$$ \text{Total Debits} = \text{Total Credits} $$

$$ \text{Average Cost per Unit} = \frac{\text{Total Cost of Goods Available for Sale}}{\text{Total Units Available for Sale}} $$

Question 1

Which of the following best describes the purpose of the general journal in financial accounting?

Accepted Answer

To record all business transactions in chronological order before posting to the ledger

Question 2

A company purchased inventory on credit. Which journal entry correctly records this transaction?

Accepted Answer

Debit Inventory, Credit Accounts Payable

Question 3

Which equation is used to ensure the trial balance is correct?

Accepted Answer

$$ 	ext{Total Debits} = 	ext{Total Credits} $$

Question 4

Which of the following is NOT one of the four types of adjusting entries?

Accepted Answer

Inventory purchases

Question 5

A company ships goods FOB shipping point. When should the company recognize revenue?

Accepted Answer

When the goods are shipped

Question 6

Using the FIFO method, which inventory costs are assigned to cost of goods sold?

Accepted Answer

The costs of the oldest inventory items

Question 7

If ending inventory is overstated, what is the effect on net income?

Accepted Answer

Net income is overstated

Question 8

Which of the following best describes the purpose of internal controls over cash?

Accepted Answer

To prevent and detect errors and fraud

Question 9

Which of the following is a reason for a difference between the bank statement and the company's cash records?

Accepted Answer

Outstanding checks

Question 10

Which formula is used to calculate the average cost per unit under the weighted average method?

Accepted Answer

$$ 	ext{Average Cost per Unit} = \frac{	ext{Total Cost of Goods Available for Sale}}{	ext{Total Units Available for Sale}} $$

Question 11

A company uses the direct write-off method for uncollectible accounts. Which entry is made when an account is deemed uncollectible?

Accepted Answer

Debit Bad Debt Expense, Credit Accounts Receivable

Question 12

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Recording prepaid insurance that has expired

Question 13

Which of the following is NOT a purpose of preparing a trial balance?

Accepted Answer

To calculate net income

Question 14

Which of the following is a limitation of the direct write-off method for uncollectible accounts?

Accepted Answer

It violates the matching principle

Question 15

A company’s bank reconciliation shows a deposit in transit. How should this be handled?

Accepted Answer

Add to the bank statement balance

Question 16

Which of the following is the correct formula for calculating cost of goods sold (COGS)?

Accepted Answer

$$ 	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Ending Inventory} $$

Question 17

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries owed but not yet paid

Question 18

Which of the following best describes the effect of an inventory error on the following year’s financial statements?

Accepted Answer

The error reverses itself in the following year

Question 19

Which of the following is NOT a type of inventory costing method?

Question 20

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

Accepted Answer

$$ 	ext{Net Sales} = 	ext{Sales} - 	ext{Sales Returns and Allowances} - 	ext{Sales Discounts} $$

Key Learning Objectives in Financial Accounting: Transactions, Inventory, and Internal Controls

Study Guide - Practice Questions