end of a Statement of Cash Flows?
A) equipment acquired in exchange for a note payable
B) bonds payable exchanged for capital stock
C) purchase of treasury stock
D) capital stock issued to acquire fixed assets
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Corporate annual reports typically do not contain which of the following?
A) management discussion and analysis
B) SEC statement expressing an opinion
C) accompanying foot notes
D) auditor's report
Q2) An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
A) decrease
B) remain the same
C) either increase or decrease
D) increase
Q3) Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.
A)True
B)False
Q4) A financial statement showing each item on the statement as a percentage of one key item on the statement is called common-sized financial statements.
A)True
B)False
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