Book Title; Author

Chapter 03 - Multiple choice quiz


1.
If revenues are recognised only when a customer pays, what method of accounting is being used?
A.
accrual basis
B.
recognition basis
C.
cash basis
D.
matching basis


2.
Which of the following is not a typical example of a prepaid expense?
A.
advertising
B.
insurance
C.
rent
D.
wages


3.
Adjustments would not be necessary if financial statements were prepared to reflect net income from
A.
monthly operations.
B.
fiscal year operations.
C.
interim operations.
D.
lifetime operations.


4.
A small business may be able to justify using a cash basis of accounting if they have
A.
sales under $1,000,000.
B.
no accountants on staff.
C.
few receivables and payables.
D.
all sales and purchases on account.


5.
Balances of prepayment accounts prior to adjustment would affect the financial statements in the following way:
A.
statement of financial position accounts are understated and income statement accounts are understated
B.
statement of financial position accounts are overstated and income statement accounts are overstated
C.
statement of financial position account are overstated and income statement accounts are understated.
D.
statement of financial position accounts are understated and income statement accounts are overstated.


6.
Accounts often need to be adjusted because
A.
there are never enough accounts to record all the transactions.
B.
many transactions affect more than one time period.
C.
there are always errors made in recording transactions.
D.
management can't decide what they want to report.


7.
An adjusting entry would not include which of the following accounts?
A.
Cash
B.
Interest Receivable
C.
Rates Payable
D.
Unearned Revenue


8.
Accrued expenses are
A.
paid and recorded in an asset account before they are used or consumed.
B.
paid and recorded in an asset account after they are used or consumed.
C.
incurred but not yet paid or recorded.
D.
incurred and already paid or recorded.


9.
Payments of expenses that will benefit more than one accounting period are identified as
A.
expenses.
B.
revenues.
C.
prepaid expenses.
D.
liabilities.


10.
Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies
A.
remaining.
B.
purchased.
C.
used.
D.
either used or remaining.


11.
If a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements?
A.
Failure to make an adjustment does not affect the financial statements.
B.
Expenses will be understated and net income and equity will be overstated.
C.
Assets will be overstated and net income and equity will be understated.
D.
Assets will be overstated and net income and equity will be overstated.


12.
The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an
A.
understated liability and an overstated revenue.
B.
overstated asset and an understated revenue.
C.
understated expense and an overstated revenue.
D.
understated asset and an understated revenue.


13.
A post-closing trial balance will show
A.
zero balances for all accounts.
B.
zero balances for statement of financial position accounts.
C.
only statement of financial position accounts.
D.
only statement of financial performance accounts.


14.
Which of the statements below is not true?
A.
An adjusted trial balance should show ledger account balances.
B.
An adjusted trial balance can be used to prepare financial statements.
C.
An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
D.
An adjusted trial balance is prepared before all transactions have been     journalised


15.
The first required step in the accounting cycle is
A.
adjusting entries.
B.
journalising transactions.
C.
analysing transactions.
D.
posting transactions.


16.
The final step in the accounting cycle is to prepare
A.
closing entries.
B.
financial statements.
C.
a post-closing trial balance.
D.
adjusting entries.


17.
All statement of financial position accounts are considered permanent accounts because
A.
they cannot be deleted from the accounting system.
B.
every business uses the same accounts in their ledger.
C.
all transactions that are journalised into a statement of financial position account are kept permanently as a record for audit purposes.
D.
their balances are carried forward into future accounting periods.


18.
Closing entries are prepared to
A.
make closing a business easier.
B.
report the state of liquidated companies.
C.
formally recognise in the ledger the transfer of profit or loss and dividends to retained earnings.
D.
make all ledger account balances nil.


19.
Prior to adjustments accrued revenues will
A.
understate assets and understate revenues.
B.
understate assets and overstate revenues.
C.
overstate assets and understate revenues.
D.
overstate assets and overstate revenues.


20.
Depreciation is the process of
A.
recognising that as an asset is used its useful life decreases.
B.
allocating the cost of an asset to expense over its useful life.
C.
recording the change in value of an asset in the ledger.
D.
allocating the day to day running costs of an asset.


STOP This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

© John Wiley & Sons Australia, Ltd