ACCOUNTING False

A deferral is the recognition of an expense that has

False True
As equipment is depreciated, its book value increases When there is no direct connection between revenues
and it accumulated depreciation increases. and costs, the costs are systematically allocated
among the periods benefited.
True
An adjusting entry includes at least one balance sheet False
account and at least one income statement account. Revenue results from collection of accounts
receivable.
False
All decreases in owner's equity are a result of True
expenses. Revenue cannot be recognized unless delivery of
goods has occurred or services have been rendered.
True
Accounting periods should be of equal length to True
facilitate comparisons between periods. Adjusting entries are useful in apportioning costs
among two or more accounting periods.
True
Failure to record the adjusting entry for depreciation True
will overstate assets on the balance sheet. Recording incurred but unpaid expenses is an
example of an accrual.
False
In recording the adjusting entry for accrued salaries, False
all the accounts involved are decreased. Revenue is equal to the cash received by a company
during an accounting period.
False
The owner's personal withdrawals for the year cause False
a decrease in profit. A company's fiscal year must correspond to the
calendar year.
True
The expiration of usefulness of equipment during an False
accounting period is called depreciation. If all transactions were originally recorded in
conformity with GAAP, there would be no need for
False adjusting entries at the end of the period.
Acquiring a computer for cash is just exchanging one
asset for another and will not result in an expense True
even in the future periods. The adjustment to record depreciation of property and
equipment consists of a debit to depreciation expense
True and a credit to accumulated depreciation.
Applying accrual accounting results in a more
accurate measurement of profit for the period than True
does the cash basis of accounting. When services are not paid for until after they have
been performed, the accrued expense is recorded by
True an adjusting entry at the end of the accounting period.
Not all increases to cash represent revenues.
True
False The adjusting entry to recognize earned commission
Adjusting entries affect cash flows in the current revenues not previously recorded or billed will cause
period. total assets to increase.

False False
Accrual accounting recognizes revenues and When the reduction in prepaid expenses is not
expenses at the point that cash changes hands. properly recorded, this causes the asset accounts and
expense accounts to be understated.
True True
Accumulated depreciation accounts may be referred The adjusting entry to recognize earned revenues
to as contra-asset accounts. which was received in advance will cause total
liabilities to decrease.
True
Accounts that are partly income statement amounts True
and partly balance sheet amounts are called mixed The balance sheet is also known as the statement of
accounts. financial position.

False True
An asset's book value represents the true market Financial position may be assessed by referring to a
value of the asset. balance sheet.

True False
Of the adjustment for accrued salaries is omitted, The heading for an income statement might include
liabilities and expenses will be understated. the line "As at December 31, 2015."

False True
A decrease in an expense account is the equivalent of The statement of changes in equity relates the income
a decrease in owner's equity. statement to the balance sheet by showing how the
owner's Capital account changed during the
False accounting period.
The adjusting entry to allocate part of the cost of a
one-year fire insurance policy to expense will cause True
total assets to increase. The statement of changes in equity discloses the
withdrawals during the period.
True
Every adjusting entry must change both an income False
statement account and a balance sheet account. The purchase of equipment is an example of a
financing activity.
False
The adjusting entry to recognize an expense which is True
unrecorded and unpaid will cause total assets to Financial statements cannot be prepared correctly
increase. until all the accounts have been adjusted.

True False
Failure to record the adjusting entry for depreciation Total assets, total liabilities and owner's equity on the
results in assets and owner's equity being overstated balance sheet are the same as the totals of the
on the balance sheet. Balance Sheet columns on the worksheet.

False False
A fiscal period must begin on January 1. The worksheet is prepared after the formal adjusting
and closing entries.
True
In recording the adjusting entries for depreciation, False
both accounts involved are increased. Paying taxes to the government is an example of
financing activity.
True
The amount of accrued revenues is recorded by False
debiting an asset account and crediting an income When the balance sheet columns of the worksheet
account. are initially footed they should be in balance.

