Deck 3: The Accounting Cycle: Capturing Economic Events

Question 1

Earning revenue increases owners' equity and expenses reduce owners' equity,therefore,revenues are recorded with debit entries and expenses are recorded with credit entries.

Answer 1

False

Question 2

Decreases to owners' equity accounts are recorded using debits.

Answer 2

True

Question 3

All liability accounts normally have a credit balance.

Answer 3

True

Question 4

The ledger is a chronological,day-by-day,record of business transactions.

Question 5

Increases in owners' equity are recorded by credits; increases in assets and in liabilities are recorded by debits.

Question 6

When recording a journal entry,asset accounts are shown first,followed by liabilities,and finally owners' equity accounts.

Question 7

Every business transaction is recorded by a debit to a balance sheet account and a credit to an income statement account.

Question 8

Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and credits.

Question 9

If the number of debit entries in an account is greater than the number of credit entries,the account will have a debit balance.

Question 10

The left-hand side of an account is used for recording debits and the right-hand side for recording credits.

Question 11

Ledger accounts are updated through a process called posting.

Question 12

An increase in a liability is recorded by a credit; an increase in owners' equity by a debit.

Question 13

When making a general journal entry,there can only be one debit and one credit.

Question 14

In its simplest form an account has only three elements: a title,a left side (called debit),and a right side (called credit).

Question 15

Ledger accounts are updated first,and then transactions are recorded in the journal.

Question 16

Liability accounts should only be debited and never credited.

Question 17

The credit side of an account is the right side,while the debit side is the left side.

Question 18

Dividends are an expense to a corporation and appear on the income statement.

Question 19

A credit to a ledger account refers to the entry of an amount on the right side of an account.

Question 20

When a company uses the double-entry method,the total dollar amount of debits recorded must equal the total dollar amount of credits recorded,but the number of debit and credit entries may differ.

Question 21

The purpose of accrual accounting is to measure the amounts of cash received and paid during the period.

Question 22

Since most companies update their Retained Earnings balances only once per year,the Retained Earnings balance will always have a $0 balance in the trial balance.

Question 23

A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger.

Question 24

Which of the following is not true regarding the general ledger account for Cash?

A)The balance of the account indicates the amount of cash owned by the business on a particular date.
B)Each debit entry in the Cash account represents a cash receipt.
C)Debit entries are made before credit entries.
D)Credit entries in the Cash account represent cash payments.

Question 25

The sequence of accounting procedures used to record,classify,and summarize accounting information is called the:

A)Accounting cycle.
B)Accounting period.
C)Accrual accounting.
D)Double-entry bookkeeping.

Question 26

In the general ledger,a separate "account" is maintained for each:

A)Type of asset and liability and for each element of owners' equity.
B)Business transaction.
C)Business day.
D)Journal entry.

Question 27

Steps in the accounting cycle include (1)prepare financial statements,(2)post each journal entry to the appropriate ledger account,and (3)journalize transactions.Which of the following reflects the correct order of these steps?

A)(1),(2),(3).
B)(3),(2),(1).
C)(2),(1),(3).
D)(3),(1),(2).

Question 28

Every transaction which affects an income statement account also affects a balance sheet account.

Question 29

A trial balance includes only the balance sheet accounts,income statement accounts are not included on a trial balance.

Question 30

The accrual basis of accounting recognizes expenses only when they are paid.

Question 31

A trial balance proves that equal amounts of debits and credits were posted to the ledger.

Question 32

The matching principle refers to the relationship between revenues and expenses.

Question 33

Which of the following is not a step in the accounting cycle?

A)Prepare a trial balance.
B)Prepare a purchase order.
C)Prepare financial statements.
D)Prepare an adjusted trial balance.

Question 34

The accounting cycle begins with the

A)Posting of journal entries to ledger accounts.
B)Formation of a business.
C)Initial recording of business transactions.
D)Preparation of a trial balance.

