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

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

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 general ledger.

Question 2

When preparing a trial balance, which equation must always be satisfied?

Accepted Answer

$\sum 	ext{Debits} = \sum 	ext{Credits}$

Question 3

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

Accepted Answer

Bank reconciliation

Question 4

A company ships goods to a customer and pays for freight. How should this transaction be journalized?

Accepted Answer

Debit Freight Expense, credit Cash

Question 5

If a company uses the FIFO method to compute inventory cost, which inventory items are assumed to be sold first?

Accepted Answer

The oldest inventory items

Question 6

Which formula is used to calculate the average cost per unit in inventory valuation?

Accepted Answer

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

Question 7

If inventory errors are not corrected, what is the effect on the financial statements?

Accepted Answer

Both the income statement and balance sheet are affected.

Question 8

Which of the following best describes internal controls for cash?

Accepted Answer

Policies to safeguard assets and ensure the accuracy of financial records.

Question 9

Which method is used to directly write off uncollectible accounts?

Accepted Answer

Direct write-off method

Question 10

When reporting accounts receivable on the balance sheet, which value is shown?

Accepted Answer

Net realizable value

Question 11

A company uses the LIFO method for inventory. If prices are rising, what is the effect on net income?

Accepted Answer

Net income will be lower than under FIFO.

Question 12

Which of the following is a key reason for performing bank reconciliations?

Accepted Answer

To ensure all cash transactions are recorded and to detect errors or fraud.

Question 13

Which journal entry is required when a company recognizes accrued revenue?

Accepted Answer

Debit Accounts Receivable, credit Revenue

Question 14

Which of the following is an example of a prepaid expense?

Accepted Answer

Rent paid in advance for the next year

Question 15

If a company fails to record depreciation expense, what is the effect on net income and assets?

Accepted Answer

Net income is overstated and assets are overstated.

Question 16

Which of the following is NOT a type of adjusting entry?

Accepted Answer

Inventory purchases

Question 17

A company receives cash from a customer for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash, credit Unearned Revenue

Question 18

Which of the following best describes the allowance method for uncollectible accounts?

Accepted Answer

Estimated uncollectible accounts are recorded in the same period as the related sales.

Question 19

Which equation represents the calculation of net realizable value for accounts receivable?

Accepted Answer

$	ext{Net Realizable Value} = 	ext{Accounts Receivable} - 	ext{Allowance for Doubtful Accounts}$

Question 20

Which of the following is a control procedure to safeguard cash?

Accepted Answer

Requiring two signatures on checks

Key Learning Objectives in Financial Accounting

Study Guide - Practice Questions