Deck 2: Analyzing and Recording Transactions

Question 1

A revenue account normally has a debit balance.

Answer 1

False

Question 2

Increases in liability accounts are recorded as debits.

Answer 2

False

Question 3

Withdrawals by the owner are a business expense.

Answer 3

False

Question 4

Land and buildings are generally recorded in the same ledger account.

Question 5

Crediting an expense account decreases it.

Question 6

Unearned revenues are liabilities.

Question 7

Source documents provide evidence of business transactions and are the basis for accounting entries.

Question 8

In a double-entry accounting system,the total amount debited must always equal the total amount credited.

Question 9

A customer's promise to pay is called an account payable to the seller.

Question 10

When a company provides services for which cash will not be received until some future date,the company should record the amount charged as unearned revenue.

Question 11

Credits always increase account balances.

Question 12

An account is a record of increases and decreases in a specific asset,liability,equity,revenue,or expense item.

Question 13

Debits increase asset and expense accounts.

Question 14

Items such as sales tickets,bank statements,checks,and purchase orders are source documents.

Question 15

Debit means the right side of an account.

Question 16

Preparation of a trial balance is the first step in the analyzing and recording process.

Question 17

Cash withdrawn by the owner of a proprietorship should be treated as an expense of the business.

Question 18

The first step in the processing of a transaction is to analyze the transaction and source documents.

Question 19

An account balance is the difference between the debits and credits for an account including any beginning balance.

Question 20

The chart of accounts is a list of all the accounts used by a company and includes an identification number assigned to each account.

Question 21

The owner's withdrawal account normally has a credit balance since it is an equity account.

Question 22

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.

Question 23

When a company bills a customer for $600 for services rendered,the journal entry to record this transaction will include a $600 debit to Services Revenue.

Question 24

If a company purchases land paying cash,the journal entry to record this transaction will include a debit to Cash.

Question 25

Transactions are first recorded in the ledger.

Question 26

Posting is the transfer of journal entry information to the ledger.

Question 27

A transaction that decreases an asset account and increases a liability account must also affect one or more other accounts.

Question 28

The higher a company's debt ratio is,the higher the risk of a company not being able to meet its obligations.

Question 29

Hamilton Industries has liabilities of $105 million and total assets of $350 million.Its debt ratio is 40.0%.

Question 30

A debit entry is always favorable.

Question 31

Accounts are normally decreased by debits.

Question 32

The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.

Question 33

If insurance coverage for the next three years is paid for in advance,the amount of the payment is debited to an asset account called Prepaid Insurance.

Question 34

If a company is highly leveraged,this means that it has relatively low risk of not being able to repay its debt.

Question 35

A transaction that increases an asset and decreases a liability must also affect one or more other accounts.

Question 36

The debt ratio is calculated by dividing total assets by total liabilities.

Question 37

A compound journal entry affects no more than two accounts.

Question 38

Asset accounts normally have credit balances and revenue accounts normally have debit balances.

Question 39

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Question 40

An owner's capital account normally has a debit balance.

Question 41

The trial balance is a list of all general ledger accounts and their balances at a point in time.

Question 42

If cash was incorrectly debited for $100 instead of correctly credited for $100,the cash account is out of balance by $100.

Question 43

The account used to record the transfers of assets from a business to its owner is:

A)A revenue account.
B)The owner's withdrawals account.
C)The owner's capital account.
D)An expense account.
E)A liability account.

Question 44

The accounting process begins with:

A)Analysis of business transactions and source documents.
B)Preparing financial statements and other reports.
C)Summarizing the recorded effect of business transactions.
D)Presentation of financial information to decision-makers.
E)Preparation of the trial balance.

Question 45

The trial balance can serve as a replacement for the balance sheet,since debits must equal with credits.

Question 46

The heading on each financial statement lists the three W's - Who (the name of the organization); What (the name of the statement); and Where (the organization's address)

Question 47

Source documents:

A)Include the ledger.
B)Are the sources of accounting information.
C)Must be in electronic form.
D)Are based on accounting entries.
E)Include the chart of accounts.

Question 48

A record of the increases and decreases in a specific asset,liability,equity,revenue,or expense is a(n):

A)Journal.
B)Posting.
C)Trial balance.
D)Account.
E)Chart of accounts.

Question 49

A trial balance that is in balance is proof that no errors were made in journalizing the transactions,posting to the ledger,and preparing the trial balance.

Question 50

Which of the following statements is correct?

A)When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense.
B)Promises of future payment by the buyer are called accounts receivable.
C)Increases and decreases in cash are always recorded in the owner's capital account.
D)An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
E)Accrued liabilities include accounts receivable.

Question 51

Generally,the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts,that is,assets first,then liabilities,then owner's capital and withdrawals,followed by revenues and expenses.

Question 52

The journal is known as the book of final entry because financial statements are prepared from it.

Question 53

An income statement reports the revenues earned less expenses incurred by a business over a period of time.

Question 54

The balance sheet reports the financial position of a company at a point in time.

Question 55

A journal gives a complete record of each transaction in one place,and shows the debits and credits for each transaction.

Question 56

The balance sheet provides a link between beginning and ending income statements.

Question 57

Source documents include all of the following except:

A)Sales tickets.
B)Ledgers.
C)Checks.
D)Purchase orders.
E)Bank statements.