False True
Accrued revenue is a term used to describe revenue The balances of the Accumulated Depreciation
that has been received but not yet earned. accounts will appear on the credit side of the
worksheet's Balance Sheet columns.
True
Book value is the original cost of a building less False
depreciation for the year.
On a worksheet, the balance of the owner's Capital False
account is its ending amount for the period. The account commissions Earned would appear on
the balance sheet.
True
Working papers provide a written record of the work False
performed by the accountant or auditor. The Wages Payable would appear on the Income
Statement.
True
The worksheet is a type of accountant's working False
paper. A worksheet is more useful for a small entity than for
a large one.
False
The amount placed opposite the owner's Capital in True
the balance sheet columns of the worksheet is the When the freight term is "FOB Destination, Freight
amount to be reflected for owner's Capital on the Collect," it means the seller shoulders the freight but
balance sheet the buyer pays it.

True False
The purchase of land is an example of an investing When "143" is written as "134," there is a sliding error.
activity.
False
True A trade discount is a cash discount.
The amount of owner's withdrawals can be found on
the worksheet. False
The matching principle provides guidance in
False accounting for the recognition of assets.
The balance sheet may be prepared by referring
solely to the Balance Sheet columns of the worksheet. False
Allowance for bad debts is considered as contra asset
False account, presented on the liability portion.
The worksheet should be prepared after the formal
financial statements have been prepared. False
All decreases in owner's equity are a result of
False expenses.
The amount for the owner's withdrawals will appear in
the income statement columns of the worksheet. False
Sales return and allowances is an expense account.
True
Buying and producing goods and services are False
examples of operating activities. Primary users of the accounting information are
accountant and auditors.
True
The statement of cash flows discloses significant True
events related to the operating , investing, and Pabebe Company bought a building that cost
financing activities of a business. ₱200,000, has accumulated depreciation of ₱20,000.
The book value of the building is ₱180,000.
True
The Adjusted Trial Balance columns of the worksheet False
are prepared by combining the Trial Balance and In a worksheet, a net lost is shown in the income
Adjustments columns of the worksheet. statement column only.

True False
An important use of the worksheet is as an aid in the Concepts underlying the preparation of adjusting
preparation of financial statements entries include periodicity and separate entity
concept.
True
When the Income Statement columns of the True
worksheet are initially footed, they should be out of One way to handle prepaid items is to initially charge
balance by the amount of profit or loss. them to an appropriate expense account and at the
end of the accounting period transfer the unused the amount of transportation costs incurred during the
portion to an appropriate prepaid account. period.

False False
Book value of an asset is the original cost of an asset The purchase of equipment not for resale should be
less depreciation expense for the year. debited to purchase account.

True False
Accrued Revenues should be recorded as an asset If the seller is to shoulder the cost of delivery, the term
on the balance sheet. is stated as FOB destination.

False False
An adjusting entry prepared at the end of the year for The term freight prepaid or collect will dictate who
a deferral initially recorded using asset method would shoulders the transportation costs.
involve a credit to an expense account.
True
True The two main systems for accounting for merchandize
The chart of accounts for a merchandizing entity are periodic and perpetual.
differs from that of a service entity.
True
False The perpetual inventory system requires recording the
The difference between revenues from sales and cost cost of each sale as it occurs.
of sales is operating income.
False
False There is no need for a physical inventory count in the
For cash sales, the operating cycle is from cash to perpetual inventory system.
inventory to accounts receivable and back to cash.
False
False The debit balance of the inventory account in the trial
The bill of lading is a document prepared by the seller balance under the periodic inventory system is the
detailing the terms of delivery. amount of the inventory at the end of the current year.

True True
A validated deposit slip indicates that cash and The ending inventory of one period is the beginning
checks were actually deposited. inventory of the next period.

