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ACCT 201 – TEST 1

QUESTION 1 (10 marks)
Identify by letter the assumption or characteristic of information that best represents the situation given. (One mark for each matching)

A. Corporate governanceF.Liabilities

B. Going concern conceptG.Financial Accounting Information. C. Reliability (Objectivity) PrincipleH.Generally accepted accounting principles D. Stable-dollar assumptionI.Realization principle

E.Accrued basis accountingJ.Matching principles

____1.Future payment the business owes to creditors.

____2.The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue.

____3.Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind.

____4.The approach to preparing financial statements based on recognizing revenues when they are earned or expense when incurred even though payment has not be received or made. .

____5.The principle that determines when revenue should be recorded once services are rendered to customers or goods are sold or delivered to customers.

____6.An assumption by accountants that the monetary unit used in the preparation of financial statements is stable over time.

____7.The accounting guideline that requires financial statement information to be supported by evidence(s) other than someone’s opinion or imagination.

____8.Information designed to benefit of persons outside of the business. organization.

____9.The principle that requires expenses to be reported in the same period as the revenues that were earned to determine income for the period.

____10.The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States

QUESTION 2 (5 marks)
a)Indicate the effect of the following transactions on the accounting equation of Assets = Liabilities + Owner’s Equity. Use ( (increase); ( (decrease); and NE (no effect). (one mark for each question)

i)Paid insurance premiums in advance by cash.

ii)Received invoice/bill for electricity used for the month.

iii)Recorded the cost of supplies used during the year

b)Give an example of a transaction that creates the described effects: (one mark for each example)

i)An increase in asset and a decrease in asset

ii)An increase in liability and a decrease in owner’s equity.

QUESTION 3 (10 marks)

a)Revenues and expenses accounts are closed at the end of an accounting period. What will be the effect on the Income Statement and Balance Sheet of the 2nd year if those accounts were NOT CLOSED in the 1st year. Explain. (5 marks)

b)In five sentence or less, explain the difference between accrued expense and accrued revenue. (5 marks)

QUESTION 4 (14 marks)
The following are journal entries errors during the year of LeMonde Company, a sole proprietorship business owned and operated by Mr. LeMonde, himself.

|  | | | Total |Owners' | | |Net |Total | | | |Error |Income |Assets |Liabilities |Equity | |Services rendered for $200 cash were posted twice to the ledger.| | | | | | | | | | | |...
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