Assignment

1. Unearned Revenue is a (n)

Hint:

consider the difference between services revenue (earned after services is performed) and unearned income (where cash advance is received but services have not been provided)

a. Liability account

b. Expense account

c. Income account

d. Equity account

2. A credit balance in which of the following accounts is not a normal balance?

Use this simple guide to determine the normal entry(ies) for Dr or Cr

DEBIT = CREDIT CREDITFINANCIAL STATEMENT

ASSET =LIABILITIES+EQUITY (BALANCE SHEET)

EXPENSES REVENUE(INCOME STATEMENT)

DRAWINGS CONTRIBUTION (CHANGES IN EQUITY)

a. Accounts Payable

b. Janet James, Capital

c. Salary Expense

d. Fees Earned

3. A trial balance is prepared to

a. make sure the debits and credits are equal

b. link the journal and the ledger

c. calculate profit or loss

d. show the Bank manager

4. Debts due (payable < 12 months) for payment within one year are

a. current liabilities

b. non-current liabilities

c. current assets

d. non-current assets

5. Which of the following groups are considered to be internal users of accounting information?

a. Employees and customers

b. Government and banks

c. Employees and managers

d. Customers and vendors

6. The gross increases in owner's equity as a result of business activities (i.e. business operations) are called:

Hint: consider the structure of the Statement of Changes in Equity:

Capital, Beginning

Add: Owner's contribution

Add: Profit ( - expenses)

Less: Drawings

Capital, Ending (reported in the Balance Sheet)

a. expenses

b. revenues

c. Assets

d. Liabilities

7.A company purchases a one-year insurance policy on Dec 1 for $2,760. The adjusting entry on June 30 is

Hint:

By Jun 30, how many months of prepaid insurance (asset) would have expired as insurance expense?

Dec 1 (beginning of December) to Jun 30 (end of Jun of the following year)

Use this simple guide to determine the normal entry(ies) for Dr or Cr

DEBIT = CREDIT CREDITFINANCIAL STATEMENT

ASSET =LIABILITIES+EQUITY (BALANCE SHEET)

EXPENSES REVENUE(INCOME STATEMENT)

DRAWINGS CONTRIBUTION (CHANGES IN EQUITY)

a. debit Insurance Expense, $1,150 and credit Prepaid Insurance, $1,150.

b. debit Prepaid Insurance, $1,380, and credit Cash, $1,380.

c. debit Insurance Expense, $1,610, and credit Prepaid Insurance, $1,610.

d. debit Insurance Expense, $1,380 and credit Prepaid Insurance, $1,380.

8. Supplies purchased during the year totalled $700. At the end, only $125 of supplies remained on hand. The amount recorded in the supplies expense account is:

supplies decreased from $700 to $125

supplies used (cost incurred during operations) will be recoded as supplies expense in the income statement

a. $125

b. $825

c. $575

d. $700

9. On 1 March Speedy Cleaning paid $1200 rent for March. What is the effect on the accounting equation?

Hint: consider the impact of rent expense on Equity. Does equity increase or decrease with expenses?

Use this simple guide to determine the normal entry(ies) for Dr or Cr

DEBIT = CREDIT CREDITFINANCIAL STATEMENT

ASSET =LIABILITIES+EQUITY (BALANCE SHEET)

EXPENSES REVENUE(INCOME STATEMENT)

DRAWINGS CONTRIBUTION (CHANGES IN EQUITY)

a. Decrease in cash at bank $1200; decrease in liability accounts payable $1200

b. Decrease in cash at bank $1200; decrease in equity $1200

c. Decrease in cash at bank $1200; increase in liability accounts payable $1200

d. Decrease in cash at bank $1200; increase in equity $1200

10. Which of the following is not a business transaction??:

(Hint: non-business transactions are:)

transactions of a private nature, nothing to do with the business;

discussions, proposals that have not been actioned (i.e. no liability, cost incurred, prepaid, accruals)

a. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month.

b. Erin provided services to customers earning fees of $600.

c. Erin pays her monthly personal credit card bill.

d. Erin deposits $15,000 in a bank account in the name of Erin's Lawn Service.

11. A debit may signify a(n)

Use this simple guide to determine the normal entry(ies) for Dr or Cr

DEBIT = CREDIT CREDITFINANCIAL STATEMENT

ASSET =LIABILITIES+EQUITY (BALANCE SHEET)

EXPENSES REVENUE(INCOME STATEMENT)

DRAWINGS CONTRIBUTION (CHANGES IN EQUITY)

a. decrease in asset accounts

b. decrease in the drawing account

c. increase in the capital account

d. decrease in liability accounts

12. Which of the following would not normally operate as a service business?

(Note: revenue is either from services provided or goods sold. Which business sells goods?)

a. Lawn Mowing

b. Pet Groomers

c. Grocers? (e.g. Woolworths)

d. Styling Salon

13. On the first day of the year Tan Traders purchased a machine for $12 000 with zero scrap value. It will be depreciated by 25% a year. On balance date (the end of the financial year) the adjusting entry to record depreciation is:

Cost $12 000 - Scrap value $0 = $12 000 total cost to depreciation

After 1 year 25% of $12 000 will be depreciated (calculate this)

Machine (non-current asset) will be depreciated. What is the Debit and Credit accounts? Remember: what is a contra-asset account?

a. DR depreciation expense $3000; CR accumulated depreciation machine $3000

b. DR depreciation expense $12 000; CR accumulated depreciation machine $12 000

c. DR depreciation expense $3000; CR machine $3000

d. DR accumulated depreciation machine $3000; CR depreciation expense $3000

14. Speedy Cleaning purchased new furniture for $540 on account. What is the affect on the accounting equation?

a. Increase in furniture $540; decrease in accounts receivable $540

b. Increase in furniture $540; increase in equity $540

c. Increase in furniture $540; increase in accounts receivable $540

d. Increase in furniture $540; increase in accounts payable $540

15. An income statement is prepared

a. For the (period) ended (date)

b. To list all assets and liabilities

c. To determine the liquidity of the entity

d. As at (date)

16. Assets are

a. the same as expenses because they are acquired with cash

b. always lower than liabilities

c. financed by the owner and/or creditors

d. equal to liabilities less owner's equity

17. Using the following, if no capital contribution or drawing was made, what is the profit for 2015?

31 Dec. 2014 31 Dec. 2015

Assets $450 000 $610 000

Liabilities 270 000 310 000

a. $160 000

b. $120 000

c. $300 000

d. $220 000

18. Accrual Accounting

a. Ignores Receivables, Payables and non-cash items

b. Records only cash receipts and payments

c. Records the effect of each transaction as it occurs

d. Only used in very small businesses

19. Adjusting for Prepaid Rent of $4 000 that has expired/used is:

prepaid rent expired is an expense;

adjust to reduce prepaid rent.

Use this simple guide to determine the normal entry(ies) for Dr or Cr

DEBIT = CREDIT CREDITFINANCIAL STATEMENT

ASSET =LIABILITIES+EQUITY (BALANCE SHEET)

EXPENSES REVENUE(INCOME STATEMENT)

DRAWINGS CONTRIBUTION (CHANGES IN EQUITY)

a. Debit Prepaid Rent $4 000; Credit Rent Expense $4 000

b. Debit Rent Receivable $4 000; Credit Rent Expense $4 000

c. Debit Rent Expense $4 000; Credit Prepaid Rent $4 000

d. Debit Rent Expense $4 000; Credit Unearned Revenue $4 000

20. Who is an internal decision maker in a Business Organisation?

a. Creditor

b. Government

c. Shareholder

d. Managing director