Deck 2: The Accounting Information System

Question 1

An accounting transaction may impact only one financial statement or multiple statements.

Answer 1

True

Question 2

The accounting equation must balance before and after every accounting transaction.

Answer 2

True

Question 3

The term used to refer to an asset's original cost is book value.

Answer 3

False

Question 4

A chart of accounts is prepared to determine whether the books have gotten out of balance.

Question 5

The time-period assumption assumes that a company prepares its financial statements every month.

Question 6

Income statement accounts have normal credit balances.

Question 7

Under the double-entry system of accounting, a debit is always a negative entry.

Question 8

A debit entry increases assets and revenue accounts.

Question 9

The dividends account has a normal debit balance.

Question 10

GAAP has established a universal chart of accounts that is applicable to all businesses in the United States.

Question 11

Because it tends to provide the most reliable measure of activity, all assets are reported on the balance sheet at their fair market values.

Question 12

The initial step in the recording process is sometimes referred to as journalizing.

Question 13

A T-account for Cash cannot contain any credits.

Question 14

The payment of a dividend increases both cash and stockholders' equity of the distributing entity.

Question 15

The International Accounting Standards Board (IASB)was created in order to develop worldwide accounting standards that are required for all financial statements, regardless of the country where the financial statements were prepared.

Question 16

Under the double-entry system of accounting, every transaction is entered in at least two accounts on opposite sides of a T-account.

Question 17

A company in the process of liquidation is considered to be under the going concern assumption.

Question 18

The issuance of common stock increases a company's assets and stockholders' equity.

Question 19

According to the historical cost principle, assets are always carried at their current market value.

Question 20

The going concern assumption infers that a company will continue to operate into the future.

Question 21

If a company made a payment on account, then assets and liabilities would both decrease.

Question 22

The conservatism principle is concerned with the possibility of understating assets or income.

Question 23

The various rules and conventions that have evolved over time to guide the preparation of financial statements in the U.S. are called ____________________.

Question 24

The ____________________ is the private sector group with authority to set accounting standards in the United States.

Question 25

A full disclosure policy stipulates that all information that would make a difference to financial statement users should be revealed.

Question 26

When preparing the financial statements, the accountant must estimate the balances of certain accounts. When two possible estimates are available and when these estimates are about equally likely, the accountant's prudent reaction is to select the least optimistic estimate in terms of the recorded amounts of assets or income statement accounts. This is referred to as the principle of ____________________.

Question 27

The ____________________ is the U.S. federal government agency with the ultimate authority to determine the accounting rules for companies whose stock is sold to the public.

Question 28

____________________ is the quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences.

Question 29

Even though a trial balance reveals that the debits equal the credits, there still may be errors in the company's books.

Question 30

The concept that assumes that an entity is not in the process of bankruptcy is called the ___________ concept.

Question 31

If a company performed services for credit, then the debit side of the journal entry would be to Accounts Payable and the credit would be to Service Revenue.

Question 32

____________________ is the capacity of information to make a difference in a decision by helping make timely predictions or provide timely feedback.

Question 33

The general ledger is often used for the initial recording of repetitive transactions.

Question 34

The concept that assumes that assets are recorded at the amount to acquire them is called the ____________________ principle.

Question 35

A trial balance is the listing of each active account and its corresponding debit or credit balance at a particular point in time.

Question 36

The purchase of office supplies from a supplier is an example of an external event.

Question 37

____________________ is the magnitude of an omission or misstatement in accounting information that will influence the decision of someone relying on the information.

Question 38

The general ledger is an example of a book of original entry.

Question 39

Only events that can be measured with sufficient reliability will be recognized in the accounting system.

Question 40

____________________ is the quality of accounting information that makes it dependable in representing the events that it purports to represent.

Question 41

If a law firm provides services on account for its clients, both ____________________ and retained earnings will increase.

Question 42

____________________ documents provide the evidence needed in an accounting system to record a transaction.

Question 43

The ___________________ is a chronological record of all transactions entered into by a business.

Question 44

Credits are always on the ____________________ side of a T-account.

Question 45

____________________ is the quality of accounting information that allows a user to compare two or more accounting periods for a single company.

Question 46

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Borrowing cash

Question 47

For assets, expenses, and dividend accounts, a credit will _______ the balance in the account.

Question 48

The ____________________ is the file or book that contains all of the company's accounts.

Question 49

The ____________________ is a list of all the accounts used by an entity.

Question 50

For liabilities, stockholders' equity, and revenue accounts, debits will _____________ the account balance.

Question 51

The issuance of common stock increases both ____________________ and stockholders' equity.

Question 52

A revenue account has a normal ___________ balance.

Question 53

The ____________________ side, or left-side, of a liability account is used to record decreases in the account balance.

Question 54

In order for an internal or external event to be recognized in an accounting system, the items making up the event must impact the financial statements and they must be sufficiently reliable and ____________________.

Question 55

The ___________________ is a list of each active account and its debit or credit balance at a specific point in time.

Question 56

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Issuing common stock

Question 57

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Purchasing equipment for cash

Question 58

Borrowing from the bank in order to acquire computer equipment for $1,500 has the effect of increasing both assets and ____________________.

Question 59

The ____________________ principle says that assets of a company are initially recorded at their original cost.

Question 60

The payment of salaries to employees will result in a debit to an expense account and a credit to the ___________ account.

Question 61

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Paying dividends

Question 62

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Providing services to customers for cash

Question 63

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Purchasing a 6-month insurance policy

Question 64

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Receiving cash from customers in advance for services to be provided next month

Question 65

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Paying salaries to employees

Question 66

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Paying salaries to employees

Question 67

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Receiving cash from a customer in advance of providing any services

Question 68

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Purchasing insurance for 1 year

Question 69

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Purchasing supplies on credit

Question 70

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Paying for a previous purchase on credit

Question 71

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Borrowing cash from a bank

Question 72

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Providing services to customers for credit

Question 73

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Purchasing a building for cash

Question 74

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Collecting from customers for services sold previously on credit

Question 75

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Purchasing supplies on credit

Question 76

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Paying utilities

Question 77

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Issuing common stock to investors

Question 78

For each transaction provided, choose the appropriate account from the list that would receive a debit entry as a result of the transaction. (Choices may be used more than once.)
a.Cash
b.Accounts receivable
c.Supplies
d.Prepaid insurance
e.Land
f.Equipment
g.Accounts payable
h.Unearned revenues
i.Notes payable
j.Common stock
k.Retained earnings
l.Service revenue
m.Salary expense
n.Insurance expense
o.Utilities expense
p.Dividends
Paying for items previously purchased on credit

Question 79

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Providing services for customers for cash

Question 80

Several transactions are listed. Use the choices to identify the effect on the accounting equation for each transaction listed. (Choices may be used more than once.)
a.Assets and liabilities increase
b.Assets and contributed capital increase
c.Assets and retained earnings increase
d.Two asset accounts are impacted, but there is no net effect on total assets
e.Assets and liabilities decrease
f.Assets and retained earnings decrease
g.Liabilities increase and retained earnings decrease
h.Liabilities decrease and retained earnings increase
Providing services for customers for credit