Deck 3: The Accounting Cycle: Capturing Economic Events

Question 1

Ledger accounts are updated through a process called posting.

Answer 1

True

Question 2

All liability accounts normally have a credit balance.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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 6

Liability accounts should only be debited and never credited.

Question 7

Decreases to owners' equity accounts are recorded using debits.

Question 8

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

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

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

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

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 28

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 29

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

Question 30

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 31

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

Question 32

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

Question 33

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 34

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

Question 35

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 36

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

Question 37

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

Question 38

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 39

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

Question 40

The accounting cycle begins with:

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 41

[The following information applies to the questions displayed below.]
The following transactions occurred during May,the first month of operations for Hunter Products,Inc.:
* Issued 50,000 shares of capital stock to the owners of the corporation in exchange for $600,000 cash.
* Purchased a piece of land for $400,000,making a $150,000 cash down payment and signing a note payable for the balance.
* Made a $60,000 cash payment on the note payable from the purchase of land.
* Purchased equipment on credit from BBW,Inc.for $63,000.
What is the balance in the Cash account at the end of May?

A)$210,000
B)$390,000
C)$600,000
D)$810,000

Question 42

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 43

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 44

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 45

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 46

[The following information applies to the questions displayed below.]
The following transactions occurred during March,the first month of operations for Quality Galleries,Inc.:
* Capital stock was issued in exchange for $360,000 cash.
* Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance.
* Made a $35,000 cash payment on the note payable from the purchase of equipment.
* Sold a piece of equipment for cash of $18,000.The equipment was sold at cost,so there is no gain or loss on the sale.
What are total assets of Quality Galleries at the end of March?

A)$283,000
B)$162,000
C)$445,000
D)$480,000

Question 47

Which of the following accounts normally contain a debit balance?

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

Question 48

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 Revenue account.

Question 49

200 Which of the following accounts normally has a credit balance?

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

Question 50

200 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 on Baltic's books 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 51

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 52

[The following information applies to the questions displayed below.]
The following transactions occurred during March,the first month of operations for Quality Galleries,Inc.:
* Capital stock was issued in exchange for $360,000 cash.
* Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance.
* Made a $35,000 cash payment on the note payable from the purchase of equipment.
* Sold a piece of equipment for cash of $18,000.The equipment was sold at cost,so there is no gain or loss on the sale.
What is the balance in the Note Payable account at the end of March?

A)$120,000
B)$85,000
C)$35,000
D)$155,000

Question 53

Which of the following accounts normally has a credit balance?

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

Question 54

[The following information applies to the questions displayed below.]
The following transactions occurred during March,the first month of operations for Quality Galleries,Inc.:
* Capital stock was issued in exchange for $360,000 cash.
* Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance.
* Made a $35,000 cash payment on the note payable from the purchase of equipment.
* Sold a piece of equipment for cash of $18,000.The equipment was sold at cost,so there is no gain or loss on the sale.
What is the balance in the Cash account at the end of March?

A)$283,000
B)$343,000
C)$318,000
D)$378,000

Question 55

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 56

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 57

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 58

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 59

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 60

[The following information applies to the questions displayed below.]
The following transactions occurred during March,the first month of operations for Quality Galleries,Inc.:
* Capital stock was issued in exchange for $360,000 cash.
* Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance.
* Made a $35,000 cash payment on the note payable from the purchase of equipment.
* Sold a piece of equipment for cash of $18,000.The equipment was sold at cost,so there is no gain or loss on the sale.
What is the total owners' equity at the end of March?

A)$283,000
B)$445,000
C)$480,000
D)$360,000

Question 61

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 the purchaser with:

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 62

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 63

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.

Question 64

Ceramic Products,Inc.reports these account balances at January 1,2018 (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 6,2018,total liabilities are:

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

Question 65

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 66

Indirect Oil Co.reports these account balances at December 31,2017 On January 2,2018,Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2018,total liabilities are:

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

Question 67

[The following information applies to the questions displayed below.]
Wilson Trucking,Inc.reports these account balances at January 1,2018 (shown in alphabetical order):
On January 5,Wilson Trucking collected $175,000 of its accounts receivable,paid $150,000 on its accounts payable,and paid $11,000 on its note payable.
On January 6,2018,total assets are:

A)$1,350,000.
B)$1,399,000.
C)$1,560,000.
D)$1,574,000.

Question 68

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 69

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 70

[The following information applies to the questions displayed below.]
Wilson Trucking,Inc.reports these account balances at January 1,2018 (shown in alphabetical order):
On January 5,Wilson Trucking collected $175,000 of its accounts receivable,paid $150,000 on its accounts payable,and paid $11,000 on its note payable.
On January 6,2018,total liabilities are:

A)$901,000.
B)$579,000.
C)$1,399,000.
D)$1,721,000.

Question 71

[The following information applies to the questions displayed below.]
The following transactions occurred during May,the first month of operations for Hunter Products,Inc.:
* Issued 50,000 shares of capital stock to the owners of the corporation in exchange for $600,000 cash.
* Purchased a piece of land for $400,000,making a $150,000 cash down payment and signing a note payable for the balance.
* Made a $60,000 cash payment on the note payable from the purchase of land.
* Purchased equipment on credit from BBW,Inc.for $63,000.
What is the total owners' equity at the end of May?

A)$810,000
B)$600,000
C)$790,000
D)$660,000

Question 72

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

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

Question 73

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 74

Which of the following accounts normally has a debit balance?

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

Question 75

Montauk Oil Co.reports these account balances at December 31,2017 On January 2,2018,Montauk Oil collected $50,000 of its accounts receivable and paid $20,000 of its accounts payable.On January 3,2018,total liabilities are:

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

Question 76

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 on Master's books?

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 77

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 78

[The following information applies to the questions displayed below.]
The following transactions occurred during May,the first month of operations for Hunter Products,Inc.:
* Issued 50,000 shares of capital stock to the owners of the corporation in exchange for $600,000 cash.
* Purchased a piece of land for $400,000,making a $150,000 cash down payment and signing a note payable for the balance.
* Made a $60,000 cash payment on the note payable from the purchase of land.
* Purchased equipment on credit from BBW,Inc.for $63,000.
What are total assets of Hunter Products at the end of May?

A)$913,000
B)$790,000
C)$853,000
D)$916,000

Question 79

[The following information applies to the questions displayed below.]
The following transactions occurred during May,the first month of operations for Hunter Products,Inc.:
* Issued 50,000 shares of capital stock to the owners of the corporation in exchange for $600,000 cash.
* Purchased a piece of land for $400,000,making a $150,000 cash down payment and signing a note payable for the balance.
* Made a $60,000 cash payment on the note payable from the purchase of land.
* Purchased equipment on credit from BBW,Inc.for $63,000.
What is the total of Hunter Products' liabilities at the end of May?

A)$253,000
B)$190,000
C)$63,000
D)$313,000

Question 80

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.