Deck 2: Accounting System and Financial Statements

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

Debit means the right-hand side of any account.

Question 6

The first step in the analyzing and recording process is to analyze each transaction and event from source documents.

Question 7

Dividends are a type of business expense.

Question 8

According to the seller,a customer's promise to pay is called an account payable.

Question 9

Increases in liability accounts are recorded as debits.

Question 10

Items such as sales slips,invoices,checks,and purchase orders are source documents.

Question 11

It is not necessary to keep separate accounts for all items of importance for business decisions.

Question 12

Double-entry accounting requires that the impact of each transaction be recorded in at least two accounts.

Question 13

As prepaid expenses are used up,the costs of these assets become expenses.

Question 14

Debits increase both asset and expense accounts.

Question 15

Accounting records are also referred to as the books.

Question 16

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

Question 17

The chart of accounts is a list of all the accounts used by a company and a corresponding identification number.

Question 18

Cash dividends should be treated as an expense to the business.

Question 19

Unearned revenues are classified as liabilities.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

The debt ratio reflects the risk of a company to both its owners and creditors.

Question 26

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

Question 27

The dividends account normally has a credit balance since it is an equity account.

Question 28

Accounts are normally decreased by debits.

Question 29

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

Question 30

Hamilton Industries has total liabilities of $105 million and total assets of $350 million.Its debt ratio is 333.3%.

Question 31

High financial leverage is always bad for a company's owners.

Question 32

If a company provides services to a customer on credit,the service provider company should credit Accounts Receivable.

Question 33

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 34

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 35

Common Stock normally has a debit balance.

Question 36

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

Question 37

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

Question 38

A debit entry is always favorable.

Question 39

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

Question 40

A revenue account normally has a debit balance.

Question 41

The accounting process begins with:

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

Question 42

A sales invoice:

A)Is a type of use document.
B)Is a source document.
C)Is not needed by buyers.
D)Gives rise to an entry in the accounting process.
E)Is not necessary in accounting.

Question 43

Source documents include all of the following except:

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

Question 44

Transactions are first recorded in the ledger.

Question 45

Generally,the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts: assets,liabilities,equity,revenues,and expenses.

Question 46

Another name for the balance sheet is the statement of financial position.

Question 47

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

Question 48

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

Question 49

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 50

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

Question 51

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

Question 52

A trial balance that balances is not proof of complete accuracy in recording transactions.

Question 53

A compound journal entry affects no more than two accounts.

Question 54

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 55

IFRS requires that companies report four financial statements with explanatory notes: balance sheet; income statement; statement of changes in equity,and statement of cash flows.

Question 56

The journal is known as a book of original entry.

Question 57

Which of the following list of events properly reflects the early steps taken in the accounting process?

A)Record relevant transactions,post journal information to ledger accounts,analyze each transaction,and prepare and analyze the trial balance.
B)Post journal information to ledger accounts,analyze each transaction,post journal information to ledger accounts,and prepare and analyze the trial balance.
C)Prepare and analyze the trial balance,analyze each transaction,post journal information to ledger accounts,record relevant transactions.
D)Analyze each transaction,post journal information to ledger accounts,record relevant transactions,and prepare and analyze the trial balance.
E)Analyze each transaction,record relevant transactions,post journal information to ledger accounts,and prepare and analyze the trial balance.

Question 58

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

Question 59

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

Question 60

Other names for the income statement are earnings statement,statement of operations,or profit and loss statement.

Question 61

Which of the following statements about the Cash account are true?

A)Because most companies earn their fees in cash,the Cash account is categorized as revenue.
B)For any given transaction,Accounts Receivable and Cash can be used interchangeably because both accounts are measured in terms of cash.
C)The Cash account includes the value of any medium of exchange that a bank accepts for deposit.
D)Cash is the same thing as Retained Earnings.
E)Cash is a liability account.

Question 62

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

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

Question 63

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 are called accounts payable.
C)Increases and decreases in cash are always recorded in the retained earnings 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)Liabilities include accounts receivable.

Question 64

A debit is:

A)An increase in an account.
B)The right-hand side of a T-account.
C)A decrease in an account.
D)The left-hand side of a T-account.
E)An increase to a liability account.

Question 65

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 retained earnings.
D)Assets that represent prepayments of future expenses.
E)Promises of payments by customers.

Question 66

A written promise to pay a definite sum of money on a specific future date is a(n):

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

Question 67

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 retained earnings.

Question 68

Source documents:

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

Question 69

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

A)A revenue account
B)The dividends account
C)Common stock account
D)An expense account
E)A liability account

Question 70

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 71

A credit is used to record:

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

Question 72

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

A)Ledger
B)Journal
C)Trial balance
D)Chart of accounts
E)General Journal

Question 73

A collection of all accounts (with account balances) used by a business is called a:

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

Question 74

For what reason do most sellers require customers to have their receipts in order to exchange or return purchased items?

A)The receipt contains coded information that the seller needs to prepare and analyze the trial balance.
B)Sellers wish to ensure that the sale in question was rung up on the register in the first place.
C)This is a legal requirement mandated by a federal law.
D)The receipt is serving as a promissory note.
E)To create an environment in which customers do not want to return items.

Question 75

A simple account form widely used in accounting to illustrate how debits and credits work is called a:

A)Dividend account
B)Common stock account
C)Drawing account
D)T-account
E)Balance column sheet

Question 76

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 77

A ledger is:

A)A record containing all accounts (with amounts) for a business.
B)A journal in which transactions are first recorded.
C)A collection of documents that describe transactions and events during the accounting process.
D)A list of all accounts with their debit balances at a point in time.
E)A list of all accounts a company uses and includes an identification number assigned to each account.

Question 78

The general ledger of a business:

A)Is a collection of all accounts used in a company's information system.
B)Must be kept in a computer file.
C)Is also called the book of original entry.
D)Is not affected by a company's size and diversity.
E)Is one of the four financial statements.

Question 79

An account used to record the owners' investments in the business is called:

A)Dividends
B)Common Stock
C)Revenue
D)Expense
E)Liability

Question 80

Which of the following statements is incorrect?

A)The normal balance of accounts receivable is a debit.
B)The normal balance of dividends 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 common stock is a credit.