False True
Discounts offered to the buyer to encourage early The balance into the merchandise inventory account
payment are trade discounts. at the beginning of the period represents the cost of
the merchandize on hand at that time.
False
Cash discounts are called purchases discounts from True
the buyer's point of view. The operating cycle involves the purchase and sale of
inventory as well as the subsequent payment for
True purchases and collection of cash.
The sales discounts account is a contra-income
account and will have a debit balance. True
A business can shorten its operating cycle by
False increasing its percentage of cash sales and reducing
A credit term of "2/10, n/30" means that the buyer its percentage of credit sales.
may deduct 2% from the invoice if payment is made
within ten days from the end of the month. True
Merchandise inventory could include goods that are in
True transit.
Purchases returns and allowances is a deduction from
purchases. True
An advantage of using the periodic inventory system
False is that it requires less record keeping than the
The cost of merchandize purchased during the period perpetual inventory.
is determined by subtracting from the net purchases
True
The periodic inventory system relies on a physical True
count of merchandise for its balance sheet amount. Advertising expense appears as a selling expense on
the income statement.
False
Under the periodic inventory system, cost of goods True
sold is treated as an account. Transportation in is considered a cost of merchandise
purchased.
False
The periodic inventory system provides an up-to-date True
amount of inventory on hand. When the terms of sale include a sales discount, it
usually is advisable for the buyer to pay within the
True discount period.
Summing ending merchandise inventory and cost of
goods sold gives the cost of goods available for sale. False
The terms 2/10, n/30 mean that a 2% discount is
True allowed on payments made over 10 but before 30
A physical inventory is usually taken at the end of the days after the invoice date.
accounting period.
False
True Terms 2/10, n/30 is an example of a trade discount.
Under the periodic inventory system, purchases of
merchandise are not recorded in the Merchandise True
Inventory Account. Goods should be recorded at their list price less any
trade discounts involved.
False
An entity would be more likely to know the amount of False
inventory on hand if it used the periodic inventory FOB shipping point means the seller incurs the
system rather than the perpetual inventory system. shipping costs.

True True
Taking a physical inventory refers to making a count Under the perpetual inventory, the cost of
of all merchandise on hand at a particular time. merchandise is debited to Merchandise Inventory at
the time of purchase.
True
When the periodic inventory system is used, a True
physical inventory should be taken at the end of fiscal The Merchandise Inventory account is not affected
year. when a sales allowance is granted.

True True
The income statement of an entity that provides Ending merchandise inventory for year 1
services only will not have cost of goods sold. automatically becomes beginning merchandise
inventory for year 2.
False
For a merchandising entity, the difference between False
net sales and operating expenses is called gross The calculation of cost of goods available for sale
margin. during the year is not affected by the previous year's
ending inventory.
True
Sales return and allowances is described as a contra- True
revenue account. The change in inventory level from the beginning to
the end of the year affects cost of goods sold.
False
On the income statement of a merchandising concern, False
profit is the amount by which net sales exceed Transportation in is treated as a deduction in the cost
operating expense. of goods sold section of the income statement.

False True
Transportation out is included in the cost of goods
sold calculation.
Under the periodic inventory system, the purchases
account I'd used to accumulate a purchases of True
merchandise for resale. On the income statement of a merchandising concern,
profit is the amount by which net sales exceed
True operating expense.
An advantage of using the periodic inventory system
is that it requires less record keeping than the False
perpetual inventory. Transportation out is included in the cost of goods
sold calculation.
False
The periodic inventory system relies on a physical True
count of merchandise for its balance sheet amount. Advertising expense appears as a selling expense on
the income statement.
False
Under the periodic inventory system, cost of goods False
sold is treated as an account. Transportation in is considered a cost of merchandise
purchased.
False
The periodic inventory system provides an up-to-date False
amount of inventory on hand. The difference between gross sales and net sales is
equal to the sum of sales discounts and sales returns
True and allowances.
Summing ending merchandise inventory and cost of
goods sold gives the cost of goods available for sale. True
When the terms of sale include a sales discount, it
True usually is advisable for the buyer to pay within the
A physical inventory is usually taken at the end of the discount period.
accounting period.
False
True The terms 2/10, n/30 mean that a 2% discount is
Under the periodic inventory system, purchases of allowed on payments made over 10 but before 30
merchandise are not recorded in the Merchandise days after the invoice date.
Inventory Account.
False
False Terms 2/10, n/30 is an example of a trade discount.
An entity would be more likely to know the amount of
inventory on hand if it used the periodic inventory True
system rather than the perpetual inventory system. Goods should be recorded at their list price less any
trade discounts involved.
True
Taking a physical inventory refers to making a count False
of all merchandise on hand at a particular time. FOB shipping point means the seller incurs the
shipping costs.
False
When the periodic inventory system is used, a True
physical inventory should be taken at the end of fiscal Under the perpetual inventory, the cost of
year. merchandise is debited to Merchandise Inventory at
the time of purchase.
True
The income statement of an entity that provides False
services only will not have cost of goods sold. The Merchandise Inventory account is not affected
when a sales allowance is granted.
True
For a merchandizing entity, the difference between True
net sales and operating expenses is called gross Ending merchandise inventory for year 1
margin. automatically becomes beginning merchandise
inventory for year 2.
True
Sales return and allowances is described as a contra- False
revenue account.
The calculation of cost of goods available for sale The last step in worksheet preparation is to enter the
during the year is not affected by the previous year's profit or loss figure as a balancing figure in the income
ending inventory. statement and balance sheet columns.

