Download Accounting Overview Test Questions and Answers: Accrual Accounting, Depreciation, and More and more Exams Advanced Education in PDF only on Docsity!
ETS - MFT Accounting Overview Test Questions And 100%
Correct Answers
Accural Accounting - ANSWER : Expenses are recognized when the economic benefit is received and revenue is recognized as it is earned. The two are matched to determine net income for the period.
Accumulated Depreciation - ANSWER An account that shows the total amount of depreciation that the company has expensed thus far in the asset's life.
Adjusting Entries - ANSWER Deferrals and Prepaids: The payment is received or paid in advance of the recognition of the revenue or expense.
Cash Accounting - ANSWER Revenue is recognized in the period in which the related cash collection is made and expenses are reported in the period when the cash disbursements are made.
Dividends A corporation's distribution of profits to stockholders in the form of cash or stock coming out of Retained Earnings.
Journal All transactions and events are FIRST recorded in a journal in chronological order with equal amounts of debits and credits to various accounts.
Special Journal Records similar transactions, such as all cash receipts or all cash payments.
General Ledger - ANSWER It is the summary record of transactions entered in the journal. Accounts are listed in financial statement order: Assets, liabilities, owner's equity, revenues and expenses.
Subsidiary Ledger - ANSWER Details maintained to support the balance in some general ledger account, such as accounts receivable.
Trial Balance - ANSWER A complete listing of every ledger account with either a debit or credit balance which is done to verify the equality of the debits and credits.
Retained Earnings - ANSWER It is that portion of the stockholders' equity attributable to profitable operations, and it is equal to the aggregate of net income minus any net losses and dividends since the inception of the business. It does not represent cash or funds.
FOB Destination - ANSWER Title passes to the purchaser when the goods are unloaded from the common carrier and the seller bears the transportation charges.
FOB Shipping Point - ANSWER Title passes to the purchaser when the goods are loaded onto the common carrier and the purchaser bears the transportation charges.
Property, Plant, & Equipment - ANSWER Assets with a relatively long life which are used in the operation of the business and are not intended for sale in the ordinary course of business.
Working Capital - ANSWER It is the excess of current assets over current liabilities.
Contingent Liability - ANSWER It is a potential liability that may become an actual liability in the future based upon some past event.
Owners Equity - ANSWER It is the excess of the assets minus liabilities of a business.
Revenue - ANSWER Inflow or increase of assets or decrease of liabilities due to customers or clients, resulting from sales of merchandise or the performance of services (or from investments).
**- Accrual of assets or liabilities
- Valuation adjustments (e.g. Allowance for bad debts)**
- Prepare financial statements
- Journalize and post the journal entries necessary to close the books.
- Take an after closing trial balance, which should ONLY contain assets, liabilities and capital accounts.
Internal Controls - ANSWER • Establishment of responsibilities: One person can be identified as responsible for the transaction
- Segregation of duties: One person should not perform incompatible duties, i.e., should not have access to assets, do record keeping, or do reconciliation. - Documentation procedures: The forms and procedures to control the process, e.g., pre-numbered forms. **- Physical, mechanical, and electronic controls: Locks, safes, and passwords.
- Independent internal verification: Having someone else match the assets with the** record of those assets. - Other controls: Forced vacations and bonding (insurance) of employees
Bank Reconciliation - ANSWER The reasons for difference between the balance per bank statement and the balance of cash in ledger account.
Perpetual Method - ANSWER Changes in merchandise inventory are recorded as they take place, which means credits and debits in inventory account when acquisition or sale or usage takes place.
Periodic Inventory Method - ANSWER No running record of the inventory on hand is maintained. Inventory balances are periodically updated after taking a physical count of the merchandise on hand.
Inventory Contents - ANSWER Inventory should include all goods to which the company holds title and are held for sale to customers, whether or not the goods are on the premises or are in transit (see FOB Shipping Point and FOB Destination)
Lower-of-cost-or-market - ANSWER The cost of the inventory is the basis for determining the dollar amount of the inventory except when the market (current replacement cost) is lower than the cost.
