Deck 3: The Accounting Information System

Question 1

An example of an internal event would be a flood that destroyed a portion of a company's inventory.

Answer 1

False

Question 2

One purpose of a trial balance is to prove that debits and credits are equal in the general ledger.

Answer 2

True

Question 3

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

Answer 3

True

Question 4

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

Question 5

All liability accounts and stockholders' equity accounts are increased on the credit side and decreased on the debit side.

Question 6

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

Question 7

Total stockholders' equity consists of common stock and the earnings retained in the business.

Question 8

In general, debits refer to increases in account balances, and credits refer to decreases.

Question 9

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

Question 10

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period.

Question 11

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed.

Question 12

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.

Question 13

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

Question 14

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.

Question 15

The post-closing trial balance consists of asset, liability, owners' equity, revenue and expense accounts.

Question 16

A ledger is where a company first records transactions and other selected events.

Question 17

The book value of any depreciable asset is the difference between its cost and its salvage value.

Question 18

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.

Question 19

The first step in the accounting cycle is the journalizing of transactions and selected other events.

Question 20

An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries.

Question 21

The process of transferring figures from the book of original entry to the ledger accounts is called

A) adjusting.
B) balancing.
C) ledgering.
D) posting.

Question 22

A trial balance may prove that debits and credits are equal, but

A) an amount could be entered in the wrong account.
B) a transaction could have been entered twice.
C) a transaction could have been omitted.
D) All of these answer choices are correct.

Question 23

Stockholders' equity is not affected by all

A) cash receipts.
B) dividends.
C) revenues.
D) expenses.

Question 24

Nominal accounts are also called

A) temporary accounts.
B) permanent accounts.
C) real accounts.
D) None of these answer choices are correct.

Question 25

The accounting equation must remain in balance

A) throughout each step in the accounting cycle.
B) only when journal entries are recorded.
C) only at the time the trial balance is prepared.
D) only when formal financial statements are prepared.

Question 26

Factors that shape an accounting information system include the

A) nature of the business.
B) size of the firm.
C) volume of data to be handled.
D) All of these answer choices are correct.

Question 27

The difference between the accounting process and the accounting cycle is

A) the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions.
B) the accounting cycle represents the steps taken to accomplish the accounting process.
C) the accounting process represents the steps taken to accomplish the accounting cycle.
D) merely semantic, because both concepts refer to the same thing.

Question 28

When a corporation pays a note payable and interest,

A) the account notes payable will be increased.
B) the account interest expense will be decreased.
C) they will debit notes payable and interest expense.
D) they will debit cash.

Question 29

An optional step in the accounting cycle is the preparation of

A) adjusting entries.
B) closing entries.
C) a statement of cash flows.
D) a post-closing trial balance.

Question 30

The double-entry accounting system means

A) Each transaction is recorded with two journal entries.
B) Each item is recorded in a journal entry, then in a general ledger account.
C) The dual effect of each transaction is recorded with a debit and a credit.
D) None of these answer choices are correct.

Question 31

Debit always means

A) the right side of an account.
B) an increase.
C) a decrease.
D) None of these answer choices are correct.

Question 32

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

A) The event or item can be measured objectively in financial terms.
B) The event or item is relevant and reliable.
C) The event or item is an element.
D) All of these must be met.

Question 33

External events do not include

A) interaction between an entity and its environment.
B) a change in the price of a good or service that an entity buys or sells.
C) improvement in technology by a competitor.
D) using buildings and machinery in operations.

Question 34

Which of the following is a nominal (temporary) account?

A) Unearned Service Revenue
B) Salaries and Wages Expense
C) Inventory
D) Retained Earnings

Question 35

Which of the following is a real (permanent) account?

A) Goodwill
B) Service Revenue
C) Accounts Receivable
D) Both Goodwill and Accounts Receivable

Question 36

An accounting record into which the essential facts and figures in connection with all transactions are first recorded is called the

A) ledger.
B) account.
C) trial balance.
D) None of these answer choices are correct.

Question 37

Which of the following is not an internal event?

A) Depreciation
B) Using raw materials in the production process
C) Dividend declaration and subsequent payment
D) All of these are internal transactions.

Question 38

Which of the following is a recordable event or item?

A) Changes in managerial policy
B) The value of human resources
C) Changes in personnel
D) None of these answer choices are correct.

