Basic Accounting Concepts
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Course Introduction
This course introduces students to the fundamental principles and concepts of accounting, providing a strong foundation for understanding how financial information is recorded, classified, summarized, and interpreted. Topics covered include the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the use of accounting information in decision-making. Students will explore key concepts such as assets, liabilities, equity, revenues, and expenses, while developing practical skills in analyzing and recording business transactions. The course is designed for beginners with no prior accounting knowledge and is essential for anyone seeking a career in business, finance, or related fields.
Recommended Textbook
Fundamental Financial Accounting Concepts 9th Edition by Thomas P Edmonds
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13 Chapters
1874 Verified Questions
1874 Flashcards
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Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Each of the following requirements is independent of the others.
a)Valdez Corporation has liabilities of $95,000 and equity of $115,000.What is the amount of Valdez's assets?
b)Global Company has assets of $320,000 and liabilities of $95,000.What is the amount of Global's equity?
c)Brown Company has assets of $90,000 and liabilities of $25,000.What is the amount of Brown's claims?
Answer: a)Assets = liabilities + equity = $95,000 + 115,000 = $210,000
b)Assets - liabilities = equity.Equity = $320,000 - 95,000 = $225,000
c)Assets = claims.Total amount of claims = $90,000
Q2) All of a business's temporary accounts appear on the income statement.
A)True
B)False
Answer: False
Q3) From what three sources does a business obtain its assets?
Answer: A business obtains its assets from creditors,from investors,and from operations.
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Chapter 2: Understanding the Accounting Cycle
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149 Flashcards
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Sample Questions
Q1) Which of the following is an asset exchange transaction?
A)Issued common stock.
B)Accrued salary expense at the end of the accounting period.
C)Collected cash on accounts receivable.
D)Recognized revenue earned on a contract where the cash had been collected at an earlier date.
Answer: C
Q2) Which of the following accounts is not closed at the end of an accounting cycle?
A)Revenues
B)Retained earnings
C)Dividends
D)Expenses
Answer: B
Q3) Describe the purpose of the closing process.
Answer: The purpose of the closing process is to bring the balance of the temporary accounts to zero at the end of an accounting period and to update the retained earnings account.By closing temporary accounts,they will be ready to capture revenue,expense,and dividend information for the next period.
Q4) What is the effect on the accounting equation of a cash payment to creditors?
Answer: Assets decrease;liabilities decrease
Page 4
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Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) Journals are sometimes called books of original entry because transactions are recorded in journals before amounts are entered into the ledger.
A)True
B)False
Answer: True
Q2) Which of the following is decreased with a credit?
A)Unearned revenue
B)Prepaid insurance
C)Accounts payable
D)Service revenue
Answer: B
Q3) An increase to the account Dividends would be recorded as a credit;as a result,the account Dividends normally has a credit balance.
A)True
B)False
Answer: False
Q4) Are liability accounts increased by debits or credits?
Answer: Credits
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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153 Flashcards
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Sample Questions
Q1) What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?
A)Total assets increase
B)Total liabilities increase
C)Total assets are unaffected
D)Total assets and total liabilities both increase
Q2) The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company.Wilson also paid $3,000 for freight costs to have the goods shipped to its location.Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.
A)Total debits to the inventory account would be $47,000.
B)Total debits to the inventory account would be $44,000.
C)Transportation-in would be debited for $3,000.
D)Total debits to the inventory account would be $41,000.
Q3) Which of the following is considered a product cost?
A)Utility expense for the current month.
B)Salaries paid to employees of a retailer.
C)Transportation cost on goods received from suppliers.
D)Transportation cost on goods shipped to customers.
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Page 6
Chapter 5: Accounting for Inventories
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Sample Questions
Q1) A loss resulting from application of the lower-of-cost-or-market rule is included in Cost of Goods Sold if the loss is material in amount.
