Deck 2: Recording Business Transactions

Question 1

Provide an explanation for each of the follow asset accounts.
$$\begin{array} { | l | l | } \hline \text { Account Name } & \text { Explanation } \\\hline \text { Accounts Receivable } & \\\\\\\hline \text { Prepaid Expense } & \\\\\\\hline \text { Notes Receivable } & \\& \\\\\\\hline\end{array}$$

Answer 1

$\begin{array}{|c|c|}\hline \text { Account Name } & \text { Explanation } \\\hline \text { Accounts Receivable } & \begin{array}{l}\text { A customer's promise to pay in the future } \\\text { for services or goods sold. Often } \\\text { described as "On Account." }\end{array} \\\hline \text { Prepaid Expense}& \begin{array}{l} \text { A payment of an expense in advance. It is } \\\text { considered an asset because the } \\\text { prepayment provides a benefit in the } \\\text { future. }\end{array} \\\hline \text { Notes Receivable } & \begin{array}{l}\text { A written promise that a customer will } \\\text { pay a fixed amount of money and interest } \\\text { by a certain date in the future. Often } \\\text { more formal than an Accounts Receivable. }\end{array} \\\hline \end{array}$

Question 2

Liabilities are economic resources that are expected to benefit the business in the future.

Answer 2

False

Question 3

A customer's promise to pay in the future for services or goods sold is called a(n) ________.

A) Accounts Receivable
B) Accounts Payable
C) Unearned Revenue
D) Notes Payable

Answer 3

A

Question 4

An account is a detailed record of all increases and decreases that have occurred in an individual asset, liability, or equity during a specific period.

Question 5

The accounting equation is made up of four parts or categories.

Question 6

Unearned Revenue is a liability account.

Question 7

Prepaid Rent is a liability account.

Question 8

A payment of an expense in advance is called a prepaid expense.

Question 9

Which of the following is classified as an asset account?

A) Prepaid Insurance
B) Notes Payable
C) Dividends
D) Unearned Revenue

Question 10

Which of the following accounts is an asset?

A) Salaries Expense
B) Accounts Payable
C) Service Revenue
D) Prepaid Expense

Question 11

An accounts receivable requires the business to pay cash in the future.

Question 12

A payable involves a future receipt of cash.

Question 13

The account title used for recording a written promise that a customer will pay the business a fixed amount of money and interest by a certain date in the future is ________.

A) Prepaid Note
B) Notes Payable
C) Notes Receivable
D) Accounts Receivable

Question 14

Which is a true statement regarding the accounting equation?

A) The equation can be stated as assets minus liabilities equals equity.
B) The equation consists of three parts: assets, liabilities, and net income.
C) The equation is an optional tool for accountants to use.
D) The equation does not need to balance during a specific period.

Question 15

Each category of the accounting equation contains accounts.

Question 16

The account title used for recording the payment of rent in advance for an office building is ________.

A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense

Question 17

A note receivable represents an oral promise that a customer will pay a fixed amount of money and interest by a certain date in the future.

Question 18

An accounts receivable is often described as a sale "on account."

Question 19

Which of the following is an asset account?

A) Wages Payable
B) Notes Payable
C) Unearned Revenue
D) Accounts Receivable

Question 20

Which of the following statements regarding the accounting equation is incorrect?

A) The equation is the basic tool of accounting.
B) The equation consists of three categories: assets, liabilities, and equity.
C) Each category of the accounting equation contains accounts.
D) The equation can be stated as assets plus liabilities equals equity.

Question 21

A chart of accounts is a detailed record of the changes in a particular asset, liability, or equity account during a specified period.

Question 22

The account names in the chart of accounts are standardized and thus are the same for all businesses.

Question 23

Revenues and stockholders' contributions in the business increase equity.

Question 24

Explain the difference between Accounts Receivable and Accounts Payable.

Question 25

Which of the following is a liability account?