Question 39

A trial balance

A) proves that debits and credits are equal in the ledger.
B) supplies a listing of open accounts and their balances that are used in preparing financial statements.
C) is normally prepared three times in the accounting cycle.
D) All of these answer choices are correct.

Question 40

The debit and credit analysis of a transaction normally takes place

A) before an entry is recorded in a journal.
B) when the entry is posted to the ledger.
C) when the trial balance is prepared.
D) at the end of the accounting cycle.

Question 41

To compute interest expense on a note for an adjusting entry, the formula is (principal × annual rate × a fraction). The numerator and denominator of the fraction are:

Question 42

A general journal

A) chronologically lists transactions and other events, expressed in terms of debits and credits.
B) contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts.
C) lists all the increases and decreases in each account in one place.
D) contains only adjusting entries.

Question 43

A journal entry to record a receipt of rent in advance will include a

A) debit to Rent Revenue.
B) credit to Rent Revenue.
C) credit to Cash.
D) credit to Unearned Revenue.

Question 44

Adjustments are often prepared

A) after the balance sheet date, but dated as of the balance sheet date.
B) after the balance sheet date, and dated after the balance sheet date.
C) before the balance sheet date, and dated before the balance sheet date.
D) before the balance sheet date, and dated after the balance sheet date.

Question 45

Which of the following properly describes a deferral?

A) Cash is received after revenue is recognized.
B) Cash is received before revenue is recognized.
C) Cash is paid after expense is incurred.
D) Cash is paid in the same time period that an expense is incurred.

Question 46

The omission of the adjusting entry to record depreciation expense will result in an

A) overstatement of assets and an overstatement of owners' equity.
B) understatement of assets and an understatement of owner's equity.
C) overstatement of assets and an overstatement of liabilities.
D) overstatement of liabilities and an understatement of owners' equity.

Question 47

How do these prepaid expenses expire?

Question 48

Unearned revenue on the books of one company is likely to be

A) a prepaid expense on the books of the company that made the advance payment.
B) an unearned revenue on the books of the company that made the advance payment.
C) an accrued expense on the books of the company that made the advance payment.
D) an accrued revenue on the books of the company that made the advance payment.

Question 49

The failure to properly record an adjusting entry to accrue an expense will result in an

A) understatement of expenses and an understatement of liabilities.
B) understatement of expenses and an overstatement of liabilities.
C) understatement of expenses and an overstatement of assets.
D) overstatement of expenses and an understatement of assets.

Question 50

Which of the following is not a principal purpose of an unadjusted trial balance?

A) It proves that debits and credits of equal amounts are in the ledger.
B) It is the basis for any adjustments to the account balances.
C) It supplies a listing of open accounts and their balances.
D) It proves that debits and credits were properly entered in the ledger accounts.

Question 51

An adjusting entry to record an accrued expense involves a debit to a(an)

A) expense account and a credit to a prepaid account.
B) expense account and a credit to Cash.
C) expense account and a credit to a liability account.
D) liability account and a credit to an expense account.

Question 52

The failure to properly record an adjusting entry to accrue a revenue item will result in an

A) understatement of revenues and an understatement of liabilities.
B) overstatement of revenues and an overstatement of liabilities.
C) overstatement of revenues and an overstatement of assets.
D) understatement of revenues and an understatement of assets.

Question 53

A journal entry to record a payment on account will include a

A) debit to Accounts Receivable.
B) credit to Accounts Receivable.
C) debit to Accounts Payable.
D) credit to Accounts Payable.

Question 54

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for

A) an unearned revenue.
B) a prepaid expense.
C) an accrued revenue.
D) an accrued expense.

Question 55

Which of the following errors will cause an imbalance in the trial balance?

A) Omission of a transaction in the journal.
B) Posting an entire journal entry twice to the ledger.
C) Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable.
D) Listing the balance of an account with a debit balance in the credit column of the trial balance.

Question 56

At the time a company prepays a cost

A) it debits an asset account to show the service or benefit it will receive in the future.
B) it debits an expense account to match the expense against revenues recognized.
C) its credits a liability account to show the obligation to pay for the service in the future.
D) it credits an asset account and debits an expense account.

Question 57

Which of the following is an example of an accrued expense?

A) Office supplies purchased at the beginning of the year and debited to an expense account.
B) Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.
C) Depreciation expense
D) Rent recognized during the period, to be received at the end of the year

Question 58

Which of the following statements is true about the accrual basis of accounting?

