Deck 3: The Accounting Information System

Question 1

Debit and credit can be interpreted to mean "bad" and "good", respectively.

Answer 1

False

Question 2

A credit balance in a liability account indicates that an error in recording has occurred.

Answer 2

False

Question 3

An account is often referred to as a T-account because of the way it is constructed.

Answer 3

True

Question 4

The recording process becomes more efficient and informative if all transactions are recorded in one account.

Question 5

Revenue increases stockholders' equity and should be recorded whenever cash is received from customers.

Question 6

An account consists of two parts: (1) a left or debit side and (2) a right or credit side.

Question 7

The normal balance of all accounts is a debit.

Question 8

Collection on an account receivable will increase both cash and accounts receivable.

Question 9

A decrease in a liability account is recorded by a debit.

Question 10

The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

Question 11

A credit means that an account has been increased.

Question 12

A new account is opened for each transaction entered into by a business firm.

Question 13

Economic events that require recording in the financial statements are called accounting transactions.

Question 14

An increase in an asset is recorded by a debit.

Question 15

If a revenue account is credited, the revenue account is increased.

Question 16

The normal balance of an asset is a credit.

Question 17

The payment of a liability decreases both cash and accounts payable.

Question 18

The account balance is the difference in total dollars between total debit amounts and total credit amounts.

Question 19

If total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders' equity.

Question 20

A debit to an account always indicates an increase in that account.

Question 21

The journal is a chronological record of all transactions.

Question 22

Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

Question 23

The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

Question 24

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

Question 25

Revenues are a subdivision of stockholders' equity.

Question 26

Assets are decreased with a credit.

Question 27

A journal is an accounting record in which transactions are initially recorded.

Question 28

Source documents can provide evidence that a transaction has occurred.

Question 29

Under the double-entry system, revenues must always equal expenses.

Question 30

Transactions are entered in the ledger accounts and then transferred to journals.

Question 31

Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

Question 32

Transactions are recorded in alphabetical order in a journal.

Question 33

A decrease in a liability is recorded by a debit.

Question 34

The complete effect of a transaction on the accounts is disclosed in the journal.

Question 35

All business transactions must be entered first in the general ledger.

Question 36

The chart of accounts is a special ledger used in accounting systems.

Question 37

The normal balance of the dividend account is a credit.

Question 38

An increase in an asset is recorded by a debit.

Question 39

A debit means that an account has been decreased.

Question 40

Liabilities are increased with debits and decreased with credits.

Question 41

A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

Question 42

A general ledger should be arranged in financial statement order beginning with the balance sheet accounts.

Question 43

Posting is the process of proving the equality of debits and credits in the trial balance.

Question 44

If services are rendered for cash, then

A)assets will increase.
B)liabilities will increase.
C)stockholders' equity will decrease.
D)liabilities will decrease.

Question 45

When the columns of the trial balance equal each other, it means that no errors have occurred in recording and posting the transactions.

Question 46

Entering transactions into the journal is called posting.

Question 47

If total liabilities decreased by $4,000, then

A)stockholders' equity must have decreased by $4,000.
B)assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000.
C)assets and stockholders' equity each increased by $2,000.
D)assets must have increased by $4,000.

Question 48

The entire group of accounts maintained by a company is referred to collectively as the journal.

Question 49

Prepaid expenses are assets.

Question 50

Unearned Service Revenue is classified as a liability on the balance sheet.

Question 51

Salaries and wages payable is a type of expense.

Question 52

If services are rendered on account, then

A)assets will decrease.
B)liabilities will increase.
C)stockholders' equity will increase.
D)liabilities will decrease.

Question 53

If expenses are paid in cash, then

A)assets will increase.
B)liabilities will decrease.
C)stockholders' equity will increase.
D)assets will decrease.

Question 54

Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.

Question 55

In a trial balance, all debits are listed before all credits.

Question 56

If an individual asset is increased, then

A)there could be an equal decrease in a specific liability.
B)there could be an equal decrease in stockholders' equity.
C)there could be an equal decrease in another asset.
D)None of these answer choices are correct.

Question 57

A trial balance is prepared at the beginning of an accounting period.

Question 58

Collection of a $600 Accounts Receivable

A)increases an asset $600; decreases an asset $600.
B)increases an asset $600; decreases a liability $600.
C)decreases a liability $600; increases stockholders' equity $600.
D)decreases an asset $600; decreases a liability $600.

