CLEP FINANCIAL ACCOUNTING FINAL

Which method results in lowest income during inflation?

LIFO

What is the primary purpose of internal controls?

To protect company assets and ensure accurate reporting

A bond premium occurs when:

Bonds are sold above face value

Bonds payable appear on the:

Balance sheet under long-term liabilities

A petty cash fund is used for:

Small

What does the term “maturity value” mean for a note payable?

Total amount to be paid at maturity

Which is an example of a preventive control?

Requiring two signatures on checks

Based on the provided accounts (Cash $40k AR $120k Inventory $300k Prepaid Rent $2k AP $150k Salaries Payable $7k)

what is TJ Supply's working capital?

What increases owner’s equity?

Earning revenue

Which method uses past experience to estimate uncollectible accounts?

Percentage of receivables

If accounts receivable increased from $27

000 to $41

Interest expense is classified as:

Operating expense

Which document initiates a liability?

Purchase order

FIFO stands for:

First-in

What happens when an asset is disposed of?

It is removed from the books and gain/loss is recorded

Amortization refers to:

Spreading intangible asset costs over time

If credit losses are 0.5% of $600

000 sales and AFDA has a $3

Treasury stock refers to:

Company's own stock repurchased

Depreciation is:

Allocation of cost over an asset's useful life

When using perpetual inventory systems:

COGS is updated after every sale

Dividends declared:

Decrease retained earnings

What impact does collecting a receivable have?

Total assets and net income are not affected

Accounts receivable turnover helps determine:

How quickly a firm collects cash on its credit sales

Retained earnings represent:

Accumulated profits not distributed as dividends

Inventory is recorded as:

A current asset

Which of the following is a current liability?

Accounts payable

Which asset is not depreciated?

Land

Which is considered an intangible asset?

Trademark

What is the primary purpose of an aging schedule?

To evaluate the collectibility of receivables

A contra-asset account related to receivables is:

Allowance for doubtful accounts

Which financial statement reports changes in cash by activity type?

Statement of cash flows

Which statement includes operating

financing

Which of the following is a non-cash adjustment in the operating section?

Depreciation expense

Which of the following is a financing activity?

Issuing common stock

Which activity section shows cash from selling products and services?

Operating

What is the first item used in the indirect method of preparing the statement of cash flows?

Net income

What does a negative cash flow from investing activities most likely indicate?

The company purchased long-term assets

What is deducted from net income to determine cash provided by operating activities?

Gain on sale of land

Which transaction appears in the investing section of the statement of cash flows?

Purchase of a machine

Cash flow from operations that is consistently negative may indicate:

Inability to sustain business operations

Which account typically appears on an income statement?

Sales revenue

Under accrual accounting

when is revenue recognized?

Net income is calculated by:

Subtracting expenses from revenues

Gross profit is defined as:

Sales revenue minus cost of goods sold

Why might a company use a multi-step income statement?

It provides more insight into profitability

What is the effect of an increase in expenses?

Decreases net income

An adjusting entry is required to:

Accurately reflect revenues and expenses for the period

What does a single-step income statement do?

Groups all revenues together and subtracts total expenses

The matching principle requires:

Expenses to be recorded in the same period as the related revenues

What is unearned revenue?

Cash received before providing goods or services

What distinguishes a multi-step income statement?

Separates operating and non-operating items

What happens during closing entries?

Revenue and expense accounts are reset to zero

The purpose of closing entries is to:

Transfer temporary account balances to retained earnings

Which account is not closed at the end of the period?

Cash

Which of the following is not an operating expense?

Equipment purchase

What is the first step in the accounting cycle?

Analyzing transactions

What does posting refer to in accounting?

Transferring journal entries to the general ledger

What is the primary purpose of financial accounting?

To communicate financial information to external users

Which organization issues the Code of Professional Conduct for accounting ethics?

AICPA

The purpose of a trial balance is to:

Ensure total debits equal total credits

Which group is most likely to rely on financial statements?

Investors and creditors

Which of the following describes ethical financial reporting?

Providing accurate

What does the revenue recognition principle require?

Revenue is recorded when earned and realizable

Which of the following best defines an asset?

A resource controlled by the business expected to provide future benefit

Which of the following is a key principle under GAAP?

Consistency

What is the going concern assumption?

The business will continue operating into the foreseeable future

Which financial statement shows a company's financial position at a specific point in time?

Balance sheet

Who is primarily responsible for establishing U.S. accounting standards?

FASB

Which constraint allows a company to ignore GAAP rules when the impact is insignificant?

Materiality

What is the correct accounting equation?

Assets = Liabilities + Owner's Equity

A contingent liability is recognized on the balance sheet when:

The loss is probable and reasonably estimable

Unrealized gains on available-for-sale securities are:

Reported in other comprehensive income

Contingent liabilities that are possible but not probable are:

Disclosed in the notes to financial statements

A short-term investment must be:

Easily convertible to cash within one year

Investments and contingent liabilities are similar because both:

May impact financial statements depending on classification or likelihood