Question 35

The cash account of Grande Home Improvement Store shows the following: a debit on June 1 for $25,000; a credit on June 5 for $10,000,a debit on June 16 for $14,000,and a credit on June 27 for $8,000.What is the balance in the cash account at the end of June?

A)$39,000 debit.
B)$21,000 debit.
C)$18,000 credit.
D)$21,000 credit.

Question 36

Revenues increase owners' equity and are,therefore,recorded by crediting the revenues account.

Question 37

"I was just following orders" is an acceptable defense if you committed an unethical action during an audit.

Question 38

The concept of applying the accounting treatment that results in the lowest,most conservative,estimate of net income for the period is called the matching principle.

Question 39

A CEO or CFO associated with fraudulent financial reporting could be fined but not imprisoned under the Sarbanes Oxley Act.

Question 40

A business that is profitable and liquid will have more accounts with credit balances than with debit balances.

Question 41

In accounting,the terms debit and credit indicate,respectively:

A)Increase and decrease.
B)Left and right.
C)Decrease and increase.
D)Right and left.

Question 42

Eagle News has a $6,000 account receivable from one of its advertisers,Allwood Floors.When Eagle receives $3,600 from Allwood as partial payment:

A)Eagle should debit Accounts Receivable for $3,600.
B)Eagle should credit Cash for $3,600.
C)Eagle should credit Accounts Receivable for $3,600.
D)Eagle makes no journal entry until the total of $6,000 is received from Allwood.

Question 43

Collection of an accounts receivable:

A)Increases the total assets of a company.
B)Decreases the total assets of a company.
C)Does not change the total assets of a company.
D)Reduces a company's total liabilities.

Question 44

On June 18,Baltic Arena paid $6,600 to Marvin Maintenance,Inc.for cleaning the arena following a monster truck show.Which of the following most likely occurred as a result of this transaction?

A)The accounts receivable account was debited.
B)Total assets increased.
C)The cash account was credited.
D)Total liabilities increased.

Question 45

If a company purchases equipment for cash:

A)Assets will increase and owners' equity will also increase.
B)Assets will increase and owners' equity will decrease.
C)Assets will increase and owners' equity will remain unchanged.
D)Total assets and owners' equity will remain unchanged.

Question 46

Which of the following accounts normally contain a debit balance?

A)Asset.
B)Liability.
C)Owners' equity.
D)Revenue.

Question 47

If a company purchases equipment on account:

A)Assets will increase and owners' equity will also increase.
B)Assets will increase and owners' equity will decrease.
C)Assets will increase and owners' equity will remain unchanged.
D)Assets will increase and liabilities will decrease.

Question 48

Master Equipment has a $17,400 liability to Arrow Paint Co.When Master Equipment makes a partial payment of $7,600 on this liability,which of following occurs?

A)Retained earnings are debited $9,800.
B)The Accounts Payable account is credited $9,800.
C)The Cash account is debited $7,600.
D)The Accounts Payable account is debited $7,600.

Question 49

Sue Costa,owner of A-1 Cleaning Services,invested an additional $75,000 in the company.Which of the following would be a part of the correct journal entry to record this transaction?

A)A debit to the Cash account.
B)A debit to the Equity account.
C)A debit to the Capital Stock account.
D)A debit to the Cash Received account.

Question 50

Land is purchased by making a cash down payment of $40,000 and signing a note payable for the balance of $130,000.The journal entry to record this transaction in the accounting records of the purchaser includes:

A)A credit to Land for $40,000.
B)A debit to Cash for $40,000.
C)A debit to Land for $170,000.
D)A debit to Note Payable for $130,000.

Question 51

The collection of an account receivable is recorded by a debit to Cash and a credit to Accounts Payable.If this error is not corrected:

A)Total liabilities are understated.
B)Total assets are understated.
C)Total liabilities are overstated.
D)Owners' equity is overstated.

