ABM Q2

Which financial ratio is best used to measure a company's ability to pay its short-term obligations?

• Return on Equity

• Debt-to-Equity Ratio

• Current Ratio

• Gross Profit Margin

If an accrued expense is not recorded, what is the effect on the financial statements?

• Assets overstated, liabilities understated

• Expenses understated, net income overstated

• Assets understated, equity understated

• Liabilities overstated, equity overstated

Which of the following best represents the matching principle?

• Recognizing revenue when cash is received

• Recording expenses when paid

• Matching expenses to the revenue they help generate

• Using historical cost for assets

Which adjusting entry is required for unearned revenue that has now been earned?

• Debit Cash, Credit Revenue

• Debit Revenue, Credit Unearned Revenue

• Debit Unearned Revenue, Credit Revenue

• Debit Accounts Receivable, Credit Revenue

What is the effect of an owner withdrawing cash for personal use on the accounting equation?

• Decrease in assets and liabilities

• Increase in assets and capital

• Decrease in assets and capital

• Increase in liabilities and capital

Which of the following is considered a contra asset account?

• Prepaid Rent

• Accumulated Depreciation

• Unearned Revenue

• Allowance for Salaries

In a periodic inventory system, what is the correct formula to compute cost of goods sold?

• Beginning Inventory + Purchases - Ending Inventory

• Sales - Ending Inventory

• Beginning Inventory - Purchases + Sales

• Purchases - Sales + Ending Inventory

Which account is credited when goods are sold on account using the perpetual inventory system?

• Inventory

• Accounts Receivable

• Sales Revenue

• Purchases

What is the purpose of preparing a post-closing trial balance?

• To verify the accuracy of adjusting entries

• To list all temporary accounts

• To verify that permanent accounts are balanced

• To ensure debits equal credits for temporary accounts

Which form of business organization has the ability to issue shares of stock?

• Sole Proprietorship

• Partnership

• Corporation

• Cooperative