Deck 3: The Double-Entry System

Question 1

The owner contributed cash as additional capital,when:

A) one asset increased and another asset decreased
B) an asset increased and owners' equity increased
C) a liability increased and owners' equity decreased
D) a liability decreased and owners' equity increased.

Answer 1

B

Question 2

A payment is received from accounts receivable,when:

A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.

Answer 2

A

Question 3

The business made a loan to the sales manager.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Answer 3

A

Question 4

Provision was made for income tax.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 5

Inventory was lost as a result of shoplifting.There was no insurance cover for the loss.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 6

If a year's depreciation is charged on a piece of equipment,the effect on the accounting equation is that:

A) an asset increases and another asset decreases
B) an asset decreases and owners' equity decreases
C) an asset decreases and a liability decreases
D) a liability increases and owners' equity decreases.

Question 7

Inventory was purchased for cash.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 8

Inventory is purchased on credit,when:

A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.

Question 9

An electricity account was paid.There was no previous record of the charge.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 10

An account for advertising was received.There was no previous record of the charge.

A) an asset increased and another asset decreased
B) an asset decreased and an expense increased
C) an asset decreased and a liability decreased
D) a liability increased and an expense increased

Question 11

Equipment is purchased on credit,when:

A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.

Question 12

Equipment is purchased for cash,when:

A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.

Question 13

Inventory purchased on credit was returned to the supplier.

A) an asset increased and another asset decreased
B) an asset decreased and an expense increased
C) an asset decreased and a liability decreased
D) a liability increased and an expense increased

Question 14

A company borrows money to purchase equipment,when:

A) one asset increases and another asset decreases
B) an asset increases and a liability increases
C) an asset decreases and a liability decreases
D) an asset decreases and owners' equity decreases.

Question 15

Income tax previously provided for was paid.

A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question 16

Consider the following transactions: (i)issued share capital for cash of $200 000
(ii)received $50 000 from accounts receivable
(iii)paid $30 000 to accounts payable
(iv)purchased new equipment for $160 000 on credit
(v)increased the long service provision by $5000.
Total assets increased by:

A) $130 000
B) $180 000
C) $300 000
D) $330 000.

Question 17

A bill from a consultant was received for work done in May 2012.There was no previous record of the transaction.It will be paid in July 2012.In May 2012:

A) an asset decreased and an expense increased
B) an asset decreased and a liability decreased
C) a liability increased and an expense increased
D) no entry is required until the next accounting period.

Question 18

A $10 000 receipt was received from an accounts receivable,as a result:

A) an asset decreased and an expense decreased
B) an asset decreased and another asset increased
C) an asset decreased and an expense increased
D) a liability decreased and an expense increased.

Question 19

The assets of ALS Ltd increased by $5476 during year ended 30 June 2012 and during the same period liabilities decreased by $3019.Consequently shareholders' equity must have:

A) increased by $2457
B) increased by $8495
C) decreased by $2457
D) decreased by $8495.

Question 20

If a company provides for tax at year-end,the effect on the accounting equation is that:

A) an asset increases and another asset decreases
B) an asset decreases and owners' equity decreases
C) an asset decreases and a liability decreases
D) a liability increases and owners' equity decreases.

Question 21

Commission was earned which will be paid for in 4 months' time.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset increased and a liability increased.

Question 22

A customer paid his account in full.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset increased and another asset decreased.

Question 23

The company received cash dividends on investments.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset increased and equity increased.

Question 24

After which of the following transactions will the accounting equation NOT balance?

A) theft of inventory by an employee
B) receipt by the business of a gift from a grateful customer
C) discovery of a reef of gold on land owned by the business
D) payment to a supplier recorded as an increase in an asset and a decrease from another asset.

Question 25

Assets at the end of the period are $120 000 and liabilities have increased by $36 000.Dividends of $12 000 were declared and paid,and no shares were issued during the period.The net profit or loss during the period is:

A) $96 000 net profit
B) $72 000 net profit
C) $12 000 net loss
D) not determinable from the above information.

Question 26

If at the end of the financial year,2 months' interest is owing to the company from the bank,the effect on the accounting equation is that:

A) an asset increases and another asset decreases
B) a liability increases and another liability decreases
C) an asset decreases and a liability decreases
D) an asset increases and owners' equity increases

Question 27

Consider the following transactions. (i)Collect $100 000 from accounts receivable.
(ii)Receive $80 000 from a client for work to be done in the next accounting period.
(iii)Inventory (costing $50 000)sold on credit for $90 000.
(iv)Shares issued for $1 million.
Which of the above transactions do NOT increase revenue?

