Accounting 1 Semester 1 Final Exam Review Practice

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1 Accounting 1 Semester 1 Final Exam Review Practice True/False Indicate whether the sentence or statement is true or false. 1. Accounting is the language of business. 2. The relationship among assets, liabilities, and owner's equity can be written as an equation. 3. The accounting equation does not have to be in balance to be correct. 4. A business that performs an activity for a fee is a service business. 5. The amount in an account is an account balance. 6. The capital account is a liability account. 7. Double lines below a column total mean that the totals have been verified as correct. 8. A withdrawal is an expense. 9. Cash is increased by expenses. 10. Payments for advertising, equipment repairs, utilities, and rent are expense transactions. 11. Revenue is a decrease in owner's equity resulting from the operation of a business. 12. The accounting equation must remain in balance after the changes caused by a transaction have been recorded! 13. The accounts on the left side of the accounting equation include the liabilities and owner's equity. 14. When a company receives cash from a customer for a prior sale, the transaction decreases the cash account balance and increases the accounts receivable balance. 15. When cash is paid for expenses, the business has less cash; therefore, the asset account Cash is decreased and the owner's equity account is increased! 16. When cash is paid to the owner for personal use, assets decrease and owner's equity decreases. 17. The right side of a balance sheet presents liabilities and assets. 18. The balance of an account increases on the same side as the normal balance side. 19. A list of accounts used by a business is a chart of accounts. 20. Capital is an owner's equity account with a normal debit balance. 21. When cash is paid for supplies, the supplies account is increased by a debit. 22. The balance of a drawing account represents the total value of assets taken out of a business by the owner. 23. The normal balance side of an accounts receivable account is a credit. 24. Accounts payable accounts are increased with a debit. 25. Information for each transaction recorded in a journal is an entry. 26. A receipt is the source document for cash received from sales transactions. 27. A memorandum is a business form giving written acknowledgment for cash received.

2 28. Posting is transferring information from a journal entry to a ledger account. 29. Only the column totals for special amount columns in a journal are posted. 30. A check mark in parentheses below a General Debit column total indicates that the total is not posted. 31. If a bank does not receive payment from the person who signed the check, each endorser of the check is individually liable for payment. 32. A check with a future date on it is a postdated check. 33. On a bank statement reconciliation, the adjusted check stub balance must be the same as the adjusted bank balance. 34. When writing a check, the first step is to prepare the check stub. 35. The source document for an electronic funds transfer is a memorandum. 36. When the petty cash fund is replenished, the balance of the petty cash account increases. 37. The balance of the supplies account plus the value of the supplies on hand equals the up-to-date balance of the supplies account. 38. The value of the prepaid insurance coverage used during a fiscal period is an expense. 39. Journals, ledgers, and work sheets are considered permanent records. 40. Totaling and ruling the Adjustments columns of a work sheet is necessary to prove the equality of debits and credits. 41. Two financial statements are prepared from the information on the work sheet. 42. Component percentages on an income statement are calculated by dividing sales and total expenses by net income. 43. A source document is prepared for adjusting entries. 44. A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted. 45. Temporary accounts are not listed on a post-closing trial balance. Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 46. The accounting equation is most often stated as. a. assets = liabilities c. assets = liabilities + owner's equity b. cash = assets d. liabilities + assets = owner's equity 47. If cash is increased by $2, when the owner invests cash in the business, then capital is. a. increased by $2, c. increased by $1, b. decreased by $2, d. not changed 48. When cash is decreased and supplies are increased by an equal amount,. a. there is an increase in liabilities c. there is a decrease in liabilities b. there is an increase in owner's equity d. liabilities and capital are not changed 49. When a transaction changes only one side of the equation, if one account is increased, the other account on the same side must. a. increase c. not change

