Question 1

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are recognized in the same period as the revenues they help to generate.

Question 2

A company purchased equipment for $50,000 with an estimated useful life of 10 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?

Accepted Answer

$5,000

Question 3

Which of the following accounts is closed at the end of the accounting period?

Accepted Answer

Service Revenue

Question 4

A company uses the perpetual inventory system. If it sells inventory costing $$2,000 for 3$$,000 cash, which journal entry correctly records the cost of goods sold?

Accepted Answer

Debit Cost of Goods Sold $$2,000; Credit Inventory 2$$,000

Question 5

Which of the following is NOT a component of the fraud triangle?

Accepted Answer

Materiality

Question 6

A company had the following account balances: Sales Revenue $$100,000, Sales Returns and Allowances 5$$,000, Sales Discounts $2,000. What is the net sales?

Accepted Answer

$93,000

Question 7

Which of the following best describes the difference between US GAAP and IFRS?

Accepted Answer

US GAAP is rules-based, while IFRS is principles-based.

Question 8

If a company uses the allowance method to account for uncollectible accounts and estimates $4,000 of bad debts, which entry should be made?

Accepted Answer

Debit Bad Debt Expense $$4,000; Credit Allowance for Uncollectible Accounts 4$$,000

Question 9

Which of the following is an example of an internal control activity?

Accepted Answer

Requiring two signatures on checks above $10,000

Question 10

A company uses FIFO to value its inventory. If prices are rising, which of the following is true?

Accepted Answer

Ending Inventory will be higher than under LIFO.

Question 11

Which of the following is NOT a step in preparing a bank reconciliation?

Accepted Answer

Subtract deposits in transit from the bank balance.

Question 12

A company has beginning inventory of $$10,000, purchases of 25$$,000, and ending inventory of $8,000. What is the cost of goods sold?

Accepted Answer

$23,000

Question 13

Which of the following best describes the purpose of adjusting entries?

Accepted Answer

To record transactions not yet recorded and ensure revenues and expenses are recognized in the correct period.

Question 14

Which of the following is a real (permanent) account?

Accepted Answer

Accounts Payable

Question 15

A company estimates that 2% of its $150,000 credit sales will be uncollectible. What is the amount of bad debt expense to be recorded?

Accepted Answer

$3,000

Question 16

Which of the following is the correct formula for calculating net income?

Accepted Answer

$$Net\ Income = Revenues - Expenses$$

Question 17

Which of the following transactions would NOT require an adjusting entry at year-end?

Accepted Answer

Payment of a utility bill recorded as an expense when paid

Question 18

A company’s trial balance shows Supplies of $$2,000. A physical count reveals 500 of $$supplies on hand. What is the required adjusting entry?

Accepted Answer

Debit Supplies Expense $$1,500; Credit Supplies 1$$,500

Question 19

Which of the following best describes the purpose of the chart of accounts?

Accepted Answer

To list all accounts used by a company and assign each a unique number.

Question 20

If a company’s ending inventory is overstated by $5,000, what is the effect on net income for the period?

Accepted Answer

Net income is overstated by $5,000.

Financial Accounting 291 Final Exam Review: Concepts and Terminology

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