1.

If office supplies that have been purchased are used in the course of business, then
a. a liability will decrease
b. an asset will increase
c. owner’s equity will decrease
d. owner’s equity will increase

2. If the owner’s equity account increases from the beginning of the year to the end of
the year, then
a. net income is less than owner drawings
b. a net loss is less than owner drawings
c. additional owner investments are less than net losses.
d. net income is greater than owner drawings

3. An account will have a credit balance if the

a. credits exceed the debits
b. debits exceed the credits
c. first transaction entered was a credit
d. last transaction entered was a credit

4. The drawing account

a. appears on the income statement along with the expenses of the business.
b. must show transactions every accounting period
c. is increased with debits
d. is not a proper subdivision of owner’s equity

5. Prepaid expenses are

a. incurred and already paid or recorded
b. incurred but not yet paid or recorded
c. paid and recorded in an asset account after they are used or consumed
d. paid and recorded in an asset account before they are used or consumed

6. An accumulated depreciation account

a. is an contra-liability account
b. has a normal credit balance
c. increases on the debit side
d. is offset against the owner’s equity on the balance sheet.
7. The accounts of a business before an adjusting entry is made to record an accrued
revenue reflect an
a. understated liability and an overstated owner’s capital
b. overstated asset and an understated revenue
c. understated expense and an overstated revenue
d. understated asset and an understated revenue.

8. The closing entry process consists of closing

a. all asset and liability accounts
b. out the owner’s capital account
c. all temporary accounts
d. all permanent accounts

9. Which of the following steps in the accounting cycle would not generally be
performed daily?
a. Journalize transactions
b. Prepare adjusting entries
c. Post to ledger accounts
d. Analyze business transactions

10. In a perpetual inventory system, cost of goods sold is recorded

a. with each sale
b. on a monthly basis
c. on an annual basis
d. when the business is liquidated only

11. The credit terms offered to a customer by a business firm were 2/10, n/30, which
means that
a. the customer must pay the bill within 10 days
b. the customer can deduct a 2% discount if the bill is paid within 10 days of the
invoice date
c. two sales returns can be made within 10 days of the invoice date and no
returns thereafter.
d. the customer can deduct a 2% discount if the bill is paid between the 10 th and
30th day from the invoice date.

12. Internal controls are concerned with

a. only manual systems of accounting
b. the extend of government regulations
c. safeguarding assets
d. preparing income tax returns

13. The size of the petty cash fund is dependent on

a. the wishes of the custodian of the fund
b. the size of the cash at bank account
c. anticipated disbursement for the year
d. anticipated disbursement for a three to four week period
14. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. by the person who is authorized to sign cheques.
 c. to explain any difference between the depositor’s balance per books with the
balance per bank
d. when an employee is suspected of fraud only.

15. When an account becomes uncollectible and must be written off,

a. Allowance for doubtful Accounts should be credited
b. Accounts Receivable should be credited
c. Bad debts expense should be credited
d. Sales should be debited.

16. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts
Expense is debited
a. when an account is determined to be uncollectible
b. when a credit sale is past due
c. at the end of each accounting period
d. whenever a pre-determined amount of credit sales have been made.

17. Management should select the depreciation method that

a. is easiest to apply
b. has been used by its competitors
c. best measures the plant asset’s contribution to revenue over its useful life.
d. the income statement shows the highest profit.

18. From a liquidity standpoint, it is more desirable for a company to have

a. current assets equal current liabilities
b. current liabilities exceed current assets
c. current liabilities exceed long-term liabilities
d. current assets exceed current liabilities

19. The revenue recognition principle dictated that revenue should be recognized in the
accounting period in which it is
a. collected
b. earned
c. most likely to be collected
d. earned and collected

20. Goods and services taxes collected by a retailer are reported as

a. revenues
b. expenses
c. current liabilities
d. contingent liabilities
21. The operating cycle for a retailer that sells on credit is:

A. Cash to accounts receivable to inventory to cash

B. Cash to inventory to accounts receivable to cash
C. Cash to accounts receivable to cash
D. Cash to inventory to cash

22. Which of the following statements relating to inventory is untrue?

A. It is held for sale in the ordinary course of business

B. It is classified as a current asset
C. It makes up a significant part of a retailer’s assets
D. None of the above, i.e. all statements are true

23. Sales Returns and Allowances is what type of account?

A. Contra to revenue
B. Liability
C. Contra to an asset
D. Expense

24. Under the perpetual inventory system which is the correct entry to record the cost
price of goods sold on credit?

A. Debit Inventory, credit Cost of Goods Sold

B. Debit Cost of Goods Sold, credit Sales
C. Debit Cost of Goods Sold, credit Inventory
D. Debit Cost of Goods Sold, credit Purchases

25. In which order do the following steps in the accounting cycle occur?

1. Prepare closing entries

2. Post business transactions to the ledger
3. Enter business transactions in the journal
4. Prepare adjusting entries
5. Prepare financial statements

A. 1, 2, 3, 4, 5
B. 5, 4, 3, 1, 2
C. 4, 2, 1, 5, 3
D. 3, 2, 4, 5, 1

26. Before calculating the net profit for the period, the totals of the Statement of
financial performance debit and credit columns on the worksheet are $60,000 and
$80,000 respectively. What is the amount of net profit or net loss?