3 b. decrease d. none of the above 50. Prepaid Insurance is. a. an asset account. c. an owner's equity account. b. a liability account. d. none of the above 51. Buying items and paying for them at a future date is. a. not recommended c. illegal b. not a common business practice d. a common business practice 52. When a business buys supplies on account, assets. a. increase c. decrease b. increase and liabilities decrease d. decrease and liabilities increase 53. Assets are. a. listed on the right side of the balance sheet b. listed on the left side of the balance sheet c. listed on both sides of the balance sheet d. not listed on the balance sheet 54. Total assets are $22, Supplies are bought on account for $1, The total assets are now. a. $22, c. $20, b. $23, d. $25, An established business should rarely experience a decrease in. a. cash c. owner's equity b. expenses d. liabilities 56. If a business received $2, from sales, this would. a. increase assets and increase owner's equity b. increase assets and decrease liabilities c. increase liabilities and decrease owner's equity d. decrease assets and decrease owner's equity 57. The items shown on the right side of a balance sheet include. a. capital and assets c. liabilities and owner's equity b. assets and owner's equity d. assets and liabilities 58. In a T account, the debit side is. a. the left side c. both A and B b. the right side d. neither A nor B 59. The normal balance side of an asset account is the. a. debit side c. decrease side b. credit side d. right side 60. When a business pays for insurance, Prepaid Insurance is. 61. When cash is paid for rent, Rent Expense is. 62. When the owner withdraws cash, the owner's drawing account is. 63. Decreases in an asset account are shown on a T account's a. debit side c. balance side b. credit side d. none of the above 64. A business form ordering a bank to pay cash from a bank account is.

4 a. a check c. a receipt b. a memorandum d. all of the above 65. Determining that the amount of cash agrees with the accounting records is. a. proving a journal c. forwarding totals to a new journal page b. proving that debits equal credits d. proving cash 66. A new account to be added between accounts 530 and 540 will be assigned the number. a. 531 c. 537 b. 535 d Posting references in a journal are. a. not necessary b. the first item recorded when posting c. always placed in an account's Post. Ref. column d. none of the above 68. A form showing proof of a petty cash payment is a. a. check c. petty cash check stub b. petty cash slip d. journal 69. Recording revenue from business activities and expenses associated with earning that revenue in the same accounting period is an application of the accounting concept. a. Matching Expenses with Revenue c. Consistent Reporting b. Accounting Period Cycle d. Going Concern 70. On a work sheet, the balance of an expense account is extended to the. a. Balance Sheet Debit column c. Income Statement Debit column b. Balance Sheet Credit column d. Income Statement Credit column 71. If a pair of work sheet columns do not balance and the difference between the totals is an amount that appears elsewhere on the work sheet, the error is probably. a. an error in addition b. an amount that has been written in the wrong column c. an amount that has not been extended d. a slide 72. If the Trial Balance columns are not equal and the difference can by divided evenly by 9, the error most likely is. a. in transposed numbers or a "slide" c. addition b. subtraction d. in writing an amount in the wrong column 73. Temporary accounts begin each new fiscal period with a. a. debit balance c. zero balance b. credit balance d. balance equal to the net income 74. The journal entry to close Income Summary when there is a net income is. a. debit Sales; credit Income Summary b. debit owner's capital; credit Income Summary c. debit owner's capital account; credit Sales d. debit Income Summary; credit owner's capital 75. Information needed for journalizing the adjusting entries is obtained from the. a. general ledger account Balance columns c. work sheet's Adjustments columns b. income statement d. balance sheet

5 Final Exam Review Practice Answer Section TRUE/FALSE 1. ANS: T PTS: 1 2. ANS: T PTS: 1 3. ANS: F PTS: 1 4. ANS: T PTS: 1 5. ANS: T PTS: 1 6. ANS: F PTS: 1 7. ANS: T PTS: 1 8. ANS: F PTS: 1 9. ANS: F PTS: ANS: T PTS: ANS: F PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: 1 MULTIPLE CHOICE 46. ANS: C PTS: ANS: A PTS: ANS: D PTS: ANS: B PTS: ANS: A PTS: ANS: D PTS: ANS: A PTS: ANS: B PTS: ANS: B PTS: ANS: C PTS: ANS: A PTS: ANS: C PTS: ANS: A PTS: ANS: A PTS: ANS: A PTS: ANS: A PTS: ANS: A PTS: ANS: B PTS: ANS: A PTS: ANS: D PTS: ANS: B PTS: ANS: D PTS: ANS: B PTS: ANS: A PTS: ANS: C PTS: ANS: C PTS: ANS: A PTS: ANS: C PTS: ANS: D PTS: ANS: C PTS: 1

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