A) Prepaid Advertising
B) Cash
C) Building
D) Unearned Rent

Question 26

Provide an explanation for each of the follow liability accounts.
$$\begin{array} { | l | l | } \hline \text { Account Name } & \text { Explanation } \\\hline \text { Accounts Payable } & \\\\\\\hline\text { Unearned Revenue } \\\\\\\hline \text { Accrued Liability } & \\ & \\& \\\hline\end{array}$$

Question 27

Saturn, Inc. paid the rent for the current month in cash. Which of the following accounts will be used to record the transaction?

A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense

Question 28

Which of the following is a liability account?

A) Accounts Payable
B) Prepaid Expense
C) Salaries Expense
D) Service Revenue

Question 29

Amounts earned from delivering goods or services to customers are called ________.

A) notes receivable
B) unearned revenues
C) equity
D) revenues

Question 30

Consider the following accounts and identify each as an asset (A), liability (L), or equity (E).
$$\begin{array} { | l | l | } \hline \text { Common Stock } &\quad\quad\quad\quad \\\hline \text { Accounts Receivable } & \\\hline \text { Dividends } & \\\hline \text { Service Revenue } & \\\hline \text { Prepaid Rent } & \\\hline\end{array}$$

Question 31

Common Stock is a separate account in the ________ category of the accounting equation.

A) equity
B) asset
C) liability
D) revenue

Question 32

Dividends and expenses increase equity.

Question 33

________ represents a debt owed for renting a building.

A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense

Question 34

Consider the following accounts and identify each as an asset (A), liability (L), or equity (E).
$$\begin{array} { | l | l | } \hline \text { Retained Earnings } &\quad\quad\quad\quad \\\hline \text { Unearned Revenue } & \\\hline \text { Building } & \\\hline \text { Interest Revenue } & \\\hline \text { Prepaid Advertising } & \\\hline\end{array}$$

Question 35

A liability created when a business receives cash from customers in advance of providing services or delivering goods is called a(n) ________.

A) notes receivable
B) unearned revenue
C) accrued liability
D) service revenue

Question 36

Explain the difference between Prepaid Rent and Unearned Revenue.

Question 37

Consider the following accounts and identify each as an asset (A), liability (L), or equity (E).
$$\begin{array} { | l | l | } \hline \text { Dividends } &\quad\quad\quad\quad \\\hline \text { Unearned Revenue } & \\\hline \text { Office Supplies } & \\\hline \text { Rent Expense } & \\\hline \text { Retained Earnings } & \\\hline\end{array}$$

Question 38

The stockholders' claim to the assets of a business is called equity or stockholders' equity.

Question 39

Which of the following is a liability account?

A) Service Revenue
B) Building
C) Prepaid Rent
D) Unearned Revenue

Question 40

A chart of accounts is a list of all of a company's accounts with their account numbers.

Question 41

A liability account is increased by a debit.

Question 42

Regarding the ledger, which of the following statements is incorrect?

A) Both the chart of accounts and the ledger list the account names and numbers of the business.
B) Companies use the ledger to fulfill the task of showing all of the increases and decreases in each account.
C) Both the chart of accounts and the ledger provide the balance of each account at a specific point in time.
D) The ledger provides more detail than the chart of accounts.

Question 43

A T-account is a summary device with credits posted on the left side of the vertical line.

Question 44

An asset account is increased by a debit.

Question 45

Both the chart of accounts and the ledger ________.

A) provide the balance of each account at a specific point in time
B) list the account names and numbers of the business
C) fulfill the task of showing all of the increases and decreases in each account
D) All of the statements are correct.

Question 46

Debit refers to the right side of the T-account, and credit refers to the left side.

Question 47

Regarding the double-entry system, which of the following statements is incorrect?

A) A transaction would be incomplete if only one side were recorded.
B) Because of technology, the use of the double-entry system of accounting is optional.
C) The double-entry system is a system of accounting in which every transaction affects at least two accounts.
D) If office supplies are purchased on account, the account Office Supplies increases and the account Accounts Payable increases.

