Essential Accounting Concepts: Financial Statements and Inventory Methods
Classified in Economy
Written on in 
English with a size of 4.19 KB
Accounting Fundamentals: True or False Statements
The usual presentation of the retained earnings statement includes (1) Beginning balance, (2) Net income or loss, (3) Dividends, (4) Stockholders' contributions, and (5) Ending balance.
Answer: False
Office Equipment is an example of a current asset account.
Answer: False
Journalizing and posting closing entries must be completed before financial statements can be prepared.
Answer: False
Assets, liabilities, and stockholders' equity accounts are real accounts and do not get closed at the end of the period.
Answer: True
In a merchandising business, sales minus operating expenses equals net income.
Answer: False (Sales minus Cost of Goods Sold equals Gross Profit; Gross Profit minus Operating Expenses equals Net Income.)
In retail businesses, inventory is reported as a current asset.
Answer: True
The dividends account is closed to the Income Summary account.
Answer: False (Dividends are closed directly to Retained Earnings.)
Most retailers record all credit card sales as credit sales.
Answer: False
A perpetual inventory system is an effective means of control over inventory.
Answer: True
Inventory controls start when the merchandise is shelved in the store area.
Answer: False (Controls start upon ordering or receiving.)
The choice of an inventory costing method has no significant impact on the financial statements.
Answer: False
Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.
Answer: True
Financial Accounting Concepts: Multiple Choice Questions
What is the major difference between the unadjusted trial balance and the adjusted trial balance?
Answer: The adjusted trial balance includes the postings of the adjustments for the period in the balance of the accounts.
Accumulated Depreciation appears on the:
Answer: Balance sheet in the property, plant, and equipment section.
Unearned Fees appear on the:
Answer: Balance sheet as a current liability.
The income statement should be prepared:
Answer: Before the retained earnings statement and balance sheet.
Which of the following is not a difference between a retail business and a service business?
Answer: Accounting equation.
What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
Answer: Gross profit.
The inventory system employing accounting records that continuously disclose the amount of inventory is called:
Answer: Perpetual.
Calculate income from operations for Jonas Company based on the following data:
Answer: $173,500.
Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to:
Answer: Sales tax payable for $420.
Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?
Answer: Specific identification.
Ending inventory is made up of the oldest purchases when a company uses:
Answer: Last-in, first-out (LIFO).
When merchandise sold is assumed to be in the order in which the purchases were made, the company is using:
Answer: First-in, first-out (FIFO).