Mixed Deck — All CPB / BookKeeping Topics Flashcards

3. Which of the choices is a working capital item?

Answer: Accounts receivable

Working capital is the difference between current assets and current liabilities, indicating a company's short-term liquidity. Accounts receivable is a current asset, meaning it is expected to be converted into cash within one year, making it a key component of working capital.

A ledger is a collection of financial records.

Answer: True

A ledger is indeed a comprehensive collection of all the individual financial accounts used by a business. It serves as a repository where all transactions affecting a specific asset, liability, equity, revenue, or expense account are summarized. This organized collection allows for the calculation of account balances and the preparation of financial statements.

What is the employer's FUTA tax rate on the first $7,000 of each employee's wages, assuming full credit applies?

Answer: 0.6%

After applying the standard 5.4% SUTA credit, the net FUTA rate is 0.6% on the first $7,000 of wages.

Which financial statement reports a company's revenues and expenses over a specific period?

Answer: Income Statement

The Income Statement (also called the Profit and Loss Statement) reports revenues and expenses for a defined accounting period.

The calculation for ending Retained Earnings is: Beginning Retained Earnings + Net Income - Dividends. A company had a beginning retained earnings balance of $150,000. Its income statement for the year shows a net income of $45,000. During the year, the company declared and paid $10,000 in dividends. What is the ending Retained Earnings balance?

Answer: $185,000

The ending Retained Earnings is calculated by taking the beginning balance, adding the net income for the period, and subtracting any dividends paid. The calculation is: $150,000 (Beginning RE) + $45,000 (Net Income) - $10,000 (Dividends) = $185,000.

Which accounts are closed at the end of the accounting period?

Answer: Revenue, expenses, and dividends

Temporary accounts — revenues, expenses, and dividends — are closed to Retained Earnings at period end.

When a company purchases inventory on credit terms, the correct journal entry is:

Answer: Debit Inventory, Credit Accounts Payable

Purchasing inventory on credit increases the Inventory asset (debit) and creates an obligation recorded as Accounts Payable (credit).

A business receives $600 in advance for services not yet performed. This is recorded as:

Answer: Debit Cash, Credit Unearned Revenue

Cash received before earning it creates Unearned Revenue, a liability, because the business still owes the service to the customer.

14. What language do the abbreviations for debit and credit (Dr. and Cr.) come from and what do they mean?

Answer: Latin, debere and credere

The abbreviations Dr. and Cr. for debit and credit originate from Latin. "Dr." comes from "debere," meaning "to owe," and "Cr." comes from "credere," meaning "to entrust" or "to believe." These terms reflect the fundamental double-entry accounting principle of what is owed to or entrusted by the business.

In a ledger, the term 'cross-referencing' between the journal and ledger serves what purpose?

Answer: To allow tracing entries between the journal and ledger for verification

Cross-referencing (writing journal page numbers in ledger and account numbers in journals) creates an audit trail allowing entries to be traced in both directions.

Which pair of accounts is affected when prepaid insurance of $1,200 expires after one month ($100)?

Answer: Insurance Expense and Prepaid Insurance

As prepaid insurance expires, Insurance Expense is debited and Prepaid Insurance is credited to recognize the cost used.

10. In what ways do you calculate the Current Ratio?

Answer: subtract current assets from current liabilities

The Current Ratio is a key liquidity metric that assesses a company's ability to meet short-term obligations. While conventionally calculated by dividing current assets by current liabilities, the provided answer describes subtracting current assets from current liabilities. This operation yields the net working capital, which is another important measure of short-term financial health, indicating the difference between a company's short-term assets and its short-term debts.

Which ledger account type normally carries a credit balance?

Answer: Unearned Revenue

Unearned Revenue is a liability account and normally carries a credit balance, representing money received before services are performed.

Daybooks are also called.

Answer: Bookkeeping journals

Journals are often called daybooks because transactions are recorded in them daily, in chronological order, as they occur. They serve as the initial record of financial events before being transferred to the ledgers. Therefore, 'bookkeeping journals' is another term for these records.

The primary purpose of a journal in accounting is to:

Answer: Provide a chronological record of all business transactions.

The journal, sometimes called the book of original entry, is used to record all transactions in chronological order as they occur. The general ledger summarizes account balances, and the balance sheet reports financial position.

When is a ledger account said to have a 'zero balance'?

Answer: When total debits equal total credits

A ledger account has a zero balance when the sum of all debit entries equals the sum of all credit entries, resulting in no net balance.

Which financial statement reconciles net income to retained earnings?

Answer: Statement of retained earnings

The statement of retained earnings shows the beginning balance, adds net income, subtracts dividends, and arrives at the ending retained earnings balance.

When a customer pays $1,200 in advance for services to be rendered next month, the bookkeeper should:

Answer: Debit Cash, Credit Unearned Revenue

Cash received before services are performed creates a liability (Unearned Revenue) because the obligation to deliver the service still exists.

Which of the following adjusting entries records revenue that has been earned but not yet received?

Answer: Debit Accounts Receivable, Credit Revenue

Accrued revenue is recorded by debiting Accounts Receivable and crediting Revenue to recognize income earned but not yet collected.

Which inventory costing method assumes the most recently purchased items are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the last items purchased are the first items sold.