Question 1

Which of the following would typically be considered a source document?
A)Chart of accounts
B)General ledger
C)General journal
D)Invoice received from seller

Accepted Answer

A source document is a document that provides evidence of a transaction or event, and an invoice received from a seller is a common example of a source document. The chart of accounts, general ledger, and general journal are not source documents but are instead used to record and organize transactions.

Question 2

An adjusting entry will not take the format of which one of the following entries?
A)A debit to an expense account and a credit to an asset account
B)A debit to an expense account and a credit to a revenue account
C)A debit to an asset account and a credit to a revenue account
D)A debit to a liability account and a credit to a revenue account

Accepted Answer

An adjusting entry is made at the end of an accounting period to update the accounts and ensure that financial statements are accurate. The purpose of an adjusting entry is to record revenue or expenses that have been earned or incurred but have not yet been recorded in the accounts. Option B is incorrect because a credit to a revenue account would increase the revenue on the income statement, but a debit to an expense account would decrease it. All other options contain accounts that could be involved in an adjusting entry.

Question 3

In an accrual accounting system,
A)all accounts have normal debit balances.
B)a debit entry is recorded on the left-hand side of an account.
C)liabilities, owner's capital, and dividends all have normal credit balances.
D)revenues are recorded only when cash is received.

Accepted Answer

In an accrual accounting system, a debit entry is indeed recorded on the left-hand side of an account. This is a fundamental principle of double-entry bookkeeping, which is used in accrual accounting.

Question 4

The balance in a deferred revenue account represents an amount that is

Accepted Answer

The answer of The balance in a deferred revenue account...

Question 5

The debit and credit analysis of a transaction normally takes place when the
A)entry is posted to a subsidiary ledger.
B)entry is recorded in a journal.
C)trial balance is prepared.
D)financial statements are prepared.

Accepted Answer

The debit and credit analysis of a transaction is initially recorded in a journal. Entries in a journal are recorded using the double-entry bookkeeping system which requires every transaction to have an equal debit and credit amount. The analysis is performed at the time of entry to ensure the accuracy of the accounting records.

Question 6

On June 30,a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance.At December 31,the bookkeeper forgot to record the amount expired.The omission has the following effect on the financial statements prepared December 31:
A)overstates owners' equity.
B)overstates assets.
C)understates net income.
D)overstates both owners' equity and assets.

Accepted Answer

The omission of recording the expired portion of the insurance premiums means that expenses are understated, leading to an overstatement of net income. This, in turn, overstates owners' equity. Additionally, the full amount remains in the Prepaid Insurance account, thus overstating assets.

Question 7

The premium on a two-year insurance policy expiring on June 30,2015,was paid in total on July 1,2013.The original payment was debited to the insurance expense account.The appropriate journal entry has been recorded on December 31,2013.The balance in the prepaid asset account on December 31,2013,should be
A)the same as the original payment.
B)higher than if the original payment had been initially debited to an asset account.
C)lower than if the original payment had been initially debited to an asset account.
D)the same as it would have been if the original payment had been initially debited to an asset account.

Accepted Answer

The balance in the prepaid asset account on December 31, 2013, would be the same regardless of whether the original payment was initially debited to an expense account or an asset account. This is because the adjusting entry to record the prepaid portion of the insurance would correct the initial entry, ensuring the correct balance in the prepaid asset account.

Question 8

Which of the following criteria must be met before an event should be recorded for accounting purposes?
A)The event must be an arm's-length transaction.
B)The event must be repeatable in a future period.
C)The event must be measurable in financial terms.
D)The event must be disclosed in the reported footnotes.

Accepted Answer

The most important criteria for an event to be recorded for accounting purposes is that it must be measurable in financial terms. The other criteria, such as being an arm's-length transaction or being repeatable in future periods, may also be important but not as important as being measurable in financial terms. Disclosure in reported footnotes is important for transparency but not a criterion for recording an event in accounting.

Question 9

A trial balance is useful because it indicates that
A)owners' equity is correct.
B)net income is correct.
C)all entries were made correctly.
D)total debits equal total credits.

Accepted Answer

The purpose of a trial balance is to ensure that total debits equal total credits in the accounting system. While it can help identify other errors, its primary purpose is to catch imbalances in the accounts. Therefore, the correct answer is D.

Question 10

A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue.The journal entry to correct this error would be
A)a debit to Sales Revenue and a credit to Accounts Receivable.
B)a debit to Sales Revenue and a credit to Unearned Revenue.
C)a debit to Cash and a credit to Accounts Receivable.
D)a debit to Accounts Receivable and a credit to Sales Revenue.

Accepted Answer

The answer of A routine collection on a customer's account...

Question 11

The last step in the accounting cycle is to
A)prepare a post-closing trial balance.
B)journalize and post closing entries.
C)prepare financial statements.
D)journalize and post adjusting entries.