A. $20,000 profit
B. $20,000 loss
C. $40,000 profit
D. $40,000 loss
27. Revenue and expense accounts can be referred to as:

A. Permanent accounts
B. Real accounts
C. Temporary accounts
D. Deferred accounts

28. Closing which of the following accounts results in a credit to the Profit and Loss
Summary account?

A. Sales
B. Depreciation
C. Rent Expense
D. Bad debts

29. Harry Company uses cleaning supplies on a daily basis. Under the accrual basis of
accounting these supplies should be an expense of the period in which they are:

A. Ordered
B. Received
C. Paid for
D. Used

30. Sampras Company purchased a machine for $30,000 on 1 January 20X3 with an
estimated life of five years and a residual value of zero. The straight-line method
of depreciation is used. What is the carrying value of the machine on the 31
December 20X4 in the statement of financial position of Sampras Company?

A. $30,000
B. $24,000
C. $18,000
D. $12,000
31. If a company has earned revenue which has not been recorded by the end of the
accounting period, an adjustment should be made which would:

A. Debit an asset account and credit a revenue account

B. Debit an expense account and credit cash
C. Debit a revenue account and credit an asset account
D. Debit an asset account and credit an expense account

32. A test for distinguishing between an asset and an expense is:

A. Whether the item will be turned into cash in the current accounting period
B. Whether the benefits extend beyond the current accounting period
C. Whether payment is for cash
D. None of the above

33. Junction Plant Nursery had the following transactions, among others, during August.
Which transaction represented an expense for August?

A. Purchased a computer for $3,000 cash in August.

B. Paid $3,300 in settlement of a loan obtained three months earlier
C. Paid a garage $150 for automobile repair work performed in August.
D. None of the above

34. In order to prepare useful financial information for interested parties, Chambers
Company divides the economic activity of the firm into three-month segments and
prepares financial statements at the end of each segment. Which accounting
assumption is Chambers implementing?

A. Cost
B. Objectivity
C. Going concern
D. Accounting period

35. A chart of accounts is:

A. A planning device used by management to anticipate information flows through

the accounting system
B. A list of accounts receivable
C. A chart showing the organisational structure of the firm
D. A plan of the ledger listing account titles and their related numbers
36. J. Wood performed carpentry services for $7,500. He received cash of $2,000 and
gave credit for $5,500. Ignoring GST, the transaction should be recorded as:

A. Debit Cash $2,000, debit Accounts Receivable $5,500; credit Revenue Earned
$7,500
B. Debit Revenue Earned $7,500; credit Cash $2,000, credit Accounts Payable
$5,500
C. Debit Cash $7,500; credit Owner's Equity $7,500
D. Debit Cash $2,000, debit Owner's Equity $5,500; credit Revenue Earned $7,500

37. Which of the following are issues in a firm's management of its accounts receivable?

A. Deciding which customers to offer credit to

B. Ensuring that customers pay on time
C. Following up slow paying customers
D. All of the above

38. Which of the following does not represent proper internal control of cash.

A. Daily banking of receipts

B. Paying small amounts directly out of the cash register
C. Balancing of the cash register after each employees' shift
D. Locating the cash register in a position that permits the customer to see the
amount recorded

39. Which of the following is not an essential feature of the imprest system of operating
petty cash?

A. Determination of a fixed sum which becomes the imprest amount or 'float'

B. Several people being authorised to reimburse expenses
C. Cash in the fund together with vouchers must always equal the imprest amount
D. Replenishment of the fund for the exact amount spent in the period

40. When reconciling the ledger with the bank statement (assuming a positive bank
balance) a returned (dishonoured cheque) should be:

A. Added to the bank statement balance in the reconciliation

B. Subtracted from the general ledger bank balance
C. Subtracted from the bank statement balance
D. Added to the general ledger bank balance
41. The primary purpose of a cash flow statement is to provide information about:

a. Profit
b. Long-term financial position
c. Gross profit
d. Cash inflows and cash outflows

42. Which statement relating to depreciation is true?

e. Accumulated depreciation represents the portion of an asset’s cost that has

been transferred to depreciation expense
f. The cash account is affected by charging depreciation
g. Accumulated depreciation is a contra-expense account
h. Depreciation represents cash that can be used to replace assets when they wear
out

