Deck 2: Analyzing Business Transactions

Question 1

A debit has an unfavorable effect on an account.

Answer 1

False

Question 2

The valuation issue deals with how the components of a transaction should be categorized.

Answer 2

False

Question 3

A credit to an asset account means that asset account has been increased.

Answer 3

False

Question 4

When a company purchases goods that it will resell, it must record the goods in an expense account.

Question 5

The recognition issue deals with when a user of financial statements should use accounting information.

Question 6

In accounting, to recognize means to record a transaction or event.

Question 7

The cost principle is a solution to the recognition issue.

Question 8

Fair Value is the exchange price associated with a business transaction at the time the transaction is recognized.

Question 9

An increase in an asset is recorded by a debit.

Question 10

When a company receives an order, a transaction has occurred.

Question 11

The classification issue involves the assignment of accounts to business transactions.

Question 12

A decrease in the Owner's Capital account is recorded with a credit.

Question 13

The most generally accepted value used in accounting is market value.

Question 14

For a T account, an account balance is the difference in total dollars between total debit footings and total credit footings.

Question 15

A decrease in a liability is recorded by a debit.

Question 16

The double-entry system is possible because all business transactions have two equal and opposite aspects.

Question 17

Column totals are called footings.

Question 18

When a company receives a product previously ordered, a recordable transaction has occurred.

Question 19

When a business hires a new employee, a recordable transaction has occurred.

Question 20

Purchase requisitions are recognized in the accounting records.

Question 21

Generally, before Accounts Receivable is debited, it is credited.

Question 22

When a withdrawal is made, the Owner's Withdrawals account is debited and Cash is credited.

Question 23

Liabilities are established with debits and eliminated with credits.

Question 24

When the owner makes an investment, his or her Capital account is debited.

Question 25

When revenue has been earned, no entry is recorded until the related cash has been collected.

Question 26

A transposition error will cause the trial balance to be out of balance by an amount that is evenly divisible by nine.

Question 27

Generally, before Accounts Payable is debited, it is credited.

Question 28

Expenses have a normal credit balance.

Question 29

A trial balance is normally prepared at the end of the day.

Question 30

The Owner's Capital account has a normal debit balance.

Question 31

An increase in revenue is recorded with a credit.

Question 32

When the columns of the trial balance equal each other, it means that no errors have occurred in recording and posting the transactions.

Question 33

Recording an account with a debit balance as a credit, or vice versa, will cause the trial balance to be out of balance by an amount that is evenly divisible by two.

Question 34

When payment is received for services not yet rendered, no entry is recorded until that service has been rendered.

Question 35

Accounts Payable has a normal credit balance.

Question 36

A basic storage unit for accounting data is the account.

Question 37

Owner's withdrawals should appear on the statement of owner's equity.

Question 38

A contract is an example of a source document.

Question 39

In a trial balance, all debits are listed before all credits.

Question 40

The Owner's Withdrawals account has a normal credit balance.

Question 41

Despite the advantages of a computer accounting information system, posting still must be done manually.

Question 42

The amount of profit would always be equal to the ending cash balance.

Question 43

In a journal entry, assets are always recorded before liabilities.

Question 44

One might see "J5" correctly placed in the Post. Ref. column of the journal.

Question 45

Another name for the ledger is the book of original entry.

Question 46

In a journal entry, the Post. Ref. column is left blank until the entry has been posted.

Question 47

One can obtain a clear picture of a company's liquidity by referring to its income statement.

Question 48

In a financial report, a double line is placed below the final total(s).

Question 49

The chart of accounts makes finding accounts in the ledger easier.

Question 50

It is sometimes correct for a compound entry's debit totals and credit totals to be unequal.

Question 51

Entering transactions into the journal is called posting.

Question 52

In a journal entry, credits are always indented.

Question 53

Journal entries are typically posted to the ledger only at the end of the year.

Question 54

Revenue should be recorded when it has been earned, not when the related cash has been collected.

Question 55

Accounts Receivable and Accounts Payable are used when there is a time delay between a transaction and its related cash flow.

Question 56

Expenses should be recorded when they are paid, not when they have been incurred.

Question 57

One can obtain a clear picture of a company's liquidity by referring to its statement of cash flows.

Question 58

The ledger account form has a Balance column.

Question 59

A net income of $10,000 means that the business received $10,000 more in cash from its customers than it spent to run the business.

Question 60

The journal is a chronological record of all transactions.

Question 61

Which of the following is an illustration of the classification issue?

A) At what amount should an old machine be shown on the balance sheet?
B) At what point should the purchase of art supplies be recorded?
C) Should tools be recorded as an asset or as an expense?
D) At what point should a bill be paid for the purchase of an item?

Question 62

Dollar signs are not used in journals and ledgers.

Question 63

All companies use the same standard set of accounts.

Question 64

When a business erroneously records expenses as assets, it has violated the measurement issue of

A) communication.
B) classification.
C) valuation.
D) recognition.

Question 65

The accounts in a chart of accounts are normally listed in alphabetical order.

Question 66

An owner's withdrawals are classified as an expense.

Question 67

Wages payable is a type of expense.

Question 68

The account Office Supplies is classified as an expense.

Question 69

Which of the following is a business event that is not considered a recordable transaction?

A) A company receives a product previously ordered.
B) A company pays an employee for work performed.
C) A customer inquires about the availability of a service.
D) A customer purchases a service.

Question 70

When a business records revenue before it has been earned, it has violated the measurement issue of

A) recognition.
B) evaluation.
C) classification.
D) valuation.

Question 71

The issue of deciding when to record a transaction is solved by

A) properly classifying the transaction.
B) deciding on a point of recognition.
C) assigning historical cost to the transaction.
D) analyzing the intent of management.

Question 72

When a business reports an asset at an inflated dollar amount, it has violated the measurement issue of

A) recognition.
B) valuation.
C) classification.
D) realization.

Question 73

Land and buildings may be combined into one account.

Question 74

A purchase is recognized in the accounting records when

A) payment is made for the item purchased.
B) the purchase requisition is sent to the purchasing department.
C) title transfers from the seller to the buyer.
D) the buyer receives the seller's bill.

Question 75

Which of the following is a business event that is considered a recordable transaction?

A) A company hires a new employee.
B) A customer purchases merchandise.
C) A company orders a product from a supplier.
D) An employee sends a purchase requisition to the purchasing department.

Question 76

Another word for expense is debt.

Question 77

Which of the following is not a measurement issue in accounting?

A) When to record a business transaction
B) How to classify the items of a business transaction
C) What value to place on a business transaction
D) Where to record a business transaction

Question 78

Which of the following is not a measurement issue in accounting?

A) Valuation
B) Recognition
C) Evaluation
D) Classification

Question 79

Unearned revenues are classified as liabilities on the balance sheet.

Question 80

The numbering scheme of a chart of accounts should contain no gaps.