A) (i)and (ii)only
B) (ii)and (iii)only
C) (i)and (iii)only
D) (i),(ii)and (iv).

Question 28

During the year,the liabilities of a company decreased by $32 034 and the assets decreased by $16 035.Consequently the owners' equity must have:

A) decreased by $15 999
B) increased by $15 999
C) increased by $48 069
D) decreased by $48 069.

Question 29

During the accounting period there were no share issues,liabilities increased by $45 000,assets increased by $90 000,expenses of $55 000 were incurred and net profit was $115 000.Therefore,dividends declared must have been:

A) $15 000
B) $60 000
C) $70 000.

Question 30

Given the following information,how much revenue would be recognised in June? (i)Credit sales of $100 000 in June,20% to be collected in June.
(ii)Collected $70 000 in June from customers for May sales.
(iii)Received a deposit in June from a customer for $30 000 for work to be carried out in August.

A) $90 000
B) $10 000
C) $120 000
D) $130 000.

Question 31

A company's first transaction in 2012 was to pay $7500 cash for wages earned and recognised as an expense in 2011.Which of the following changes took place as a consequence of that transaction?

A) Revenue decreased by $7500.
B) Liabilities decreased by $7500.
C) Profit decreased by $7500.
D) Assets increased by $7500.

Question 32

A company's first event in the year commencing 1 July 2012 was to pay $250 cash for stationery purchased in June 2012; this was recognised as an expense in that month.Which of the following changes took place as a consequence of this event?

A) Assets increased by $250.
B) Liabilities decreased by $250.
C) Expenses increased by $250.
D) None of the above changes occurred.

Question 33

Consider the following information. (i)$20 000 of accounts payable was paid.
(ii)$100 000 from accounts receivable was received.
(iii)Inventory of $200 000 was purchased on credit.
(iv)Credit sales of $700 000 (cost of goods sold was $450 000)were made.
(v)$10 000 of prepayments expired during the month.
What is the profit for the period?

A) $120 000
B) $240 000
C) $250 000
D) none of the above.

Question 34

A new managing director was appointed to commence in 3 months' time on a salary of $250 000 per annum.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) This had no effect on the accounting equation.

Question 35

At the end of the accounting period,3 months' interest is owing to the company on a term deposit with the bank.

A) A liability increases and another liability decreases.
B) An asset decreases and a liability decreases.
C) An asset increases and revenue increases.
D) An asset increases and another asset decreases.

Question 36

An account was paid for stationery purchased in the previous accounting period.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.

Question 37

Which of the following statements is NOT true?

A) If the total assets owned by a business total $110 000 and owners' equity totals $30 000,liabilities total $80 000.
B) If total assets decreased by $30 000 during a specific period and owners' equity decreased by $35 000 during the same period,the period's change in total liabilities was a $65 000 increase.
C) If total assets decreased by $50 000 during a specific period and owners' equity decreased by $40 000 during the same period,the period's change in total liabilities was a $10 000 decrease.
D) If total assets increased by $75 000 during a specific period and liabilities decreased by $10 000 during the same period,the period's change in total owners' equity was an $85 000 increase.

Question 38

A cheque was drawn to pay an account payable.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.

Question 39

Which of the following items would decrease profit for the year?

A) purchase of equipment for cash
B) payment of a dividend
C) declaration of a dividend
D) none of the above.

Question 40

A customer was invoiced for services rendered.

A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset increased and another asset decreased.

Question 41

A business purchases inventory for $220,paying $50 cash and owing the rest.The journal entry will include:

A) a debit to accounts payable of $170
B) a debit to inventory of $170
C) a credit to accounts payable of $50
D) a credit to accounts payable of $170.

Question 42

Consider the following information. (i)$20 000 of accounts payable was paid.
(ii)$100 000 from accounts receivable was received.
(iii)Inventory of $200 000 was purchased on credit.
(iv)Credit sales of $700 000 (cost of goods sold was $450 000)were made.
(v)$10 000 of prepayments expired during the month.
Assets increased during the period by:

A) $220 000
B) $250 000
C) $420 000
D) $430 000.

Question 43

A credit balance in which of the following accounts would indicate a likely error?

