Deck 2: Analyzing and Recording Business Transactions

Question 1

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

Answer 1

True

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

A debit has an unfavorable effect on an account.

Question 5

The first step in the accounting cycle is to post the journal entries to the ledger and prepare a trial balance.

Question 6

A decrease in a liability is recorded by a credit.

Question 7

The general ledger is the basic storage unit for accounting data and is used to accumulate
amounts from similar transactions.

Question 8

Fair value is the exchange price of an actual or potential business transaction between market participants.

Question 9

Business transactions are economic events that should be recorded in the accounting records.

Question 10

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

Question 11

One of the general rules of the double-entry system is that total debits must always be equal to total credits.

Question 12

Normally,the value of an asset remains at its initial fair value or cost until the asset is sold,expires,or is consumed.

Question 13

Generally accepted accounting principles state that all business transactions should be valued at fair value both when they occur and at all subsequent reporting dates.

Question 14

Withdrawls and revenues are deductions from owner's equity.

Question 15

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

Question 16

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

Question 17

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

Question 18

The normal balance of an account is the side (debit or credit)used to decrease the account.

Question 19

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

Question 20

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

Question 21

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

Question 22

When a company records the purchase of 1 month of prepaid expense the transaction does not affect the totals of assets or liabilities and owner's equity.

Question 23

In a journal entry,debits are always indented.

Question 24

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

Question 25

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

Question 26

A journal entry is a notation that consists of either a single debit or a single credit that is recorded in the general ledger.

Question 27

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

Question 28

The journal is a chronological record of all transactions.

Question 29

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

Question 30

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

Question 31

When the columns of the trial balance equal each other,it is still possible that errors may have occurred in recording and posting the transactions.

Question 32

Liabilities are established with credits and eliminated with debits.

Question 33

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

Question 34

Proper journal form is a way of recording a transaction with the date,debit account,and debit amount shown on one line,and the credit account (indented)and credit amount shown on the next line.

Question 35

Once in a while,a transaction leaves an account with a balance that isn't "normal." When this occurs,the "abnormal" balance should be corrected to the "normal" balance before copying the balance into the trial balance.

Question 36

A trial balance may be prepared at any point in time.

Question 37

It is never correct for a compound entry's debit totals and credit totals to be unequal.

Question 38

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 39

Entering transactions into the journal is called posting.

Question 40

In a journal entry,debits are always recorded before credits.

Question 41

A purchase should usually not be recognized (recorded)before the title is transferred because,until that point,the vendor has not fulfilled its contractual obligation and the buyer has no liability.

Question 42

One way a company can manage its expenditures is to rely on its creditors to give it time to pay for purchases.

Question 43

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

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

Question 44

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

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

Question 45

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 46

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

Question 47

A transaction should be recorded when title to merchandise passes from the supplier to the purchaser and creates an obligation to pay.

Question 48

All sales transactions generate immediate cash.

Question 49

In the general journal,the year appears on the first line of the first column,the month on the next line of the first column,and the day in the second column opposite the month.

Question 50

Purchase requests and purchase orders are economic events,and as such they affect a company's financial position,and are recognized in the accounting records.

Question 51

The general ledger is used to record the details of each transaction.The general journal is used to update each account.

Question 52

The cost principle relates most closely to the

A)recognition point.
B)recognition issue.
C)valuation issue.
D)classification issue.

Question 53

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

Question 54

In order to manage a company's liquidity,managers and other users of financial information must understand the difference between transactions that generate immediate cash and those that do not.

Question 55

All expenses incurred by a business are paid immediately in cash.

Question 56

When a company pays an employee for work performed,it is considered an economic event that is not recorded as a transaction.

Question 57

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

Question 58

The timing of cash flows is critical to a company's ability to maintain adequate liquidity so that it can pay its bills on time.

Question 59

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)How to classify the items of a business transaction.
D)Where to record a business transaction.

Question 60

Purchasing office supplies on account is an example of one way a company can take advantage of deferring a cash payment.

Question 61

Which of the following is the final step in the accounting cycle?

A)Prepare financial statements.
B)Close the accounts.
C)Prepare and adjusted trial balance.
D)Post the journal entries to the ledger.

Question 62

Proper __________ depends on correctly analyzing the effect of each transaction and on maintaining a system of accounts that reflects that effect.

