Question 1

An example of an internal event would be a flood that destroyed a portion of a company's inventory.

Accepted Answer

An internal event refers to occurrences within a company that affect its operations or financial condition, such as changes in management or internal fraud. A flood destroying inventory is considered an external event because it originates outside the company and impacts it from the outside.

Question 2

One purpose of a trial balance is to prove that debits and credits are equal in the general ledger.

Accepted Answer

A trial balance is a list of all the accounts in the general ledger and their balances. Its purpose is to ensure that the total debits equal the total credits in the ledger, which ultimately helps to identify and correct any errors in the accounting records.

Question 3

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

Accepted Answer

Nominal accounts are temporary accounts that are used to track business activities for a specific period of time. Revenue, expense, and dividend accounts are examples of nominal accounts, and they are closed at the end of each accounting period. This means that their balances are transferred to the retained earnings account, which is a permanent account.

Question 4

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

Accepted Answer

Closing entries are necessary to transfer the balances of temporary accounts (revenue and expense accounts) to the retained earnings account in order to start the new accounting period with a zero balance in these accounts. Skipping the closing entries can result in miscalculations and errors in future financial statements.

Question 5

All liability accounts and stockholders' equity accounts are increased on the credit side and decreased on the debit side.

Accepted Answer

The answer of All liability accounts and stockholders' equity accounts...

Question 6

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid. An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense. This type of adjustment increases the wages expense and increases the liability for wages payable.

Question 7

Total stockholders' equity consists of common stock and the earnings retained in the business.

Accepted Answer

Total stockholders' equity is the sum of common stock and retained earnings, which represents the equity investment of shareholders in the business.

Question 8

In general, debits refer to increases in account balances, and credits refer to decreases.

Accepted Answer

Debits refer to decreases in account balances, while credits refer to increases. This is because of the accounting equation, which states that assets = liabilities + equity. When a transaction causes an increase in assets or a decrease in liabilities or equity, it is recorded as a debit. Conversely, when a transaction causes a decrease in assets or an increase in liabilities or equity, it is recorded as a credit.

Question 9

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

Accepted Answer

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet. This is because it is a component of both financial statements. The retained earnings statement shows the changes in the retained earnings balance for a specific period of time, while the balance sheet shows the retained earnings balance at a specific point in time, typically the end of the accounting period.

Question 10

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period.

Accepted Answer

Adjusting entries for prepayments involve recording the portion of the prepayment that relates to expenses incurred or revenue recognized in the current accounting period, in order to accurately reflect the financial performance of the business during that period. This is a key step in the accounting process to ensure that financial statements are accurate and reliable.

Question 11

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed.

Accepted Answer

Real (permanent) accounts include asset, liability, and equity accounts and are not closed periodically; instead, their balances are carried over into the next accounting period. Revenue, expense, and dividend accounts are considered temporary accounts and are closed at the end of each accounting period.

Question 12

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.

Accepted Answer

Reversing entries are made at the beginning of a new accounting period to reverse the effect of certain adjusting entries made at the end of the previous accounting period, not to correct errors.

Question 13

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

Accepted Answer

This is the definition of a general journal.

Question 14

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.

Accepted Answer

If a journal entry is not posted, it affects both debit and credit sides equally, so the trial balance will still balance, but it will be incomplete.

Question 15

The post-closing trial balance consists of asset, liability, owners' equity, revenue and expense accounts.

Accepted Answer

The post-closing trial balance consists of asset, liability, and owners' equity accounts only, as revenue and expense accounts are closed to the income summary account at the end of the accounting period.

Question 16

A ledger is where a company first records transactions and other selected events.

Accepted Answer

A journal is where a company first records transactions and other selected events, not a ledger. The ledger is used to classify and summarize these transactions after they are initially recorded in the journal.

Question 17

The book value of any depreciable asset is the difference between its cost and its salvage value.

Accepted Answer

The book value of a depreciable asset is the difference between its original cost and the accumulated depreciation, not just its salvage value.

Question 18

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.

Accepted Answer

The accrual-basis of accounting recognizes revenue when earned and expenses when incurred, regardless of when cash is paid or received.

Question 19

The first step in the accounting cycle is the journalizing of transactions and selected other events.

Accepted Answer

The first step in the accounting cycle is identifying and analyzing transactions and events.

Question 20

An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries.

Accepted Answer

An adjusted trial balance with equal debit and credit totals only proves that the ledger is in balance. It does not guarantee the accuracy of the adjusting entries or that all necessary adjustments have been made.

Quiz 3: The Accounting Information System