Question 59

Dividends are classified as an expense.

Question 60

Operating activities are the types of activities the company performs to generate profits.

Question 61

If a company buys a $700 machine on account, this transaction will affect the

A)income statement and retained earnings statement only.
B)income statement only.
C)income statement, retained earnings statement, and balance sheet.
D)balance sheet only.

Question 62

Courtney Company purchased equipment for $1,800 cash.As a result of this event,

A)equity decreased by $1,800.
B)assets increased by $1,800.
C)total assets remained unchanged.
D)Both assets and equity decreased by $1,800.

Question 63

The purchase of an asset for cash

A)increases assets and stockholders' equity.
B)increases assets and liabilities.
C)decreases assets and increases liabilities.
D)leaves total assets unchanged.

Question 64

Receiving payment of a portion of an accounts receivable will

A)not affect total assets.
B)increase liabilities.
C)increase stockholders' equity.
D)decrease net income.

Question 65

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

A)Yes, they are treated as revenue at the time of receipt because the company has access to the cash.
B)No, the amount of revenue cannot be adequately determined until the company completes the work.
C)Yes, the intent of the company is to perform the work and the customer is confident that the services will be completed.
D)No, revenue cannot be recognized until the performance obligation is satisfied.

Question 66

Budke Corporation paid dividends of $5,000.As a result of this event, the

A)Dividends account was increased by $5,000.
B)Dividends account was decreased by $5,000.
C)Cash account was increased by $5,000.
D)Cash account was increased and the Dividends account was decreased by $5,000.

Question 67

The sale of an asset on account for what it cost

A)increases assets and liabilities.
B)decreases assets and liabilities.
C)leaves total assets unchanged.
D)decreases assets and increases liabilities.

Question 68

The purchase of an asset on credit

A)increases assets and stockholders' equity.
B)increases assets and liabilities.
C)decreases assets and increases liabilities.
D)leaves total assets unchanged.

Question 69

Powers Corporation received a cash advance of $500 from a customer.As a result of this event,

A)assets increased by $500.
B)equity increased by $500.
C)liabilities decreased by $500.
D)Both assets and equity increased by $500.

Question 70

An investment by the stockholders in a business increases

A)assets and stockholders' equity.
B)assets and liabilities.
C)liabilities and stockholders' equity.
D)assets only.

Question 71

Which of the following transactions has no effect on retained earnings?

A)Incurred expense
B)Paid dividends
C)Purchased land
D)Earned revenue

Question 72

Comstock Company provided consulting services and billed the client $2,500.As a result of this event,

A)total assets remained unchanged.
B)assets increased by $2,500.
C)equity increased by $2,500
D)Both assets and equity increased by $2,500.

Question 73

Incurring an expense

A)decreases assets and liabilities.
B)decreases stockholders' equity.
C)leaves stockholders' equity unchanged.
D)is basically the same as a liability.

Question 74

A revenue generally

A)increases assets and liabilities.
B)increases assets and stockholders' equity.
C)increases assets and decreases stockholders' equity.
D)leaves total assets unchanged.

Question 75

A paid dividend

A)decreases assets and stockholders' equity.
B)increases assets and stockholders' equity.
C)increases assets and decreases stockholders' equity.
D)decreases assets and increases stockholders' equity.

Question 76

When collection is made on Accounts Receivable,

A)total assets will remain the same.
B)stockholders equity will increase.
C)total assets will increase.
D)total assets will decrease.

Question 77

If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck,

A)assets will be increased by $10,000.
B)equity will be reduced by $40,000.
C)assets will be increased by $40,000.
D)assets will be unchanged.

Question 78

If a company pays dividends of $10,000,

A)total stockholders' equity will be reduced by $10,000.
B)net income will be reduced by $10,000.
C)retained earnings will be reduced by $10,000.
D)Both retained earnings and total stockholders' equity will be reduced by $10,000.

Question 79

The payment of a liability

A)decreases assets and stockholders' equity.
B)increases assets and decreases liabilities.
C)decreases assets and increases liabilities.
D)decreases assets and liabilities.

Question 80

A payment of a portion of an accounts payable will

A)not affect total assets.
B)increase liabilities.
C)not affect stockholders' equity.
D)decrease net income.