Deck 2: Analyzing and Recording Transactions

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

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

Answer 2

False

Question 3

Cash withdrawn by the owner of a proprietorship should be treated as an expense of the business.

Answer 3

False

Question 4

Increases in liability accounts are recorded as debits.

Question 5

Items such as sales tickets, bank statements, checks, and purchase orders are source documents.

Question 6

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

Question 7

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

Question 8

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

Question 9

Debits increase asset and expense accounts.

Question 10

Crediting an expense account decreases it.

Question 11

A customer's promise to pay is called an account payable to the seller.

Question 12

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

Question 13

Source documents provide evidence of business transactions and are the basis for accounting entries.

Question 14

The chart of accounts is a list of all the accounts used by a company and includes an identification number assigned to each account.

Question 15

Credits always increase account balances.

Question 16

Debit means the right side of an account.

Question 17

The first step in the processing of a transaction is to analyze the transaction and source documents.

Question 18

Unearned revenues are liabilities.

Question 19

Withdrawals by the owner are a business expense.

Question 20

A revenue account normally has a debit balance.

Question 21

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

Question 22

A debit entry is always favorable.

Question 23

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 24

Accounts are normally decreased by debits.

Question 25

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

Question 26

An owner's capital account normally has a debit balance.

Question 27

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

Question 28

Hamilton Industries has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%.
$105 million/$350 million = 30.0%

Question 29

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 30

The owner's withdrawal account normally has a credit balance since it is an equity account.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

A compound journal entry affects no more than two accounts.

Question 36

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.

Question 37

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

Question 38

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

Question 39

If a company provides services to a customer on credit the selling company should credit Accounts Receivable.

Question 40

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

Question 41

The journal is known as a book of original entry.

Question 42

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 43

Generally, the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, that is, assets first, then liabilities, then owner's capital and withdrawals, followed by revenues and expenses.

Question 44

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

Question 45

The trial balance is a list of all accounts and their balances at a point in time taken from the ledger.

Question 46

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

Question 47

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 48

The balance sheet reports the financial position of a company at a point in time.

Question 49

Transactions are first recorded in the ledger.

Question 50

Source documents:

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

Question 51

The accounting process begins with:

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

Question 52

Both U.S. GAAP and IFRS do not require the use of accrual basis accounting.

Question 53

Both U.S. GAAP and IFRS prepare the same four basic financial statements.

Question 54

Source documents include all of the following except:

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

Question 55

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

Question 56

An income statement reports the revenues earned less expenses incurred by a business over a period of time.

Question 57

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

Question 58

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 59

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

Question 60

All of the following statements regarding a sales invoice are True except:

A) A sales invoice is a type of source document.
B) A sales invoice is used by sellers to record the sale.
C) A sales invoice is used by buyers to record purchases.
D) A sales invoice gives rise to an entry in the accounting process.
E) A sales invoice does not provide objective evidence about a transaction.

Question 61

Which of the following statements is incorrect?

A) The normal balance of accounts receivable is a debit.
B) The normal balance of owner's withdrawals 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 the owner's capital account is a credit.

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

An account used to record the owner's investments in the business is called a(n):

A) Withdrawals account.
B) Capital account.
C) Revenue account.
D) Expense account.
E) Liability account.

Question 64

A collection of all accounts and their balances used by a business is called a:

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

Question 65

A simple account form widely used in accounting as a tool to understand how debits and credits affect an account balance is called a:

A) Withdrawals account.
B) Capital account.
C) Drawing account.
D) T-account.
E) Balance column sheet.

Question 66

An account balance is:

A) The total of the credit side of the account.
B) The total of the debit side of the account.
C) The difference between the total debits and total credits for an account including the beginning balance.
D) Assets = liabilities + equity.
E) Always a credit.

Question 67

A credit entry:

A) Increases asset and expense accounts, and decreases liability, owner's capital, and revenue accounts.
B) Is always a decrease in an account.
C) Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts.
D) Is recorded on the left side of a T-account.
E) Is always an increase in an account.

Question 68

A credit is used to record:

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

Question 69

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 owners' capital.

Question 70

A debit:

A) Always increases an account.
B) Is the right-hand side of a T-account.
C) Always decreases an account.
D) Is the left-hand side of a T-account.
E) Is not need to record a transaction.

Question 71

Of the following accounts, the one that normally has a credit balance is:

A) Cash.
B) Office Equipment.
C) Wages Payable.
D) Owner, Withdrawals.
E) Sales Salaries Expense.

Question 72

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

Question 73

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 receivable.
C) Increases and decreases in cash are always recorded in the owner's capital 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) Accrued liabilities include accounts receivable.

Question 74

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 75

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

A) A revenue account.
B) The owner's withdrawals account.
C) The owner's capital account.
D) An expense account.
E) A liability account.

Question 76

A formal promise to pay (in the form of a promissory note) a future amount is a(n):

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

Question 77

The numbering system used in a company's chart of accounts:

A) Is the same for all companies.
B) Is determined by generally accepted accounting principles.
C) Depends on the source documents used in the accounting process.
D) Typically begins with balance sheet accounts.
E) Typically begins with income statement accounts.

Question 78

A ledger is:

A) A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item.
B) A journal in which transactions are first recorded.
C) A collection of documents that describe transactions and events entering the accounting process.
D) A list of all accounts with their debit balances at a point in time.
E) A record containing all accounts and their balances used by a company.

Question 79

A debit is used to record:

A) A decrease in an asset account.
B) A decrease in an expense account.
C) An increase in a revenue account.
D) An increase in the balance of an owner's capital account.
E) An increase in the balance of the owner's withdrawals account.

Question 80

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

A) Source document.
B) Journal.
C) Trial balance.
D) Chart of accounts.
E) General Journal.