A) The timing of cash receipts and disbursements is emphasized.
B) A minimal amount of record keeping is required in accrual basis accounting compared to cash basis.
C) This method is used less frequently by businesses than the cash method of accounting.
D) Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

Question 59

A journal entry to record the sale of inventory on account will include a

A) debit to Inventory.
B) debit to Accounts Receivable.
C) debit to Sales Revenue.
D) credit to Cost of Goods Sold.

Question 60

An adjusting entry should never include

A) a debit to an expense account and a credit to a liability account.
B) a debit to an expense account and a credit to a revenue account.
C) a debit to a liability account and a credit to revenue account.
D) a debit to a revenue account and a credit to a liability account.

Question 61

Adjusting entries are necessary to
1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair market value.

A) 1
B) 2
C) 3
D) 1 and 2

Question 62

When revenue or expense has been recognized or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.

A) deferred
B) adjusted
C) estimated
D) None of these answer choices are correct.

Question 63

During an accounting period, if an expense has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A) a liability account and an asset account.
B) an asset or contra asset account and an expense account.
C) a liability account and an expense account.
D) a receivable account and a revenue account.

Question 64

An unearned revenue can best be described as an amount

A) collected and currently matched with expenses.
B) collected and not currently matched with expenses.
C) not collected and currently matched with expenses.
D) not collected and not currently matched with expenses.

Question 65

An accrued revenue can best be described as an amount

A) collected and currently matched with expenses.
B) collected and not currently matched with expenses.
C) not collected and currently matched with expenses.
D) not collected and not currently matched with expenses.

Question 66

A prepaid expense can best be described as an amount

A) paid and currently matched with revenues.
B) paid and not currently matched with revenues.
C) not paid and currently matched with revenues.
D) not paid and not currently matched with revenues.

Question 67

If ending accounts receivable exceeds the beginning accounts receivable

A) cash collections during the period exceed the amount of revenue recognized.
B) net income for the period is less than the amount of cash-basis income.
C) no cash was collected during the period.
D) cash collections during the year are less than the amount of revenue recognized.

Question 68

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

A) The original cost of the asset
B) Its useful life
C) The decline of its fair value
D) Both the original cost of the asset and its useful life.

Question 69

Under the cash-basis of accounting, revenues are recorded

A) when they are recognized and realized.
B) when they are recognized and realizable.
C) when they are recognized.
D) when they are realized.

Question 70

When converting from cash-basis to accrual-basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual-basis service revenue?

A) Subtract ending accounts receivable.
B) Subtract beginning unearned service revenue.
C) Add ending accounts receivable.
D) Add cash sales.

Question 71

When converting from cash-basis to accrual-basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual-basis operating expenses?

A) Add beginning accrued liabilities.
B) Subtract beginning prepaid expense.
C) Subtract ending prepaid expense.
D) Subtract interest expense.

Question 72

When an expense is paid in cash before it is used, it is called a(n)

A) prepaid expense.
B) accrued expense.
C) estimated expense.
D) cash expense.

Question 73

Which of the following would not be a correct form for an adjusting entry?

A) A debit to a revenue and a credit to a liability
B) A debit to an expense and a credit to a liability
C) A debit to a liability and a credit to a revenue
D) A debit to an asset and a credit to a liability

Question 74

Which type of account is always debited during the closing process?

A) Dividends
B) Expense
C) Revenue
D) Retained earnings

Question 75

Which of the following statements best describes the purpose of closing entries?

A) To faciliate posting and taking a trial balance.
B) To determine the amount of net income or net loss for the following period.
C) To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.
D) To complete the record of various transactions that were started in a prior period.

Question 76

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

A) To reduce the federal income tax liability
B) To aid management in cash-flow analysis
C) To match the costs of production with revenues as recognized
D) To adhere to the accounting constraint of conservatism

Question 77

An accrued expense can best be described as an amount

A) paid and currently matched with earnings.
B) paid and not currently matched with earnings.
C) not paid and not currently matched with earnings.
D) not paid and currently matched with earnings.

Question 78

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

A) Expiration of prepaid insurance
B) Depreciation of fixed assets
C) Use of supplies
D) All of these answer choices are correct.

Question 79

When a revenue is collected and recorded in advance, it is normally accounted for as a(n) ___________ revenue.

A) accrued
B) prepaid
C) unearned
D) cash

Question 80

An adjusted trial balance

A) is prepared after the financial statements are completed.
B) proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made.
C) is a required financial statement under generally accepted accounting principles.
D) cannot be used to prepare financial statements.