Question 52

The purchase of equipment on credit is recorded by a:

A)Debit to Equipment and a credit to Accounts Payable.
B)Debit to Accounts Payable and a credit to Equipment.
C)Debit to Equipment and a debit to Accounts Payable.
D)Credit to Equipment and a credit to Accounts Payable.

Question 53

In a ledger,debit entries cause:

A)Increases in owners' equity,decreases in liabilities,and increases in assets.
B)Decreases in liabilities,increases in assets,and decreases in owners' equity.
C)Decreases in assets,decreases in liabilities,and increases in owners' equity.
D)Decreases in assets,increases in liabilities,and increases in owners' equity.

Question 54

The journal entry to record a particular business transaction includes a credit to the Cash account.This transaction is most likely also to include:

A)Issuance of new capital stock.
B)The purchase of an asset on account.
C)Payment of an outstanding note payable.
D)A credit to Accounts Receivable.

Question 55

The journal entry to record a particular business transaction includes a credit to a liability account.This transaction is most likely also to include:

A)Issuance of new capital stock.
B)The purchase of an asset on account.
C)A cash payment.
D)A credit to Accounts Receivable.

Question 56

Bruno's Pizza Restaurant makes full payment of $8,300 on an account payable to Stella's Cheese Co.Stella's would record this transaction with a:

A)Debit to Accounts Payable for $8,300.
B)Credit to Cash for $8,300.
C)Credit to Accounts Receivable for $8,300.
D)Credit to Accounts Payable for $8,300.

Question 57

Which of the following accounts normally does not have a debit balance?

A)Accounts receivable.
B)Cash.
C)Building.
D)Capital Stock.

Question 58

Which of the following accounts normally has a credit balance?

A)Cash.
B)Service revenue.
C)Accounts receivable.
D)Utilities expense.

Question 59

The collection of accounts receivable is recorded by a:

A)Debit to Cash and a debit to Accounts Receivable.
B)Credit to Cash and a credit to Accounts Receivable.
C)Debit to Cash and a credit to Accounts Receivable.
D)Credit to Cash and a debit to Accounts Receivable.

Question 60

The purchase of office equipment at a cost of $7,600 with an immediate payment of $4,200 and agreement to pay the balance within 60 days is recorded by:

A)A debit of $7,600 to Office Equipment,a debit of $4,200 to Accounts Receivable,and a credit of $3,400 to Accounts Payable.
B)A debit of $7,600 to Office Equipment,a credit of $4,200 to Cash,and a credit of $3,400 to Accounts Receivable.
C)A debit of $3,400 to Accounts Receivable,a debit of $4,200 to Cash,and a credit of $7,600 to Office Equipment.
D)A debit of $7,600 to Office Equipment,a credit of $4,200 to Cash,and a credit of $3,400 to Accounts Payable.

Question 61

Montauk Oil Co.reports these account balances at December 31,2014 On January 2,2015,Montauk Oil collected $50,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2015,total liabilities are:

A)$370,000.
B)$350,000.
C)$300,000.
D)$70,000.

Question 62

Ben Dryden,president of Jet Glass,Inc,noticed a $8,000 debit to Accounts Payable in the company's general ledger.This debit could correspond to:

A)A $8,000 sale to a customer.
B)A purchase of equipment costing $8,000 on credit.
C)A payment of $8,000 to a supplier to settle a balance due.
D)The failure to pay this month's $8,000 utility bill on time.

Question 63

Transactions are recorded in the general journal in:

A)Numerical order.
B)Chronological order.
C)Account number order.
D)Financial statement order.

Question 64

Brett Tarek,a manager at D&J Landscaping,Inc.needs information regarding the amount of accounts payable currently owed by the company.This information would most easily be found in the:

A)General ledger.
B)General journal.
C)Income statement.
D)Notes to the financial statements.

