Question 1

Services are provided for customers who pay for the services immediately.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

When customers pay for services immediately, it results in an increase in cash (an asset) and an increase in revenue (part of stockholders' equity). Therefore, the accounting equation is balanced with an increase in both assets and stockholders' equity.

Question 2

Owners of Tri-States Industries, Ralph and Maureen, are sent a dividend check from the company.For this transaction, what is the effect on the accounting equation for Tri-States Industries?
A) Assets decrease and stockholders' equity decreases.
B) Assets increase and stockholders' equity increases..
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities increase and stockholders' equity decreases

Accepted Answer

When a company pays dividends, it uses its assets (cash) to pay the owners, which decreases its assets. At the same time, this payment reduces retained earnings, a component of stockholders' equity, thus decreasing stockholders' equity.

Question 3

All of the following events (transactions) would be identified from standard source documents except for
A) freight charges for merchandise purchased from suppliers.
B) the amount to be paid to settle a lawsuit for discrimination in hiring employees.
C) wages to be paid to hourly employees.
D) commissions earned by sales employees.

Accepted Answer

Standard source documents are the original documents that provide evidence of a transaction, such as purchase orders, invoices, receipts, and payroll records. Freight charges (A), wages (C), and commissions (D) would all be identified from standard source documents. However, the amount to be paid to settle a lawsuit for discrimination in hiring employees is not a transaction that would typically have a standard source document. Instead, it would likely be documented through legal paperwork or a settlement agreement.

Question 4

XYZ Corp.made cash sales to customers.What effect does this transaction have on the accounting equation?
A) Liabilities increase and stockholders' equity increases.
B) There is no effect on the accounting equation as one asset account increases while another asset account decreases.
C) Assets increase and liabilities increase.
D) Assets increase and stockholders' equity increases.

Accepted Answer

Cash sales increase the company's assets (cash), and since there is no change in liabilities, the increase in assets also increases stockholders' equity. Therefore, the transaction increases both assets and stockholders' equity, as stated in choice D.

Question 5

One effect on the accounting equation when a firm borrows money is
A) stockholders' equity decreases.
B) assets increase.
C) liabilities decrease.
D) assets decrease.

Accepted Answer

When a firm borrows money, its assets increase because it has received cash (an asset) from the loan. At the same time, its liabilities increase because it now owes a debt to the lender. The accounting equation is Assets = Liabilities + Stockholders' Equity, so an increase in assets would be offset by an increase in liabilities, leaving stockholders' equity unchanged.

Question 6

Payment is made for an electric bill which was received and recorded earlier.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

When payment is made for an electric bill which was already received and recorded earlier, it results in a decrease in liabilities (as the payment has reduced the amount owed) and a decrease in assets (as cash or bank balance is used to make the payment). Therefore, the correct option is D - Liabilities decrease and assets decrease.

Question 7

Payment is received from customers who were billed earlier for services provided for them.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) There is no effect on the accounting equation as one asset account increases while another asset account decreases.

Accepted Answer

When payment is received from customers who were previously billed, cash (an asset) increases, while accounts receivable (another asset) decreases by the same amount, leaving the accounting equation unchanged.

Question 8

Services are provided for customers who are sent bills for the amount they owe.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

The answer of Services are provided for customers who are...

Question 9

Which of the following events (transactions) is an internal event for a business entity?
A) An accountant provides services for clients.
B) An accountant purchases computer equipment to maintain business records and prepare legal documents.
C) An accountant receives cash payments from clients for services performed.
D) Periodically, part of the cost of the computer equipment used by an accountant is assigned to depreciation expenses.

Accepted Answer

Depreciation expenses are an internal transaction because it involves the company's assets (the computer equipment) and its accounting records, but does not involve any external party. The other options involve either providing services to clients (A) or purchasing equipment (B), or receiving cash payments from clients (C), which are all external transactions that involve parties outside of the business entity.

Question 10

A truck is purchased on credit.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and owners' equity increases.
C) Liabilities increase and owners' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

When a truck is purchased on credit, the assets of the company increase (as it now owns a truck), but also the liabilities increase (as it now owes money to the creditor who provided the credit). This is a classic example of the accounting equation: Assets = Liabilities + Owners' Equity. In this case, both sides of the equation increase.

Question 11

The purchase of office equipment on credit has what effect on the accounting equation?
A) Assets increase and liabilities increase
B) Liabilities increase and stockholders' equity decreases.
C) Assets decrease and stockholders' equity decreases
D) Assets decrease and liabilities decrease.

Accepted Answer

When office equipment is purchased on credit, it will increase assets (office equipment) on the left side of the accounting equation and it will also increase liabilities (accounts payable) on the right side of the equation. Therefore, the correct answer is A, which means assets increase and liabilities increase.

Question 12

All of the following are external events (transactions) except for A) a department store recognizing losses from shoplifting. B) a department store running ads in a local newspaper. C) a department store purchasing merchandise from a clothing manufacturer. D) a department store selling clothing to customers on credit.

Accepted Answer

External events involve interactions between an entity and its environment, such as transactions with other entities. Recognizing losses from shoplifting is an internal event as it involves internal adjustments and does not involve an exchange or transaction with an external party.

Question 13

During November, ABC, Inc.purchased office supplies for cash.The supplies will be used in November.What effect does this purchase transaction have on the accounting equation?
A) Assets increase and stockholders' equity decreases.
B) Assets increase and liabilities increase.
C) Assets decrease and liabilities decrease.
D) There is no effect on the accounting equation as one asset account increases while another asset account decreases.

