If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

Expenses will be overstated and net income and stockholders’ equity will be understated.

Assets will be overstated and net income and stockholders’ equity will be understated.

Assets will be overstated and net income and stockholders’ equity will be overstated.

Failure to make an adjustment does not affect the financial statements.

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

False

True

Which of the following is not an example of a source document that provides evidence of a transaction?

The complete effect of a transaction on the accounts is disclosed in the journal.

True

False

A trial balance is a listing of

the totals from the journal pages.

transactions in a journal.

the chart of accounts.

general ledger accounts and balances.

Which of the following is not an example of a source document that provides evidence of a transaction?

A sales slip

A trial balance

A cash register tape

A cancelled check

A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

True

False

In recording accounting transactions, evidence that a transaction has taken place is obtained from

the Securities and Exchange Commission.

source documents.

the Internal Revenue Service.

the public relations department.

The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the

Which of the following is not a quality associated with faithful representation?

Complete

All of these answer choices are correct.

Materiality

Neutral

The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the

monetary unit assumption.

going concern assumption.

periodicity assumption.

economic entity assumption.

Relevant accounting information

is information that is capable of making a difference in a business decision.

is information that has been audited.

must be reported within the operating cycle or one year, whichever is longer.

has been objectively determined.

The most generally accepted value used in accounting is market value.

True

False

The excess of current assets over current liabilities is called working capital.

True

False

If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.

Most business enterprises in the United States are

corporations.

government units.

proprietorships and partnerships.

partnerships.

If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.

True

False

A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?

desire to limit the owner’s personal liability

the prestige of operating as a corporation

ability to raise capital for expansion

the ease in transferring shares of the corporation’s stock

Stockholders’ equity is comprised of

common stock and dividends.

dividends and retained earnings.

net income and retained earnings.

common stock and retained earnings

While depreciation is an adjusting entry, it is not an accrued expense.Which of the following is not a typical example of an accrued expense?

While depreciation is an adjusting entry, it is not an accrued expense.

Which of the following is not a typical example of an accrued expense?

Interest

Taxes

Depreciation

Wages

The revenue recognition principle states that revenue is recognized in the accounting period in which the performance obligation is satisfied.

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the

accrued revenues principle.

periodicity assumption.

expense recognition principle.

revenue recognition principle.

This statement is correct. The income statement is prepared on an accrual-basis and therefore contains items of revenue and expense which do not represent cash inflows or outflows.

In computing net cash provided by operating activities, certain non-cash items such as depreciation must be eliminated from net income.

False

True

The correct order is to journalize and post the transactions, journalize and post the adjusting entries, and then journalize and post the closing entries. Adjusting entries and closing entries are required.

The correct order is to journalize and post the transactions, journalize and post the adjusting entries, and then journalize and post the closing entries. Adjusting entries and closing entries are required.

Which is the correct order of steps in the accounting cycle?

Journalize and post transactions, journalize and post closing entries, journalize and post adjusting entries.

Journalize and post transactions, journalize and post adjusting entries, journalize and post closing entries.

Prepare financial statements, prepare adjusting entries, prepare closing entries, prepare a post-closing trial balance.

Post transactions, journalize transactions, prepare a trial balance, prepare financial statements.

The formula is Principal x Rate x Time or $15,000 x 8% x (1/12) since interest is stated in an annual rate yielding a value of $100.

A company lends $15,000 at 8% interest for 3 months on June 1. If adjusting entries are recorded on June 30, how much will be credited to Interest Revenue?

$300

$900

$1,200

$100

A general ledger lists all of the accounts of a company. These are the asset, liability, stockholders’ equity, revenue, and expense accounts.

The journal is an accounting record in which transactions are initially recorded in chronological order.

Transactions are recorded in chronological order in the journal.

True

False

A general ledger lists all of the accounts of a company. These are the asset, liability, stockholders’ equity, revenue, and expense accounts.

What does a general ledger of a company contain?

Revenue and expense accounts only

Asset and liability accounts only

Asset and stockholders' equity accounts only

All the asset, liability, stockholders' equity, revenue, and expense accounts

Assets are increased by debits, which are additions to the left side of the T-account.

Assets are increased by credits.

True

False