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

Question 63

After initially recording an asset at cost,fair value is

A)the price at which an asset could be sold in a current transaction between independent parties.
B)the actual,or historical,price at which the asset was acquired.
C)the easiest value used to measure and record assets.
D)verifiable at all future dates by referring to the invoice price paid for the asset.

Question 64

Which of the following accounts is increased with a credit?

A)Office Supplies
B)Unearned Revenue
C)Land
D)Prepaid Insurance

Question 65

The controller for Tires and More,Inc.has recorded the following transactions during the month: the purchase of supplies on credit,$4,200;receipt of a bill for utilities for the month which is due on the 15th of the next month,$1,200;and,partial payment on the balance due for supplies,$800.What is the balance in the Accounts Payable account at the end of the month assuming a beginning balance of $0,and is the balance a debit or a credit?

A)$4,600 debit.
B)$4,600 credit.
C)$3,400 credit.
D)$5,400 credit.

Question 66

Receiving cash from a customer for settlement of an Accounts Receivable will

A)decrease Owner's Equity.
B)increase net income.
C)increase total assets.
D)not affect total assets.

Question 67

When a service has been performed,but no cash has been received,which of the following statements is true?

A)The entry would include a debit to Accounts Receivable.
B)The entry would include a debit to Accounts Payable.
C)The entry would include a credit to Unearned Revenue.
D)No entry is required until the cash is received.

Question 68

Which of the following accounts is not shown on the Statement of Owner's Equity?

A)Owner's Capital
B)Revenues
C)Expenses
D)Withdrawals

Question 69

A company records a transaction in which six months' rent is paid in advance.Which of the following journal entries records the transaction?

A)Prepaid Rent - Debit;Cash - Credit
B)Rent Receivable - Debit;Cash - Credit
C)Rent Revenue - Debit;Cash - Credit
D)Rent Expense- Debit;Cash - Credit.

Question 70

The withdrawal of cash by the owner will

A)decrease net income.
B)increase liabilities.
C)not affect total assets.
D)decrease owner's equity.

Question 71

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

A)At what amount should land be shown on the balance sheet?
B)At what point should the payment of salaries to employees be recorded?
C)Should supplies 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 72

Which pair of accounts follows the rules of debit and credit in the same manner?

A)Service Revenue and Equipment
B)Land and Withdrawals
C)Notes Payable and Buildings
D)Wages Expense and Service Revenue

Question 73

Which pair of accounts follows the rules of debit and credit in the opposite manner?

A)Prepaid Insurance and Withdrawals
B)Advertising Expense and Land
C)Withdrawals and Service Revenue
D)Interest Payable and Owner's Capital

Question 74

Which of the following is the first step in the accounting cycle?

A)Prepare financial statements.
B)Analyze business transactions from source documents.
C)Prepare and adjusted trial balance.
D)Post the journal entries to the ledger.

Question 75

Which of the following accounts is increased with a debit?

A)Jim Webb,Capital
B)Rent Payable
C)Service Revenue
D)Prepaid Insurance

Question 76

The controller for Tires and More,Inc.has recorded the following transactions during the month: the purchase of equipment for $8,500 cash;payment of $6,300 for 3 months rent;and,collection of $2,400 from a customer for services performed.At the beginning of the month the owner established the business by making an investment of $15,000 cash.What is the balance in the Cash account at the end of the month,and is the balance a debit or a credit?

A)$2,600 debit.
B)$2,600 credit.
C)$6,800 debit.
D)$15,200 debit.

Question 77

The double-entry system

A)requires that each transaction be recorded with at least one debit and one credit.
B)requires that the total amount of the debits must always equal the total amount of the credits.
C)is based on the principle of duality.
D)All of these choices.

Question 78

When a company has performed a service but has not yet received payment,what is the required journal entry to be recorded?

A)Accounts Receivable - Debit;Service Revenue - Credit
B)Service Revenue - Debit;Accounts Payable - Credit.
C)Service Revenue - Debit;Accounts Receivable - Credit
D)No entry is required until the cash is received.

Question 79

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

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

Question 80

Which of the following events does not require a journal entry?

A)Purchase of a one-year insurance policy.
B)Agreement to perform a service at a future date.
C)Payment for a service performed previously.
D)All of these choices.