True False
The change in inventory level from the beginning to Financial statements are confidential documents
the end of the year affects cost of goods sold. which are available only to the owner of the business.

False True
Transportation in is treated as a deduction in the cost The worksheet is not presented with the financial
of goods sold section of the income statement. statements.

True True
Under the periodic inventory system, the purchases The focal point of the accounting cycle is the financial
account I'd used to accumulate a purchases of statements
merchandise for resale.
False
False The owner's Withdrawals account will not appear on
When the adjusting entries are entered onto a an adjusted trial balance on the worksheet.
worksheet, it is not necessary to record them in the
general journal. True
Withdrawals are recorded in the Balance Sheet Debit
False column of a worksheet.
Ending merchandise inventory is included in the
calculation of cost of goods available for sale. False
The owner's Capital account is shown in the Income
True Statement Credit column on a worksheet.
The worksheet is used to pull together up-to-date
account balances needed to prepare the financial False
statements. Accumulated depreciation appears on the income
statement.
False
Financial statements are prepared from the Adjusted True
Trial Balance columns of the worksheet. If revenue and expenses were equal for an
accounting period, the result would be neither a profit
False nor a loss.
Because adjusting entries are recorded on a
worksheet, they do not need to be journalized or False
posted. The statement of changes in equity uses only the
profit figure from the income statement to explain the
True change in equity.
A loss occurs when there are more expenses than
revenue. True
The balance sheet provides the financial statement
False user the type and amounts of each asset, liability and
The maximum period covered by a worksheet is six capital account at a particular date.
months.
True
True Financial flexibility is the ability to take effective
The balance of the Unearned Revenues account will actions to alter the amounts and timings of cash flows
appear in the balance sheet credit column of the so that it can respond to unexpected needs and
worksheet. opportunities.

False True
The balance sheet credit column of the worksheet Accounting policies are the specific principles, bases,
usually contains only the liability and equity accounts. conventions, rules and practices adopted by an
enterprise in preparing and presenting financial
True statements.

False
Income and expense accounts are moved to the Solvency refers to the availability of cash over the
balance sheet columns of the worksheet. longer term to meet financial commitments as they fall
due.
True
Cash flow statement reports the amount of cash True
received and disbursed during the period. Liquidity refers to the availability of cash in the near
True future after taking account of the financial
Notes to financial statements include narrative commitments over this period.
descriptions or more detailed analysis of amounts
shown on the face of the balance sheet, income True
statement, cash flow statement and statement of The balance sheet is prepared based on the final
changes in equity. equity balance in the statement of changes in equity.

False False
Assets, liabilities, capital and withdrawal accounts are The account form of the balance sheet shows assets,
extended to the income statement columns of the liabilities and equity in a vertical sequence.
worksheet.
True
True The third step in worksheet preparation is to enter the
The income statement shows the types and amounts adjusted account balances in the adjusted trial
of revenues and expenses for the accounting period. balance columns.

False True
Cash loaned from a bank constitutes income. The worksheet is a convenient device for completing
the accounting cycle.
False
When the income statement columns of the True
worksheet are totaled, the excess of debits over After all necessary adjustments are entered in the
credits is called profit. worksheet, the two adjustments columns are totaled
to prove the equality of debits and credits.
False
The totals of the balance sheet columns of the True
worksheet will usually be the same as the totals There is sufficient information on a post-closing trial
appearing in the formal balance sheet. balance to prepare a balance sheet.