A) fees earned
B) inventory
C) share capital
D) accounts payable.

Question 44

Depreciation expense on motor vehicles for the year incurred.

A) DR Motor vehicles
CR Accumulated depreciation
B) DR Accumulated depreciation
CR Depreciation expense
C) DR Depreciation expense
CR Motor vehicles
D) DR Depreciation expense
CR Accumulated depreciation

Question 45

Cash was paid by XYZ to creditors.Which of the following entries for XYZ correctly records this transaction?

A) DR Cash
CR Accounts payable
B) DR Accounts payable
CR Cash
C) DR Accounts receivable
CR Cash
D) DR Accounts Cash
CR Accounts receivable

Question 46

In which of the following transactions or events are the debit entries NOT equal to the credit entries?

A) Wages owing are recorded as increasing an expense and decreasing an asset.
B) Credit purchase of inventory is recorded as increasing an asset and increasing a liability.
C) Cash sales are recorded as increasing revenue and increasing an asset.
D) Receipt from a customer is recorded as increasing an asset and decreasing another asset.

Question 47

In which of the following transactions or events are the debit entries NOT equal to the credit entries?

A) an increase in listed price of shares held by the business
B) a donation to a charity which is not tax-deductible
C) an uninsured loss arising from embezzlement by employee
D) a bad debt of $400 recorded as an expense of $300.

Question 48

Purchased goods on credit.

A) DR Inventory
CR Accounts payable
B) DR Inventory
CR Accounts receivable
C) DR Accounts
Receivable CR inventory
D) DR Purchases
CR Cash at bank

Question 49

If money is borrowed from the bank on a long-term loan,the accountant:

A) debits cash and debits long-term bank loan
B) debits long-term bank loan and credits cash
C) debits cash and credits long-term bank loan
D) does none of the above.

Question 50

The amount of income tax previously estimated now paid.

A) DR Taxes payable
CR Income tax expense
B) DR Income tax expense
CR Taxes payable
C) DR Taxes payable
CR Retained profits
D) DR Taxes payable
CR Cash at bank

Question 51

A debit balance in which of the following accounts would indicate a likely error?

A) salaries expense
B) accounts payable
C) prepayments
D) equipment.

Question 52

If goods are purchased on credit for resale,the accountant:

A) debits inventory and credits debtors
B) debits creditors and credits inventory
C) debits inventory and credits owners' equity
D) debits inventory and credits creditors.

Question 53

Income tax for the year estimated.

A) DR Income tax expense
CR Retained profits
B) DR Taxes payable
CR Income tax expense
C) DR Income tax expense
CR Taxes payable
D) DR Income tax expense
CR Taxes payable

Question 54

On 10 July 2011,RST Ltd borrowed $1m from a finance company,agreeing to pay principal and interest of 9% in 2 years' time.What journal entry should be recorded on 10 July 2012?

A) DR Cash
CR Loan
B) DR Cash
CR Loan or interest payable
C) DR Cash
CR Interest expense
D) DR Loan
CR Cash

Question 55

Received cash from customer.

A) DR Accounts receivable
CR Cash
B) DR Cash
CR Accounts payable
C) DR Cash
CR Accounts receivable
D) DR Cash
CR Owners' equity

Question 56

Which of the following are debits?

A) contributions of capital
B) increases in revenues
C) increases in liabilities
D) decreases in owners' equity.

Question 57

MNO Ltd sells goods on credit for $100 000 (cost price $60 000).Which of the following is the correct journal entry to record this transaction?

A) DR Cash $100 000,CR Sales revenue $100 000
B) DR Accounts receivable $100 000,DR COGS $60 000 CR Inventory $60 000,CR Sales revenue $100 000
C) DR Accounts receivable $100 000,CR Sales revenue $40 000,CR COGS $60 000
D) DR COGS $40 000,CR Inventory $60 000,CR Sales revenue $100 000.

Question 58

Which of the following are credits?

A) increases in expenses
B) decreases in liabilities
C) increases in assets
D) increases in owners' equity.

Question 59

Which of the following entries correctly records the receipt of an electricity bill from the power company?

A) DR Electricity expense
CR Accounts payable
B) DR Electricity payable
CR Accounts payable
C) DR Accounts payable
CR Electricity expense
D) DR Accounts payable
CR Utilities payable

Question 60

Which of the following accounts does NOT normally have a credit balance?