Question 65

Ceramic Products,Inc.reports these account balances at January 1,2015 (shown in alphabetical order): On January 5,Ceramic Products collected $12,000 of its accounts receivable and paid $11,000 on its note payable.On January 6,2015,total liabilities are:

A)$0.
B)$30,000.
C)$56,000.
D)$41,000.

Question 66

The price of the goods sold or services rendered during a given accounting period is called:

A)Net income.
B)Profit.
C)Revenue.
D)Equity.

Question 67

All of the following statements are true of double-entry accounting except:

A)There is a need for both debit and credit entries for each and every transaction.
B)Double-entry accounting can only be used with computer-based accounting systems.
C)The total dollar amount of debit entries posted to the general ledger is equal to the dollar amount of the credit entries.
D)Double-entry accounting allows us to measure net income at the same time we record the effect of transactions on the balance sheet accounts.

Question 68

Indirect Oil Co.reports these account balances at December 31,2014 On January 2,2015,Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2015,total liabilities are:

A)$185,000.
B)$165,000.
C)$150,000.
D)$70,000.

Question 69

A transaction is first recorded in which of the following accounting records?

A)Trial balance.
B)Ledger.
C)General journal.
D)Balance sheet.

Question 70

The rules of debit and credit may be summarized as follows:

A)Asset accounts are increased by debits,whereas,liabilities and owners' equity are increased by credits.
B)The balance of a ledger account is increased by debit entries and is decreased by credit entries.
C)Accounts on the left side of the balance sheet are increased by credits,whereas accounts on the right side of the balance sheet are increased by debits.
D)The balance of a ledger account is increased by credit entries and is decreased by debit entries.

Question 71

Preparing a journal entry in proper form involves all the following except:

A)Listing all accounts debited before any credits.
B)Computing the balances in accounts involved in the transaction.
C)Indicating the date of the transaction.
D)Providing a brief written explanation of the transaction.

Question 72

The essential point of a double-entry system of accounting is that every transaction:

A)Affects accounts on both sides of the balance sheet.
B)Is recorded in both the journal and the ledger.
C)Increases one ledger account and decreases another.
D)Affects two or more ledger accounts and is recorded by an equal dollar amount of debits and credits.

Question 73

All of the following statements are true of an income statement except:

A)The period of time covered by an income statement is the company's accounting period.
B)A fiscal year is any accounting period less than 12 months in length.
C)The length of a company's accounting period may vary.
D)Every business prepares an annual income statement.

Question 74

Posting is the process of:

A)Transferring debit and credit entries from the journal into the appropriate ledger accounts.
B)Determining that the dollar amount of debit entries recorded in the ledger is equal to the dollar amount of credit entries.
C)Entering information into a computerized data base.
D)Preparing journal entries to describe each business transaction.

Question 75

Which of the following would not appear on an income statement?

A)Repair service revenue.
B)Insurance expense.
C)Dividends.
D)Net income.

Question 76

Sally Smith had expenses of $800 in June which she paid in July.She reported these expenses on her June income statement.By doing this,she is following the accounting principle of:

A)Revenue realization.
B)Adequate disclosure.
C)Matching.
D)Conservatism.

Question 77

This transaction involves:

A)The sale of land and building for $286,000.
B)Payment of $221,000 on a note payable.
C)The receipt of $65,000 cash.
D)An increase in liabilities of $221,000.

Question 78

The process of originally recording a business transaction in the accounting records is termed:

A)Journalizing.
B)Footing.
C)Posting.
D)Balancing.

Question 79

Which of the following accounts normally has a debit balance?

A)Accounts payable.
B)Retained earnings.
C)Accounts receivable.
D)Service revenue.

Question 80

Double-entry accounting is characterized by which of the following?

A)Every transaction affects both an asset account and either a liability account or an owners' equity account.
B)The number of general ledger accounts with debit balances is equal to the number with credit balances.
C)The total dollar amount of debit entries posted to the general ledger is equal to the dollar amount of the credit entries.
D)The number of debit entries posted to the general ledger equals the number of credit entries.