Deck 3: The Accounting Information System

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

A credit means that an account has been increased.

Answer 3

False

Question 4

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

Question 5

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

Question 6

The normal balance of an asset is a credit.

Question 7

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

Question 8

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

Question 9

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

Question 10

For a T account, an account balance is the difference in total dollars between total debit amounts and total credit amounts.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

An increase in an asset is recorded by a debit.

Question 16

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

Question 17

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

Question 18

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

Question 19

The normal balance of all accounts is a debit.

Question 20

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

Question 21

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

Question 22

Transactions are recorded in alphabetical order in a journal.

Question 23

An increase in an asset is recorded by a debit.

Question 24

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

Question 25

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

Question 26

Assets are decreased with a credit.

Question 27

A decrease in a liability is recorded by a debit.

Question 28

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

Question 29

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

Question 30

Source documents can provide evidence that a transaction has occurred.

Question 31

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

Question 32

The journal is a chronological record of all transactions.

Question 33

Revenues are a subdivision of stockholders' equity.

Question 34

The normal balance of the dividend account is a credit.

Question 35

A debit means that an account has been decreased.

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

Liabilities are increased with debits and decreased with credits.

Question 41

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 42

Entering transactions into the journal is called posting.

Question 43

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 44

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

Question 45

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

Question 46

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 47

Dividends are classified as an expense.

Question 48

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

Question 49

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 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

Salaries and wages payable is a type of expense.

Question 55

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 56

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

Question 57

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

Question 58

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

Question 59

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 60

Prepaid expenses are assets.

Question 61

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 62

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.

Question 63

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 64

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

A) Expense
B) Dividends
C) Land purchase
D) Revenue

Question 65

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 66

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 67

The sale of an asset on credit 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

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 was increased and the Dividends account was decreased by $5,000.

Question 69

If a company pays dividends of $10,000,

A) 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 stockholders' equity will be reduced by $10,000.

Question 70

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 71

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 72

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 73

If a company buys a $700 machine on credit, 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 74

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 75

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 work is performed.

Question 76

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

A) 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 77

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 78

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 79

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 80

An expense

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