43. A machine was purchased on 1st January 2006 for $48,000, net of GST. The
machine had an estimated residual value of $6,000 and an estimated useful life of
5 years. Depreciation expense for 2006, using sum-of-the-years’-digits method,
is:

i. $8,400
j. $14,000
k. $19,200
l. $16,000

44. The inventory on hand at year-end for Golen Enterprises is:

Inventory Number Original Current Net

Item of Units Unit cost Selling Price per unit
$ $
Aee 10 40 60
Bee 8 70 60

At what amount should Golen report ending inventory if the lower of cost or net
realisable value rule is applied to individual items?

a. $960
b. $880
c. $1,020
d. $1,160
45. Which of these does not represent proper internal control of cash receipts?

m. Daily banking of receipts

n. Two people opening the mail
o. Paying small amounts directly out of the cash register
p. Balancing the cash register after each employees’ shift

46. Which of the statements relating to a bank statement is true?

q. The customer is viewed as a debtor

r. It constitutes a source document for the firm for direct debits and credits such
as bank charges
s. A deposit is listed in the debit column
t. A positive amount in the account will be shown as a debit balance

47. While preparing the bank reconcialiation Sara discovered that the bank had
incorrectly paid one cheque for a larger amount than was written by the company
(bank error). The bank account has a positive balance. The proper procedure is
to:

u. Add the error to the bank balance in the general ledger

v. Deduct the error from the bank balance in the general ledger and notify the
bank
w. Add the error to the bank statement balance in the reconciliation and notify the
bank
x. Deduct the error from the bank statement balance in the reconcialiation

48. Which of these is not an essential feature of the imprest petty cash system?

y. Deciding on a fixed sum that becomes the imprest amount or ‘float’

z. Several people being authorised to reimburse expenses
aa. Cash in the fund together with vouchers always equalling the imprest amount
bb. Replenishment of the fund for the exact amount spent in the period

49. Sales Returns and Allowances is what type of account?

cc. Contra to sales revenue

dd. Liability
ee. Contra to an asset
ff. Expense

50. The primary purpose of early settlement discounts is to:

gg. Convince the customer to buy the goods on credit

hh. Facilitate the quoting of prices to different customer groups
ii. Reduce the invoice price of the goods
jj. Encourage the customer to settle their account early
51. The entry to record the return of goods to a supplier under the perpetual inventory
system is:

kk. Debit Inventory, credit Purchases Returns

ll. Debit Accounts Payable, credit Purchases
mm. Debit Inventory, credit Accounts Payable
nn. Debit Accounts Payable, credit Inventory

52. Before calculating the net profit for the period, the totals of the Income statement
debit and credit columns on the worksheet are $60,000 and $80,000 respectively.
What is the amount of net profit or net loss?

oo. $20,000 profit

pp. $20,000 loss
qq. $40,000 profit
rr. $40,000 loss

53. Closing the accounts refers to:

ss. Establishing zero balances in the balance sheet accounts

tt. Establishing a zero balance in the cash at bank account
uu. Establishing zero balances in all ledger accounts
vv. Transferring income and expense account balances to the profit and loss
summary account, which is then closed to the equity account

54. Income and expense accounts can be referred to as:

ww. Permanent accounts

xx. Real accounts
yy. Temporary accounts
zz. Deferred accounts

55. During 2007 the Style Hairdressing Salon paid out $41,000 in wages from its bank
account. At year-end 2007 wages owing but unpaid were $2,400. The salon uses
accrual accounting. How much would be reported as wages expense for 2007?

aaa. $38,600
bbb. $41,000
ccc. $43,400
ddd. $42,600

56. Harry Company uses cleaning supplies on a daily basis. Under the accrual basis
of accounting these supplies would be an expense of the period in which they are:

eee. Ordered
fff. Received
ggg. Paid for
hhh. Used
57. Michael purchased two vehicles for his business on 1 January 2008. These
vehicles cost $50,000 each and have a useful life of 5 years with an expected
 residual of $20,000 each. The adjusting entry for depreciation on 31 December
2008, using the straight-line method, is:

iii. Dr Accumulated Depreciation $6,000; Cr Depreciation Expense $6,000

jjj. Dr Depreciation Expense $6,000; Cr Accumulated Depreciation $6,000
kkk. Dr Accumulated Depreciation $12,000; Cr Depreciation Expense $12,000
lll. Dr Depreciation Expense $12,000; Cr Accumulated Depreciation $12,000

58. An increase is recorded on the debit (left-hand) side of which ledger accounts?

mmm. Asset
nnn. Liability
ooo. Income
ppp. Owner’s equity

59. The accounting entry when income is earned on credit is:

qqq. Debit cash, credit income

rrr. Debit accounts receivable, credit income
sss. Debit income, credit accounts payable
ttt. Debit income, credit accounts receivable

60. Which of the following statements concerning the income statement is not true?

uuu. It can be called the profit and loss statement

vvv. The heading must indicate the length of time the report covers
www. It shows the change in the entity’s cash balance for the period
xxx. It is divided into two sections, income and expenses