Accepted Answer

The last step in the accounting cycle is to prepare a post-closing trial balance. This is done after closing entries have been journalized and posted, and financial statements have been prepared. It is a report that shows the final balances of all accounts after closing entries have been made, and is used to ensure that debits and credits are still equal and to provide a starting point for the next accounting period.

Question 12

A chart of accounts is a
A)subsidiary ledger.
B)listing of all account titles.
C)general ledger.
D)general journal.

Accepted Answer

A chart of accounts is a listing of all account titles used in a company's accounting system. It is not a subsidiary ledger, general ledger, or general journal as those refer to specific parts of the accounting system.

Question 13

Which of the following is an item that is reportable in the financial records of an enterprise?
A)The value of goodwill earned through business operations
B)The value of human resources
C)Changes in personnel
D)Changes in inventory costing methods

Accepted Answer

Changes in inventory costing methods are reportable in the financial records of an enterprise as they affect the calculation of cost of goods sold and the value of inventory on the balance sheet. The value of goodwill earned through business operations and the value of human resources are not usually reported as separate items in financial records. Changes in personnel may be reported in the notes to the financial statements, but are not typically included in the primary financial statements.

Question 14

Failure to record the expired amount of prepaid rent expense would not
A)understate expense.
B)overstate net income.
C)overstate owners' equity.
D)understate liabilities.

Accepted Answer

Failure to record the expired amount of prepaid rent expense would understate liabilities because a portion of the rent has been paid in advance but not recorded as an expense, meaning that there is still a liability to the landlord for the rent that has been pre-paid.

Question 15

Which of the following errors will be detected when a trial balance is properly prepared?
A)An amount that was entered in the wrong account
B)A transaction that was entered twice
C)A transaction that had been omitted
D)None of these

Accepted Answer

The answer of Which of the following errors will be...

Question 16

If an inventory account is understated at year end,the effect will be to overstate the
A)net purchases.
B)gross margin.
C)cost of goods available for sale.
D)cost of goods sold.

Accepted Answer

An understatement of the inventory account at year-end means that a portion of the cost of goods sold will be incorrectly classified as an asset and not an expense. This will result in a lower reported cost of goods sold, thus overstating the gross margin. As such, choices (A), (B), and (C) are all incorrect.

Question 17

An accrued expense can be described as an amount
A)paid and matched with earnings for the current period.
B)paid and not matched with earnings for the current period.
C)not paid and not matched with earnings for the current period.
D)not paid and matched with earnings for the current period.

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid. It is therefore not paid but is matched with earnings for the current period.

Question 18

Which of the following is not among the first five steps in the accounting cycle?
A)Record transactions in journals.
B)Record closing entries.
C)Adjust the general ledger accounts.
D)Post entries to general ledger accounts.

Accepted Answer

The first five steps in the accounting cycle are (in order): analyze transactions, record transactions in journals, post entries to general ledger accounts, prepare an unadjusted trial balance, and adjust the general ledger accounts. Recording closing entries comes later in the accounting cycle, after adjusting entries have been made, financial statements have been prepared, and temporary accounts have been closed.

Question 19

A common business transaction that would not affect the amount of owners' equity is
A)signing a note payable to purchase equipment.
B)payment of property taxes.
C)billing of customers for services rendered.
D)payment of dividends.

Accepted Answer

Signing a note payable to purchase equipment is a transaction that affects liabilities (by increasing them) and assets (by increasing them as well), but it does not directly affect the owner's equity.

Question 20

Adjusting entries normally involve
A)real accounts only.
B)nominal accounts only.
C)real and nominal accounts.
D)liability accounts only.

Accepted Answer

Adjusting entries involve both real and nominal accounts. Real accounts are adjusted to reflect the correct balances of assets and liabilities at the end of the period, while nominal accounts are adjusted to reflect the correct amounts of revenues and expenses for the period. Liability accounts may be involved in adjusting entries, but they are not the only accounts that are adjusted.

Quiz 2: A Review of the Accounting Cycle

Which of the following would typically be considered a source document?

An adjusting entry will not take the format of which one of the following entries?

In an accrual accounting system,

The balance in a deferred revenue account represents an amount that is

The debit and credit analysis of a transaction normally takes place when the

On June 30,a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance.At December 31,the bookkeeper forgot to record the amount expired.The omission has the following effect on the financial statements prepared December 31:

Which of the following criteria must be met before an event should be recorded for accounting purposes?

A trial balance is useful because it indicates that

A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue.The journal entry to correct this error would be

The last step in the accounting cycle is to

A chart of accounts is a

Which of the following is an item that is reportable in the financial records of an enterprise?

Failure to record the expired amount of prepaid rent expense would not

Which of the following errors will be detected when a trial balance is properly prepared?

If an inventory account is understated at year end,the effect will be to overstate the

An accrued expense can be described as an amount

Which of the following is not among the first five steps in the accounting cycle?

A common business transaction that would not affect the amount of owners' equity is

Adjusting entries normally involve