True False
The worksheet helps the accountant discover existing There is sufficient information on a post-closing trial
posting and calculation errors. balance to prepare a statement of changes in equity.

True True
If an asset has been carried to the debit column of the If the post-closing trial balance does not balance, then
income and a similar error occurred involving income the error(s) definitely occurred at some point during
or liabilities, the worksheet may appear to be correct the closing process.
but the profit figure is actually misstated.
True
False The adjusting entries involving Rent Receivable and
The excess of expenses over revenues is called loss. Salaries Payable could be reversed.

False False
Expenses are increases in equity caused by the The adjusting entries involving Depreciation Expense-
entity's income-generating activities. Building and Supplies Expense could be reversed.

True False
An income statement relates to a specified period All nominal accounts must be closed before the
while a balance sheet shows the financial position of Income Summary account can be closed.
the entity at a particular date.
False
True When the adjusting entries are entered onto a
worksheet, it is not necessary to record them in the
general journal.
False False
Ending merchandise inventory is included in the The owner's Capital account is shown in the Income
calculation of cost of goods available for sale. Statement Credit column on a worksheet.

True False
The worksheet is used to pull together up-to-date Accumulated depreciation appears on the income
account balances needed to prepare the financial statement.
statements.
True
False If revenue and expenses were equal for an
Financial statements are prepared from the Adjusted accounting period, the result would be neither a profit
Trial Balance columns of the worksheet. nor a loss.

False False
Because adjusting entries are recorded on a The statement of changes in equity uses only the
worksheet, they do not need to be journalized or profit figure from the income statement to explain the
posted. change in equity.

True True
A loss occurs when there are more expenses than The balance sheet provides the financial statement
revenue. user the type and amounts of each asset, liability and
capital account at a particular date.
False
The maximum period covered by a worksheet is six True
months. Financial flexibility is the ability to take effective
actions to alter the amounts and timings of cash flows
True so that it can respond to unexpected needs and
The balance of the Unearned Revenues account will opportunities.
appear in the balance sheet credit column of the
worksheet. True
Accounting policies are the specific principles, bases,
False conventions, rules and practices adopted by an
The balance sheet credit column of the worksheet enterprise in preparing and presenting financial
usually contains only the liability and equity accounts. statements.

True False
The last step in worksheet preparation is to enter the Income and expense accounts are moved to the
profit or loss figure as a balancing figure in the income balance sheet columns of the worksheet.
statement and balance sheet columns.
True
False Cash flow statement reports the amount of cash
Financial statements are confidential documents received and disbursed during the period.
which are available only to the owner of the business.
True
True Notes to financial statements include narrative
The worksheet is not presented with the financial descriptions or more detailed analysis of amounts
statements. shown on the face of the balance sheet, income
statement, cash flow statement and statement of
True changes in equity.
The focal point of the accounting cycle is the financial
statements False
Assets, liabilities, capital and withdrawal accounts are
False extended to the income statement columns of the
The owner's Withdrawals account will not appear on worksheet.
an adjusted trial balance on the worksheet.
True
True The income statement shows the types and amounts
Withdrawals are recorded in the Balance Sheet Debit of revenues and expenses for the accounting period.
column of a worksheet.
False
Cash loaned from a bank constitutes income. True
After all necessary adjustments are entered in the
False worksheet, the two adjustments columns are totaled
When the income statement columns of the to prove the equality of debits and credits.
worksheet are totaled, the excess of debits over
credits is called profit. True
There is sufficient information on a post-closing trial
False balance to prepare a balance sheet.
The totals of the balance sheet columns of the
worksheet will usually be the same as the totals False
appearing in the formal balance sheet. There is sufficient information on a post-closing trial
balance to prepare a statement of changes in equity.
True
The worksheet helps the accountant discover existing True
posting and calculation errors. If the post-closing trial balance does not balance, then
the error(s) definitely occurred at some point during
True the closing process.
If an asset has been carried to the debit column of the True
income and a similar error occurred involving income The adjusting entries involving Rent Receivable and
or liabilities, the worksheet may appear to be correct Salaries Payable could be reversed.
but the profit figure is actually misstated.
False
False The adjusting entries involving Depreciation Expense-
The excess of expenses over revenues is called loss. Building and Supplies Expense could be reversed.