A)True
B)False
Q2) What ratio (usually an average from prior periods)can be used in estimating the current period's ending inventory?
Q3) The following information is for Choi Company for 2016: Beginning inventory 120 units @$100 Units purchased 180 units @ $112 Choi sold 250 units for $190 each.
Required:
a)Calculate gross margin assuming Choi uses FIFO,LIFO,Weighted average.
b)Disregarding the effect of income taxes,what would be the dollar amount of difference in net income between FIFO and LIFO?
c)Calculate the 2016 cash flow from operating activities assuming that Choi uses LIFO,FIFO.Again,disregard the effect of income taxes.
Q4) Define the terms FIFO and LIFO.
Q5) Explain the computation of and the significance of inventory turnover.
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Chapter 6: Internal Control and Accounting for Cash
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141 Flashcards
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Sample Questions
Q1) Which of the following is not a motive for the embezzlement of cash by employees?
A)Cash is the common unit of measurement.
B)Ownership of cash is difficult to prove.
C)Cash has universal appeal.
D)Small quantities of high denomination can represent significant amounts of value.
Q2) What is meant by the term "materiality?"
Q3) List three of the five primary roles of the independent auditor (CPA).
Q4) In a bank reconciliation,a customer's NSF check included with the bank statement is:
A)deducted from the company's cash balance to get the true cash balance.
B)added to the bank's cash balance to get the true cash balance.
C)deducted from the bank's cash balance to get the true cash balance.
D)added to the company's cash balance to get the true cash balance.
Q5) How will a certified check be treated in a company's bank reconciliation?
A)As a deduction to the company's unadjusted book balance.
B)As an increase to the bank's unadjusted bank balance.
C)As a deduction to the bank's unadjusted bank balance.
D)There is no adjustment when preparing the bank reconciliation.
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Page 8
Chapter 7: Accounting for Receivables
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Sample Questions
Q1) The net realizable value of receivables appearing on Kincaid's 2016 balance sheet will amount to:
A)$29,075.
B)$27,725.
C)$28,950.
D)$28,400.
Q2) The collection of an account receivable is an asset source transaction. A)True
B)False
Q3) Blake Company loaned Jiminez Corporation $18,000 on October 1,2016.The 8-month note carried a 6% rate of interest.
Required: a)How will Blake report the note and interest on its 2016 income statement,balance sheet,and statement of cash flows?
b)How will Blake report the note and interest on its 2017 income statement and statement of cash flows?
Q4) What is the effect on the accounting equation of writing off an uncollectible account receivable when the direct write-off method is used?
Q5) Explain the computation of the length of the operating cycle.
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Gillock,Inc.uses MACRS for its income tax returns and straight line depreciation for its financial statements.The company purchased 5 year property on January 1,2016 that cost $130,000 and has a $10,000 salvage value and an expected 8 year useful life.There is a depreciation percentage of 20% for the first year for 5-year property,for tax purposes.The company would show which of the following on its financial records?
A)less depreciation expense on the tax return than on the income statement.
B)the same amount of depreciation expense for financial reporting as for income tax preparation.
C)depreciation expense of $26,000 on the income statement and $15,000 on the tax return.
D)a deferred tax liability.
Q2) Why do some say that the GAAP treatment of research and development puts the US at a competitive disadvantage compared to businesses in other countries?
Q3) Explain how the gain or loss is computed on the sale of a piece of equipment.
Q4) Expenditures that extend the useful life of a plant asset are debited to the asset account.
A)True
B)False
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Page 10
Chapter 9: Accounting for Current Liabilities and Payroll
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122 Flashcards
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Sample Questions
Q1) Sales tax is reported as revenue when it is collected,and reported as an expense when it is paid.
A)True
B)False
Q2) Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?
A)The amount can be reasonably estimated.
B)The outcome is probable.
C)The outcome is reasonably possible.
D)The outcome is probable and can be reasonably estimated.
