1．Generally accepted accounting principles (GAAP) are formulated by the ( )
A. Securities and Exchange Commission (SEC)
B. Financial Accounting Standards Board (FASB)
C. Institute of Management Accountants (IMA)
D. American Institute of Certified Public Accountants (AICPA)
2．Which accounting concept or principle specifically states that we should record transactions at amounts that can be verified?
A. Entity concept
B. Cost principle
C. Reliability principle
D. Going-concern concept
3．Fossil is famous for fashion wristwatches and leather goods. At the end of a recent year, Fossil’s total assets added up to﹩381 million, and owner s’ equity was ﹩264 million. How much did Fossil owe creditors?
A. Cannot determine from the data given
B. ﹩381 million
C. ﹩264 million
D. ﹩117 million 4．Assume that Fossil sold watches for ﹩50,000 to a department store on account. How would this transaction affect Fossil’s accounting equation?
A. Increase both assets and owner s’ equity by ﹩50,000
B. Increase both assets and liabilities by ﹩50,000
C. Increase both liabilities and owners’ equity by ﹩50,000
D. No effect on the accounting equation because the effects cancel out 5．The financial statement that reports assets, liabilities, and owner’s equity is the:
A. Income statement.
B. Owner’s equity statement.
C. Balance sheet.
D. Statement of cash flow.
6．The left side of an account is used to record ( )
A. Debits
B. Credits
C. Debit or credit, depending on the type of account
D. Increases 7．Accounts that normally have debit balance are: ( )
A. Assets, expenses, and revenues
B. Assets, expenses, and owner’s capital.
C. A ssets, liabilities, and owner’s drawings.
D. Assets, owner’s drawings, and expenses.
8．The time period assumption states that: ( )
A. Revenue should be recognized in the accounting period in which it is earned.
B. Expenses should be matched with revenues.
C. The economic life of a business can be divided into artificial time periods.
D. The fiscal year should be correspond with the calendar year. 9．In a work sheet, net income is entered in the following columns: ( )
A. Income statement (Dr) and balance sheet (Dr).
B. Income statement (Cr) and balance sheet (Dr).
C. Income statement (Dr) and balance sheet (Cr).
D. Income statement (Cr) and balance sheet (Cr).
10．An account that will have a zero balance after closing entries have been journalized and posted is: ( )
A. Service Revenue.
B. Advertising Supplies.
C. Prepaid Insurance.
D. Accumulated Depreciation.
11．Gross profit will result if: ( )
A. Operating expenses are less than net income.
B. Sales revenues are greater than operating expenses.
C. Sales revenues are greater than cost of goods sold.
D. Operating expenses are greater than cost of goods sold.
12．A credit sale of ﹩750 is made on June 13, terms 2/10, net/30. A return of ﹩
50 is granted on June 16. The amount received as payment in full on June 23 is:
( )
A. ﹩700.
B. ﹩686.
C. ﹩685.
D. ﹩750.
13．When special journals are used: ( )
A. All purchase transactions are recorded in the purchases journal.
B. All cash received, except from cash sales, is recorded in the cash
receipts journal.
C. All cash disbursements are recorded in the cash payments journal.
D. A general journal is not necessary.
14．The statement of cash flows classifies cash receipts and cash payments by the following activities: ( )
A. Operating and nonoperating.
B. Investing, financing, and operating.
C. Financing, operating, and nonoperating.
D. Investing, financing, and nonoperating.
15．Net income is ﹩132,000. During the year, accounts payable increased ﹩10,000, inventory decreased ﹩6,000, and accounts receivable increased ﹩12,000. Under the indirect method, net cash provided by operations is: ( )
A. ﹩102,000.
B. ﹩112,000.
C. ﹩124,000.
D. ﹩136,000.
16．The cost principle states that ( )
A. Assets should be initially recorded at cost and adjusted when the market
value changes.
B. Activities of an entity are to be kept separate and distinct from its owner.
C. Assets should be recorded at their cost.
D. Only transaction data capable of being expressed in terms of money be
included in the accounting records.
17．Net income will result during a time period when:
A. Assets exceed liabilities.
B. Assets exceed revenues.
C. Expenses exceed revenues.
D. Revenues exceed expenses.
18．Performing services on account will have the following effects on the components of the basic accounting equation:
A. Increase assets and decrease owner’s equity.
B. Increase assets and increase owner’s equity.