Question 48

A listing of all accounts in numerical order is called a(n) ________.

A) Ledger
B) Journal
C) Income statement
D) Chart of accounts

Question 49

The T-account is a summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits posted on the right side of the vertical line.

Question 50

Regarding T-accounts, which of the following statements is correct?

A) A T-account is a more detailed form of an account in the journal.
B) The right side of a T-account is a debit for asset accounts and a credit for equity accounts.
C) Debits are posted on the right side of the vertical line.
D) A T-account is a summary device with credits posted on the right side of the vertical line.

Question 51

The left side of the T-account for Accounts Receivable is the debit side and the left side of the T-account for Accounts Payable is the credit side.

Question 52

The T-account is a summary device that is shaped like a capital T with debits posted on the right side of the vertical line and credits posted on the left side of the vertical line.

Question 53

A chart of accounts provides more detail than a ledger.

Question 54

Which of the following is provided in a typical chart of accounts?

A) Account balance
B) Account number
C) Dates of transactions
D) Transaction amounts

Question 55

A shortened form of the ledger is called a ________.

A) working account
B) summary account
C) chart of accounts
D) T-account

Question 56

The accounting analysis system is used to record the dual effects of each transaction.

Question 57

Debit is abbreviated as DE and Credit is abbreviated as CR.

Question 58

Companies use a ledger to show all of the increases and decreases in each account along with their balances.

Question 59

Which of the following is the record holding all the accounts, the changes in those accounts, and their balances?

A) Source document
B) Journal
C) Ledger
D) Trial balance

Question 60

The system of accounting in which every transaction affects at least two accounts is called the double-entry system.

Question 61

Which of the following statements is true of expenses?

A) Expenses increase equity, so an expense account's normal balance is a credit balance.
B) Expenses decrease equity, so an expense account's normal balance is a credit balance.
C) Expenses increase equity, so an expense account's normal balance is a debit balance.
D) Expenses decrease equity, so an expense account's normal balance is a debit balance.

Question 62

The Dividends account is increased by a debit.

Question 63

"All debits are increases and all credits are decreases." Is this a correct statement? Explain your answer.

Question 64

A debit always means a decrease, and a credit always means an increase.

Question 65

An account that normally has a debit balance may occasionally have a credit balance.

Question 66

Which of the following statements is true of the Common Stock account?

A) It is an equity account that has a normal credit balance.
B) It is a liability account that has a normal credit balance.
C) It is a liability account that has a normal debit balance.
D) It is an equity account that has a normal debit balance.

Question 67

Which one of the following account groups will decrease with a debit?

A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities

Question 68

Which of the following accounts increases with a debit?

A) Prepaid Rent
B) Interest Payable
C) Accounts Payable
D) Common Stock

Question 69

Which of the following accounts increases with a credit?

A) Dividends
B) Common Stock
C) Accounts Receivable
D) Prepaid Expense

Question 70

Which one of the following account groups normally has a debit balance?

A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities

Question 71

Which of the following accounts decreases with a debit?

A) Accounts Receivable
B) Notes Payable
C) Cash
D) Rent Expense

Question 72

The balances in the liability and revenue accounts are increased with a credit.

Question 73

Accounts Receivable is a(n) ________ account and has a normal ________ balance.

A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit

Question 74

Which of the following accounts decreases with a credit?

A) Cash
B) Common Stock
C) Accounts Payable
D) Unearned Revenue

Question 75

All asset accounts and equity accounts increase with a debit.

Question 76

Prepaid Rent is a(n) ________ account and has a normal ________ balance.

A) asset; debit
B) liability; credit
C) liability; debit
D) asset; credit

Question 77

The Common Stock account is increased by a debit.

Question 78

Accounts Payable is a(n) ________ account and has a normal ________ balance.

A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit

Question 79

Which one of the following account groups normally has a credit balance?

A) assets and liabilities
B) equity and assets
C) liabilities and revenues
D) assets and expenses

Question 80

The normal balance of an account is the increase side of the account.