First in first out method (FIFO) - ANSWER The first inventory acquired is assumed to be the first inventory used. Sales are assumed to be made from the oldest goods in stock. Inventory is then composed of the latest goods acquired. This method usually reflects the most recent costs in ending inventory. Physical flow does not have to match the FIFO cost flow.
last-in first-out method (LIFO)- The most recently acquired inventory is presumed to be the first inventory used up. Sales are assumed to made from the most recently purchased goods. Inventory is then made up of the earliest acquired goods including beginning inventory This method usually reflects the earliest costs in ending inventory Physical flow does not have to match the LIFO cost flow.
Weighted Average Cost - ANSWER The average cost per unit for the period is the TOTAL cost divided by TOTAL units. Inventory is then calculated by multiplying the quantity on hand by the average cost. This method usually reflects a middle amount of costs in ending inventory. Physical flow does not have to match the average cost flow.
Inventory errors If the inventory is misstated, both the balance sheet and the income statement will be affected the first year. Understated ending inventory makes net income be understated the first year but over stated the second year.
Depreciation - ANSWER is the orderly and rational distribution of cost, less residual value if any, over the estimated life of asset, which may be a group of assets. It is a process of cost allocation and not of valuation of the asset.
Declining Balance - ANSWER A fixed rate of depreciation is taken each year on the cost less accumulated depreciation. Note that residual value is not used in the calculation. Double declining balance means uses twice the straight line rate. Thus, if estimated life is 5 years, straight line rate is 1/5 = 20%. Therefore, double declining rate would be 2 X 20% = 40%.
Process Cost System - ANSWER • Costs "captured" by department (cutting, assembly, refining, packaging) and divided by the number of units (pounds, gallons, etc.) to arrive at a unit cost.
- Used where individual units are not separately identifiable (e.g., oil, fertilizer, grains, cereal, etc.).
Standard Costing - ANSWER Values inventory using carefully predetermined (budgeted) costs and inputs. Measures quantity and price variances from the standards in order to evaluate performance and efficiency of the manufacturing operation.
Labor Rate Variance - ANSWER (Actual Rate Standard Rate) x Actual Hours
Unfavorable ($10.25 $10.00) x (30 x 200) = $ 1,500 U
Labor Efficiency Variance - ANSWER (Actual Hours Standard Hours) x Standard Rate
UNFAVORABLE 200 x (30 25) x $10.00 = $10,000 U
TOTAL Labor Variance $11,500 U
Accounting Entry to Record Labor - ANSWER Work in Process (standard) 50,
Labor Rate Variance 1,500 Labor Efficiency Variance 10,
Wages Payable (Actual) 61,
Static Budget - ANSWER is prepared for a given level of activity
Flexible Budget - ANSWER is prepared for a various levels of activity
**- Total variable costs will be the variable cost per unit times the activity level
- Total fixed cost will normally be the same for the various levels**
Capital Budgeting - SOLUTION for long-lived assets
Payback Period - SOLUTION is the cash outlay divided by the annual cash inflow.
- Shorter is generally better.
Accounting Rate of Return - ANSWER is the annual cash inflow divided by the average investment. Higher is generally better.
Net Present Value - ANSWER is the discounted present value of all future cash flows minus the cash outflow to acquire the asset. Larger is generally better.
Discount Rate - ANSWER is the required cost of capital
Internal Rate of Return - ANSWER is the discount rate that would result in a net present value of zero.
Contribution Margin - ANSWER is the difference between revenues and variable costs
Expressed in Three Different ways:
- Per Unit: Sales price per unit variable cost per unit.
- Percentage: (Sales Dollars Variable Cost Dollars)/Sales Dollars
- Total: Total Sales Total Variable Costs
Breakeven Point (BEP) - ANSWER is the volume where the sales revenue exactly equals the Expenses (both fixed and variable).
Opportunity Cost - ANSWER is the revenue foregone by accepting the next best alternative. It is generally an inputted cost and not a recorded cost.