Question 58

The journal is known as a book of original entry.

Question 59

An account used to record the owner's investments in the business is called a(n):

A)Withdrawals account.
B)Capital account.
C)Revenue account.
D)Expense account.
E)Liability account.

Question 60

Both U.S.GAAP and IFRS prepare the same four basic financial statements.

Question 61

Which of the following statements is correct?

A)The left side of a T-account is the credit side.
B)Debits decrease asset and expense accounts, and increase liability, equity, and revenue accounts.
C)The left side of a T-account is the debit side.
D)Credits increase asset and expense accounts, and decrease liability, equity, and revenue accounts.
E)In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction.

Question 62

A simple account form widely used in accounting as a tool to understand how debits and credits affect an account balance is called a:

A)Withdrawals account.
B)Capital account.
C)Drawing account.
D)T-account.
E)Balance column sheet.

Question 63

A list of all accounts and the identification number assigned to each account used by a company is called a:

A)Source document.
B)Journal.
C)Trial balance.
D)Chart of accounts.
E)General Journal.

Question 64

An account balance is:

A)The total of the credit side of the account.
B)The total of the debit side of the account.
C)The difference between the total debits and total credits for an account including the beginning balance.
D)Assets = liabilities + equity.
E)Always a credit.

Question 65

Rocky Industries received its telephone bill in the amount of $300,and immediately paid it.Rocky's general journal entry to record this transaction will include a

A)Debit to Telephone Expense for $300.
B)Credit to Accounts Payable for $300.
C)Debit to Cash for $300.
D)Credit to Telephone Expense for $300.
E)Debit to Accounts Payable for $300.

Question 66

Unearned revenues are:

A)Revenues that have been earned and received in cash.
B)Revenues that have been earned but not yet collected in cash.
C)Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D)Recorded as an asset in the accounting records.
E)Increases to owners' capital.

Question 67

A debit:

A)Always increases an account.
B)Is the right-hand side of a T-account.
C)Always decreases an account.
D)Is the left-hand side of a T-account.
E)Is not need to record a transaction.

Question 68

Which of the following statements is incorrect?

A)The normal balance of accounts receivable is a debit.
B)The normal balance of owner's withdrawals is a debit.
C)The normal balance of unearned revenues is a credit.
D)The normal balance of an expense account is a credit.
E)The normal balance of the owner's capital account is a credit.

Question 69

A collection of all accounts and their balances used by a business is called a:

A)Journal.
B)Book of original entry.
C)General Journal.
D)Balance column journal.
E)Ledger.

Question 70

A ledger is:

A)A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item.
B)A journal in which transactions are first recorded.
C)A collection of documents that describe transactions and events entering the accounting process.
D)A list of all accounts with their debit balances at a point in time.
E)A record containing all accounts and their balances used by a company.

Question 71

Of the following accounts,the one that normally has a credit balance is:

A)Cash.
B)Office Equipment.
C)Wages Payable.
D)Owner, Withdrawals.
E)Sales Salaries Expense.

Question 72

Wisconsin Rentals purchased office supplies on credit.The general journal entry made by Wisconsin Rentals will include a:

A)Debit to Accounts Payable.
B)Debit to Accounts Receivable.
C)Credit to Cash.
D)Credit to Accounts Payable.
E)Credit to Wisconsin Rentals, Capital.

Question 73

Double-entry accounting is an accounting system:

A)That records each transaction twice.
B)That records the effects of transactions and other events in at least two accounts with equal debits and credits.
C)In which each transaction affects and is recorded in two or more accounts but that could include two debits and no credits.
D)That may only be used if T-accounts are used.
E)That insures that errors never occur.

Question 74

A formal promise to pay (in the form of a promissory note)a future amount is a(n):

A)Unearned revenue.
B)Prepaid expense.
C)Credit account.
D)Note payable.
E)Account receivable.

Question 75

A credit is used to record:

A)An increase in an expense account.
B)A decrease in an asset account.
C)A decrease in an unearned revenue account.
D)A decrease in a revenue account.
E)A decrease in a capital account.

Question 76

A debit is used to record:

A)A decrease in an asset account.
B)A decrease in an expense account.
C)An increase in a revenue account.
D)An increase in the balance of an owner's capital account.
E)An increase in the balance of the owner's withdrawals account.

Question 77

Management Services,Inc.provides services to clients.On May 1,a client prepaid Management Services $60,000 for 6-months services in advance.Management Services' general journal entry to record this transaction will include a:

A)Debit to Unearned Management Fees for $60,000.
B)Credit to Management Fees Earned for $60,000.
C)Credit to Cash for $60,000.
D)Credit to Unearned Management Fees for $60,000.
E)Debit to Management Fees Earned for $60,000.

Question 78

The right side of a T-account is a(n):

A)Debit.
B)Increase.
C)Credit.
D)Decrease.
E)Account balance.

Question 79

Prepaid expenses are:

A)Payments made for products and services that do not ever expire.
B)Classified as liabilities on the balance sheet.
C)Decreases in equity.
D)Assets that represent prepayments of future expenses.
E)Promises of payments by customers.

Question 80

The numbering system used in a company's chart of accounts:

A)Is the same for all companies.
B)Is determined by generally accepted accounting principles.
C)Depends on the source documents used in the accounting process.
D)Typically begins with balance sheet accounts.
E)Typically begins with income statement accounts.