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The journal entry to record the purchase of supplies on account includes a debit to:


A) Supplies and a credit to Accounts Payable.
B) Supplies and a credit to Cash.
C) Supplies Expense and a credit to Accounts Payable.
D) Supplies Expense and a credit to Cash.

E) None of the above
F) B) and C)

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Fireside,Inc.uses accrual basis accounting.Its balance sheets reported Accounts Receivable of $12,000 at the end of its first year and $18,000 at the end of its second year.Its income statement reported Sales Revenue of $120,000 in its second year.What would Fireside's revenues have been if it had used cash basis accounting?


A) $120,000
B) $114,000
C) $126,000
D) $12,000

E) None of the above
F) B) and C)

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Sparkling Pools performed $2,400 of pool maintenance services during July;the customers had paid in advance for these services in June.The company performed $1,500 of pool maintenance services during July and collected payment from those customers in August.Also,during July,the company accepted an order to perform $750 of pool maintenance services in August;the customers will pay for these services in August.The company uses accrual basis accounting.The Service Revenue account should be credited for:


A) $2,400 in June,$1,500 in July,and $750 in August.
B) $2,400 in June,$0 in July,and $2,250 in August.
C) $0 in June,$2,400 in July,and $2,250 in August.
D) $0 in June,$3,900 in July,and $750 in August.

E) A) and B)
F) B) and D)

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During the month of February,Castle Co.wrote checks to employees totaling $38,450 for wages earned in February.Which of the following is the correct entry?


A) Debit Salaries and Wages Expense for $38,450 and credit Salaries and Wages Payable for $38,450.
B) Debit Cash for $38,450 and credit Salaries and Wages Expense for $38,450.
C) Debit Salaries and Wages Expense for $38,450 and credit Cash for $38,450.
D) Debit Cash for $38,450 and credit Salaries and Wages Payable for $38,450.

E) C) and D)
F) All of the above

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A decrease in operating expenses would have which of the following effects on a company's profit margin?


A) Net profit margin would decrease.
B) Net profit margin would increase.
C) Net profit margin would remain unchanged.
D) There is not enough information given to determine the effect.

E) All of the above
F) B) and C)

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What type of account is Accounts Receivable?


A) Asset
B) Liability
C) Expense
D) Revenue

E) B) and C)
F) All of the above

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Match the term and the definition.There are more definitions than terms. -Expense


A) To reduce the recorded value of an asset to better reflect its true market value.
B) Any outlay of money by a company for any purpose.
C) Total revenue minus total expenses.
D) The concept that revenue should be recorded when earned,not necessarily when payment is received.
E) The increase in value of financial assets held by a company.
F) The practice of dividing the life of the business into months and years.
G) The concept that a company should record revenue during the same period as expenses.
H) The concept that revenue and expenses should be recorded at the time received or paid.
I) Payments received for goods that have not yet been delivered or services that have not yet been performed.
J) Revenues should be recorded when they are earned and expenses when they are incurred.
K) Any use or sacrifice of a company's resources to generate revenue.

L) G) and H)
M) G) and I)

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Match the term and the explanation.There are more definitions than terms. -Unadjusted Trial Balance


A) The concept that expenses should be reported at the same time as the related revenue.
B) Reported when a company sells goods or services in the ordinary course of business for more than it costs to produce.
C) A company's policy on when to report revenue in the financial statements.
D) A ratio that indicates the percent of each revenue dollar that is left over after covering costs and expenses.
E) Reporting expenses and revenue according to the time the underlying activities occur.
F) A liability account indicating customers have already paid for services not yet rendered.
G) The principle that changes in assets must be matched by changes in liabilities and equity.
H) An indication that a company has already paid a cost not yet incurred.
I) A list of account balances when the accounts do not yet include all revenues and expenses.
J) Also known as net assets,this is the value of assets minus liabilities.
K) Reporting expenses and revenues according to the time the money is paid or received.

L) A) and C)
M) None of the above

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The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting.  Advertising Revenue 46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Deferred Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326\begin{array}{lr}\text { Advertising Revenue } & 46,482 \\\text { Cash } & 41,516 \\\text { Accounts Receivable } & 7,296 \\\text { Interest Expense } & 2,299 \\\text { Accounts Payable } & 5,000 \\\text { Operating Expenses } & 37,460 \\\text { Deferred Revenue } & 1,178 \\\text { Equipment } & 18,048 \\\text { Income Tax Expense } & 2,326\end{array} The following activities occurred in 2019: 1.Performed advertising services on account,$55,000. 2.Received cash payments on account,$10,400. 3.Received deposits from customers for advertising services to be performed in 2020,$2,500. 4.Made payments to suppliers on account,$5,000. 5.Incurred $45,000 of operating expenses;$39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. What is the balance of Accounts Receivable at December 31,2019?


A) $51,896.
B) $55,000.
C) $44,600.
D) $54,396.

E) A) and B)
F) B) and C)

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During March,Seconds Best Company had cash sales of $35,000 and sales on account of $210,000.In April,payments on account totaled $175,000. The journal entry prepared by Seconds Best to record the March sales would include a debit to:


A) Cash for $35,000,debit to Accounts Receivable for $210,000,and credit to Sales Revenue for $245,000.
B) Cash for $35,000,debit to Deferred Revenue for $210,000,and credit to Sales Revenue for $245,000.
C) Cash for $35,000,debit to Accounts Payable for $210,000,and credit to Sales Revenue for $245,000.
D) Cash and credit to Sales Revenue for $35,000.