Q3) Zirkle Company borrowed $100,000 from Plains Bank on July 31,2016.The note carried a 6% interest rate with a one-year term to maturity.
Required:
1)Show the effects of borrowing the money and the December 31,2016 adjustment on the accounting equation.
2)What is the amount of interest expense for 2016?
3)Prepare a statement of cash flows for the Zirkle Company for 2016.
Q4) What is the effect of the recognition of warranty expense on the statement of cash flows?
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) Rodgers Equipment Company sold a ten-year,6% bond issue at 102 ½.Rodgers received proceeds of $256,250 from the sale of these bonds.Calculate the face amount of these bonds.
Q2) Issuing bonds payable when the market interest rate is less than the stated interest rate:
A)results in bonds being issued at a premium.
B)results in bonds being issued at less than their face value.
C)raises the effective interest rate above the stated rate of interest.
D)results in bonds being issued at a premium and the effective interest rate is higher than the stated rate.
Q3) The reason bonds are sometimes issued at a discount is:
A)the stated rate of interest is higher than the rate being paid on investments in the securities market with comparable risk.
B)the stated rate of interest is the same as the rate being paid on investments in the securities market with comparable risk.
C)the stated rate of interest is lower than the rate being paid on investments in the securities market with comparable risk.
D)the bonds are being issued between interest payment dates.
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Page 12
Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) On June 10,2016,Burton Builders,Inc. ,a publicly traded company,announced that it had been awarded a contract to build a football stadium at a contract price of $500 million.This contract would increase its projected revenues by 20% over the next three years.Which of the following statements is correct with regard to this announcement?
A)The market price of Burton's stock will probably be higher on June 11,2016 than on June 10<sup>th</sup>.
B)Burton's net cash flow from operations will increase by 20% over the next three years.
C)Burton's assets should be increased by $500 million on June 10,2016 to recognize this contract.
D)Burton's net income will increase by 20% over the next three years.
Q2) The Curtis Company was started on January 1,2016 as a sole proprietorship.The initial investment from Charlotte Curtis,the owner,was $80,000.During 2016,the business earned $60,000 in cash revenue and paid $45,000 in cash expenses.Ms.Curtis withdrew $7,000 for her personal use.Using the above information,prepare an income statement,a capital statement,and a balance sheet for the Curtis Company.
Q3) Discuss a few of the characteristics of sole proprietorships,partnerships and corporations.
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) The Mercury Company rents out a portion of its office space to another company.At the beginning of 2016 the balance in the Unearned Rent Revenue account was $3,400.During 2016,Mercury recognized $16,600 of rent revenue.If the ending balance of Unearned Rent Revenue is $2,600,how much cash was received from the tenant for rent during 2016?
A)$14,000
B)$16,600
C)$17,400
D)$15,800
Q2) What is the major advantage of using the indirect method of preparing the operating activities section of the statement of cash flows?
Q3) What is the purpose of the statement of cash flows?
Q4) The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old,worn-out assets.
A)True
B)False
Q5) Give an example of a noncash financing and investing activity.
Q6) Prepare the operating activities section of Moreno's statement of cash flows.
Page 14
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) In vertical analysis,each item is expressed as a percentage of:
A)Total cash on the balance sheet.
B)Total assets on the balance sheet.
C)Total current assets on the balance sheet.
D)None of these answer choices are correct.
Q2) Short-term creditors are usually most interested in assessing:
A)Liquidity.
B)Solvency.
C)Managerial effectiveness
D)Profitability.
Q3) A vertical analysis uses percentages to compare each of the parts of an individual statement to the whole.For example,on an income statement each item would be shown as a percentage of net sales.
A)True
B)False
Q4) Chastain Company's current ratio for 2015 was 1.42,which was slightly above the current ratio for similar companies in its industry.Chastain's quick ratio for 2015 was 0.68,which is substantially lower than for similar companies in its industry.What conclusion would you reach based on this information?
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