Multiple Choice Answers

1. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.

2. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.

3. Which of the following is an external user of accounting information?
a. Labor unions
b. Finance directors
c. Company officers
d. Managers

4. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.

5. Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.

6. Which one of the following is not a part of an account?
a. Credit side
b. Trial balance
c. Debit side
d. Title

7. Credits
a. decrease both assets and liabilities.
b. decrease assets and increase liabilities.
c. increase both assets and liabilities.
d. increase assets and decrease liabilities.

8. A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.

9. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.

10. The double-entry system requires that each transaction must be recorded
a. in at least two different accounts.
b. in two sets of books.
c. in a journal and in a ledger.
d. first as a revenue and then as an expense.

11. An accounting time period that is one year in length, but does not begin on January 1, is referred to as
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.

12. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly

13. Which of the following time periods would not be referred to as an interim period?
a. Monthly
b. Quarterly
c. Semi-annually
d. Annually

14. Which of the following are in accordance with generally accepted accounting principles?
a. Accrual basis accounting
b. Cash basis accounting
c. Both accrual basis and cash basis accounting
d. Neither accrual basis nor cash basis accounting

15. The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. dividends to stockholders should be matched with stockholders’ investments.
d. cash payments should be matched with cash receipts.

16. The information for preparing a trial balance on a worksheet is obtained from
a. financial statements.
b. general ledger accounts.
c. general journal entries.
d. business documents.

17. Closing entries are necessary for
a. permanent accounts only.
b. temporary accounts only.
c. both permanent and temporary accounts.
d. permanent or real accounts only.

18. A post-closing trial balance will show
a. only permanent account balances.
b. only temporary account balances.
c. zero balances for all accounts.
d. the amount of net income (or loss) for the period.

19. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly, quarterly) is
a. analyzing transactions.
b. journalizing and posting adjusting entries.
c. preparing a post-closing trial balance.
d. posting to ledger accounts.

20. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.

21. The standards and rules that are recognized as a general guide for financial reporting are called
a. generally accepted accounting standards.
b. generally accepted accounting principles.
c. operating guidelines.
d. standards of financial reporting.

22. “Generally accepted” in the phrase generally accepted accounting principles means that the principles
a. are proven theories of accounting.
b. have substantial authoritative support.
c. have been approved by the Internal Revenue Service.
d. have been approved for use by the managements of business firms.

23. The conceptual framework developed by the Financial Accounting Standards Board
a. was approved by a vote of all accountants.
b. are rules that all accountants must follow.
c. is viewed as providing a constitution for setting accounting standards for financial reporting.
d. is legally binding on all accountants.

24. Accounting principles must be
a. proven and tested.
b. hypothesized and theorized.
c. developed or decreed.
d. universally accepted.

25. FASB has had the responsibility for developing accounting principles since the early
a. 1900s.
b. 1920s.
c. 1940s.
d. 1970s.

26. Which one of the following is primarily interested in the liquidity of a company?
a. Federal government
b. Stockholders
c. Long-term creditors
d. Short-term creditors

27 Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
a. Liquidity
b. Profitability
c. Marketability
d. Solvency

28. In analyzing the financial statements of a company, a single item on the financial statements
a. should be reported in bold-face type.
b. is more meaningful if compared to other financial information.
c. is significant only if it is large.
d. should be accompanied by a footnote.

29. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.

30. Long-term creditors are usually most interested in evaluating
a. liquidity and solvency.
b. solvency and marketability.
c. liquidity and profitability.
d. profitability and solvency.