E) A) and B)
F) A) and D)

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Which of the following statements about cash basis accounting and accrual basis accounting is correct?


A) Using the accrual basis of accounting,if payment is received before delivery of goods or a service,revenue is recorded at the time the payment is received.
B) Using the accrual basis of accounting,if payment is received after delivery of goods or a service,an asset is recorded at the time the good or service was delivered.
C) Using the cash basis of accounting,if payment is received before delivery of goods or a service,net income is affected when goods or services are delivered.
D) Using the cash basis,if payment is received after delivery of goods or a service,deferred revenue is recorded.

E) All of the above
F) A) and B)

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A company had the following assets and liabilities at the beginning and end of the current year:  Assets  Liabilities  Beginning of year $428,000$176,000 End of the year 490,000150,000\begin{array}{lrr} & \text { Assets } & \text { Liabilities } \\\text { Beginning of year } & \$ 428,000 & \$ 176,000 \\\text { End of the year } & 490,000 & 150,000\end{array} Common stock in the amount of $30,000 was issued and dividends of $10,000 were paid during the year.What is the amount of net income for the year?


A) $88,000.
B) $68,000.
C) $48,000.
D) $108,000.

E) None of the above
F) C) and D)

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The ending balance of Accounts Receivable in the ledger is calculated by adding the:


A) debits and subtracting the credits recorded during the period to the beginning debit balance to arrive at the ending debit balance.
B) debits and subtracting the credits recorded during the period to the beginning credit balance to arrive at the ending credit balance.
C) credits and subtracting the debits recorded during the period to the beginning credit balance to arrive at the ending credit balance.
D) credits and subtracting the debits recorded during the period to the beginning debit balance to arrive at the ending debit balance.

E) A) and D)
F) B) and C)

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A company has sales revenues of $260,000 and expenses of $65,000.What is its net profit margin?


A) 4
B) 25%
C) 75%
D) $195,000

E) C) and D)
F) None of the above

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When employees work for a company in June but are not paid until July,the June financial statements will include ________ on the:


A) Salaries and Wages Payable;balance sheet
B) Prepaid Salaries and Wages;income statement
C) Salaries and Wages Payable;income statement
D) Prepaid Salaries and Wages;balance sheet

E) All of the above
F) A) and D)

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Your company orders and receives supplies in January,pays for them in February,provides services to customers that use those supplies in March,and is paid by its customers for the services in April.Using the accrual basis of accounting:


A) expenses are recorded in February and revenues are recorded in April.
B) expenses are recorded in February and revenues are recorded in March.
C) expenses and revenues are recorded in March.
D) expenses are recorded in January and revenues are recorded in April.

E) C) and D)
F) A) and D)

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If a company receives payment two months after it provides a service:


A) only one journal entry will be needed.
B) cash will be credited.
C) a revenue account will be increased with a debit.
D) stockholders' equity will increase.

E) All of the above
F) B) and D)

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Which of the following statements about cash basis accounting and accrual basis accounting is correct?


A) Net income is always larger under accrual basis accounting than cash basis accounting.
B) GAAP does not require the use of accrual basis accounting for external reporting.
C) Accrual basis accounting and cash basis accounting will always produce the same amount of net income.
D) Accrual basis accounting provides a better measure of operating performance than cash basis accounting.

E) All of the above
F) B) and D)

Correct Answer

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The following account balances are taken from the December 31,2018,financial statements of ABZ Advertising Company.The company uses accrual basis accounting.  Advertising Revenue 46,482 Cash 41,516 Accounts Receivable 7,296 Interest Expense 2,299 Accounts Payable 5,000 Operating Expenses 37,460 Deferred Revenue 1,178 Equipment 18,048 Income Tax Expense 2,326\begin{array}{lr}\text { Advertising Revenue } & 46,482 \\\text { Cash } & 41,516 \\\text { Accounts Receivable } & 7,296 \\\text { Interest Expense } & 2,299 \\\text { Accounts Payable } & 5,000 \\\text { Operating Expenses } & 37,460 \\\text { Deferred Revenue } & 1,178 \\\text { Equipment } & 18,048 \\\text { Income Tax Expense } & 2,326\end{array} The following activities occurred in 2019: 1.Performed advertising services on account,$55,000. 2.Received cash payments on account,$10,400. 3.Received deposits from customers for advertising services to be performed in 2020,$2,500. 4.Made payments to suppliers on account,$5,000. 5.Incurred $45,000 of operating expenses;$39,000 was paid in cash and $6,000 was on account and unpaid as of the end of the year. Which of the following is the journal entry that will be used to record activity #1?


A) Debit Advertising Revenue and credit Accounts Receivable for $55,000.
B) Debit Accounts Receivable and credit Cash for $55,000.
C) Debit Accounts Receivable and credit Advertising Revenue for $55,000.
D) Debit Cash and credit Advertising Revenue for $55,000.

E) All of the above
F) C) and D)

Correct Answer

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If the total of debits equals the total of credits on the trial balance,the accounting records may still contain errors.

A) True
B) False

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