Accepted Answer

The purchase of supplies for cash decreases the cash account (an asset) but increases the supplies account (also an asset), leaving the total assets unchanged. There's no effect on liabilities or stockholders' equity, so the accounting equation remains balanced.

Question 14

Payment is made for land purchased earlier on credit.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decrease.
D) Liabilities decrease and assets decrease.

Accepted Answer

When payment is made for land purchased earlier on credit, the liability decreases as the payment reduces the outstanding balance. At the same time, the asset cash decreases as cash is being used to make the payment. Therefore, the accounting equation will show a decrease in both liabilities and assets, resulting in a decrease in the total equity.

Question 15

A bill is received for electric service; the charge for the electricity is recorded, but payment will be made later.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

The answer of A bill is received for electric service;...

Question 16

Blake and Ryan each invest $30,000 in a business and are given shares of stock in Jones Industries as evidence of their ownership interests.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities decrease and assets decrease.

Accepted Answer

When Blake and Ryan invest $30,000 each in the business, the assets of the business increase by $60,000 (cash received), but there is no change in liabilities. Therefore, the stockholders' equity increases by $60,000 to represent the ownership interests of Blake and Ryan. This can be represented in the accounting equation as follows:

Assets = Liabilities + Stockholders' Equity
Increase in cash ($60,000) = No change in liabilities + Increase in stockholders' equity ($60,000)

Question 17

Which of the following statements is false? A) Checks and deposit slips are the main source of documents backing up the bank statement. B) Retailers use cash register tapes to recognize sales. C) Stock certificates are evidence of being a creditor of the company. D) Time cards are used as the source of information to record wages.

Accepted Answer

Stock certificates are evidence of being a shareholder and owning a portion of the company, not a creditor.

Question 18

The payment of employee salaries has what effect on the accounting equation?
A) Assets decrease and stockholders' equity decreases.
B) Liabilities decrease and stockholders' equity decreases.
C) Assets decrease and liabilities increase.
D) Assets increase and liabilities decrease.

Accepted Answer

The payment of employee salaries results in a decrease in the company's assets (cash or bank balance decreases) and a simultaneous decrease in its liabilities (if the salaries were previously recorded as a payable) or a decrease in stockholders' equity (as an expense reduces retained earnings). However, since the question does not specify that the salaries were previously recorded as a payable, the most direct effect is a decrease in assets and a decrease in stockholders' equity due to the expense recognition.

Question 19

Which of the following would be a case where an event as a transaction is not supported by a source document?
A) a purchase of inventory on credit
B) a cash sale
C) a credit sale
D) None of these choices

Accepted Answer

All three choices (A, B, and C) involve source documents. A purchase of inventory on credit would have an invoice or purchase order as a source document, a cash sale would have a sales receipt as a source document, and a credit sale would have a sales invoice as a source document. Therefore, there would be no case where an event as a transaction is not supported by a source document.

Question 20

Which of the following statements is true?
A) Only the effects of internal transactions must be recognized and recorded in the entity's accounting system.
B) An internal event is a transaction between an entity and its environment.
C) Not all recognizable events are supported by a standard source document.
D) Only the effects of external events must be recognized, measured, and recorded in an entity's accounting system.

Accepted Answer

While most recognizable events are supported by standard source documents (such as purchase orders, invoices, and receipts), there may be some events that do not have a standard document. Internal transactions must be recognized and recorded in the entity's accounting system, and so must external transactions. Choice A and Choice B are incorrect because both internal and external transactions/events must be recognized and recorded. Choice D is incorrect because it states that only the effects of external events must be recognized and recorded, which is not true.

Quiz 3: Processing Accounting Information

Services are provided for customers who pay for the services immediately.For this transaction, identify the effect on the accounting equation.

Owners of Tri-States Industries, Ralph and Maureen, are sent a dividend check from the company.For this transaction, what is the effect on the accounting equation for Tri-States Industries?

All of the following events (transactions) would be identified from standard source documents except for

XYZ Corp.made cash sales to customers.What effect does this transaction have on the accounting equation?

One effect on the accounting equation when a firm borrows money is

Payment is made for an electric bill which was received and recorded earlier.For this transaction, identify the effect on the accounting equation.

Payment is received from customers who were billed earlier for services provided for them.For this transaction, identify the effect on the accounting equation.

Services are provided for customers who are sent bills for the amount they owe.For this transaction, identify the effect on the accounting equation.

Which of the following events (transactions) is an internal event for a business entity?

A truck is purchased on credit.For this transaction, identify the effect on the accounting equation.

The purchase of office equipment on credit has what effect on the accounting equation?

All of the following are external events (transactions) except for

During November, ABC, Inc.purchased office supplies for cash.The supplies will be used in November.What effect does this purchase transaction have on the accounting equation?

Payment is made for land purchased earlier on credit.For this transaction, identify the effect on the accounting equation.

A bill is received for electric service; the charge for the electricity is recorded, but payment will be made later.For this transaction, identify the effect on the accounting equation.

Blake and Ryan each invest $30,000 in a business and are given shares of stock in Jones Industries as evidence of their ownership interests.For this transaction, identify the effect on the accounting equation.

Which of the following statements is false?

The payment of employee salaries has what effect on the accounting equation?

Which of the following would be a case where an event as a transaction is not supported by a source document?

Which of the following statements is true?