BASIC ACCOUNTING QUIZ BEE 1011

The basic components of financial statements include (choose the incorrect one):

• a.statement of changes in equity

• b.statement of recognized gains and losses

• c.statement of retained earnings

• d.cash flow statement

Entries prepared, as a step in the accounting process, to bring the books and accounts up-to-date, is known as:

• opening entries

• adjusting entries

• closing entries

• reversing entries

Working capital is:

• a.the group assets which enables the business to operate profitably.

• b.capital which has been reinvested in the business.

• c.unappropriated retained earnings.

• d.current assets less current liabilities.

A partner by estoppel:

• Ostensible partner

• Secret partner

• Dormant

• Nominal

Immaterial amounts of similar nature and function should be grouped or condensed as one line item in the financial statements.

• a.consistency

• b.aggregation

• c.offsetting

• d.comparability

The theory which viewed the assets of a business as belonging to the owner or proprietor, the liabilities as debts of the owner, and the income of the business as an increase in the owner’s net worth or capital.

• Proprietary theory

• Equity theory

• Entity theory

• Funds theory

The primary responsibility of an independent auditor who is a CPA is to:

• Verify the accuracy of the amounts determined by the client.

• Assess whether the management is honest.

• Evaluate the “fair presentation” of the company’s eternal financial statements.

• Prepare current financial reports for the client.

The recording phase of accounting covers the following steps, except:

• business documents are received and prepared.

• transactions are journalized.

• transactions are posted to the ledger.

• financial statements are prepared.

If a transaction causes total liabilities to decrease but does not affect the owner’s equity, what change, if any, will occur in total assets?

• assets will be increased

• assets will be decreased

• no change in total assets

• none

It presents an indication in conformity with GAAP of the financial status of the enterprise at a particular point in time.

• a.balance sheet

• b.statement of earnings

• c.statement of retained earnings

• d.cash flow statement