False False
Expenses are increases in equity caused by the All nominal accounts must be closed before the
entity's income-generating activities. Income Summary account can be closed.

True True
An income statement relates to a specified period The post-closing trial balance will have fewer
while a balance sheet shows the financial position of accounts than the adjusted trial balance.
the entity at a particular date.
True False
Solvency refers to the availability of cash over the The balances of all the accounts that appear on a
longer term to meet financial commitments as they fall balance sheet are the same on the adjusted trial
due. balance as they are on a post-closing trial balance.

True False
Liquidity refers to the availability of cash in the near There is sufficient information on a post-closing trial
future after taking account of the financial balance to prepare an income statement.
commitments over this period.
True
True The post-closing trial balance will contain only real
The balance sheet is prepared based on the final accounts.
equity balance in the statement of changes in equity.
False
False The Income Summary account will appear on the the
The account form of the balance sheet shows assets, post-closing trial balance.
liabilities and equity in a vertical sequence.
True
True The post-closing trial balance contains asset, liability,
The third step in worksheet preparation is to enter the withdrawal and capital accounts.
adjusted account balances in the adjusted trial
balance columns. True
The final trial balance is called a post-closing trial
True balance.
The worksheet is a convenient device for completing
the accounting cycle. True
A reversing entry is a journal entry which is the exact False
opposite of a related adjusting entry made at the end Reversing entries are made to correct errors in the
of the period. accounts.

False True
To simplify the recording of regular transactions in the The purpose of reversing entries is to simplify the
next accounting period, all adjusting journal entries bookkeeping process.
are reversed.
False
True Adjusting entries are all dated as at the first day of the
Post-closing trial balance tests the equality of the new accounting period.
accounts after the adjustments and the closing entries
are posted. False
Closing entries can be prepared by referring solely to
True the Income Statement columns of the worksheet.
Supplies expense is a temporary account.
False
False After the adjusting and closing entries have been
A revenue account is closed with a credit to the recorded and posted, the general ledger accounts that
revenue account and a debit to Income Summary. appear on the balance sheet have no balances.

False False
An expense account is closed with a debit to the General ledger account balances agree with those in
expense account and a credit to Income summary. the financial statements even before adjusting and
closing entries are recorded and posted.
False
Income summary is closed with a debit to Income True
Summary and a credit to the owner's Withdrawals The income summary account is used to close the
account. income and expense accounts.

True True
When profit or loss is exactly zero, one of the usual The balance of the owner's capital account represents
closing entries will be avoided. the cumulative net result of income, expense and
withdrawal transactions.
False
The Income Summary account appears in the income True
statement. Closing entries clear income and expense accounts at
the end of the period.
False
Temporary accounts are also known as real accounts. False
Trial balances are prepared primarily to ensure that
True no entries have been omitted.
During the closing process, revenues are transferred
to the credit side of the Income Summary account. False
In the accounting cycle, closing entries are prepared
False before adjusting entries.
During the closing process, expenses are transferred
to the credit side of the Income Summary account. True
In the accounting cycle, information from source
True documents is initially recorded in the journal.
A reversing entry will include either a debit to a
revenue account or a credit to an expense account. True
Nominal account balances are reduced to zero by
True closing entries.
Reversing entries are never required.
False
False Closing entries deal primarily with the balances of real
Reversing entries can be made for deferrals but not accounts.
for accruals.
False
The only accounts that are closed are income
statement accounts.

True
Closing entries result in the transfer of profit or loss
into the owner's Capital account.

True
After all the closing entries have been entered and
posted, the balance of the Income Summary account
will be zero.

False
Depreciation Expense-Building is a permanent
account.

True
The difference between gross sales and net sales is
equal to the sum of sales discounts and sales returns
and allowances.