A) accounts payable
B) retained profits
C) tax payable
D) prepaid expenses.

Question 61

Use the information given below to answer the following questions:
Retained profits of Livermore Pty Ltd at 1 July 2011 were $5500. The accounting records for year ended 30 June 2012 showed the following information:
$$\begin{array} { l r } &\$\\\text { Revenues earned } & 35500 \\\text { Cash collected from customers } & 5700 \\\text { Expenses incurred } & 32250 \\\text { Expenses paid in cash } & 29620 \\\text { Dividends declared and paid } & 1500\end{array}$$

-What was Livermore's net profit for the year ended 30 June 2012?

A) $1750
B) $2000
C) $3250
D) $7450.

Question 62

A business sells inventory for $220,receiving $100 cash as a deposit with the customer owing the remainder.The journal entry will include:

A) a debit to accounts receivable of $120
B) a debit to inventory of $120
C) a credit to accounts receivable of $100
D) a credit to inventory for $220.

Question 63

Given only the following information,how much revenue would L Ltd recognise in May 2012? (i)A $160 000 deposit was received from a client in May for work to be carried out in June.
(ii)Credit sales of $300 000 made in May,with only $100 000 to be collected in May.
(iii)$40 000 was collected in May from customers for April sales.
(iv)Sold goods were valued at $60 000 on last day of May.Client to be invoiced in early June.
(v)A contract was signed to deliver client goods valued at $80 000 in June.

A) $260 000
B) $360 000
C) $400 000
D) $160 000.

Question 64

Use the information given below to answer the following questions:
Retained profits of Livermore Pty Ltd at 1 July 2011 were $5500. The accounting records for year ended 30 June 2012 showed the following information:
$$\begin{array} { l r } &\$\\\text { Revenues earned } & 35500 \\\text { Cash collected from customers } & 5700 \\\text { Expenses incurred } & 32250 \\\text { Expenses paid in cash } & 29620 \\\text { Dividends declared and paid } & 1500\end{array}$$

-What were Livermore's retained profits at 30 June 2012?

A) $3750
B) $7250
C) $8750
D) $5500.

Question 65

Use the information given below to answer the following questions:
Retained profits of Livermore Pty Ltd at 1 July 2011 were $5500. The accounting records for year ended 30 June 2012 showed the following information:
$$\begin{array} { l r } &\$\\\text { Revenues earned } & 35500 \\\text { Cash collected from customers } & 5700 \\\text { Expenses incurred } & 32250 \\\text { Expenses paid in cash } & 29620 \\\text { Dividends declared and paid } & 1500\end{array}$$

-A company declares and pays an interim dividend.This transaction will:

A) decrease total assets and total shareholders' equity but have no effect on profit
B) decrease total assets,total shareholders' equity and profit
C) decrease total assets but have no effect on profit or shareholders' equity
D) none of the above.

Question 66

Use the information given below to answer the following questions:
Retained profits of Livermore Pty Ltd at 1 July 2011 were $5500. The accounting records for year ended 30 June 2012 showed the following information:
$$\begin{array} { l r } &\$\\\text { Revenues earned } & 35500 \\\text { Cash collected from customers } & 5700 \\\text { Expenses incurred } & 32250 \\\text { Expenses paid in cash } & 29620 \\\text { Dividends declared and paid } & 1500\end{array}$$

-A customer provides a deposit of $500 000 near year-end.The product will not be delivered until next year.This transaction will:

A) increase net profit,total assets and cash
B) increase net profit and cash but not total assets
C) increase total assets and cash but not net profit
D) increase cash but not increase net profit or total assets.

Question 67

Use the information given below to answer the following questions:
Retained profits of Livermore Pty Ltd at 1 July 2011 were $5500. The accounting records for year ended 30 June 2012 showed the following information:
$$\begin{array} { l r } &\$\\\text { Revenues earned } & 35500 \\\text { Cash collected from customers } & 5700 \\\text { Expenses incurred } & 32250 \\\text { Expenses paid in cash } & 29620 \\\text { Dividends declared and paid } & 1500\end{array}$$

-Additional credit sales of $2m (cost price $1.5m)are made on credit.This transaction will:

A) increase net profit,increase cash,and increase total assets
B) increase net profit,increase total assets but not affect cash
C) increase net profit,and not affect cash or total assets
D) increase net profit,increase cash.