Question 1

Withdrawls and revenues are deductions from owner's equity.

Accepted Answer

Withdrawals are deductions from owner's equity, but revenues increase owner's equity.

Question 2

The general ledger is the basic storage unit for accounting data and is used to accumulate
amounts from similar transactions.

Accepted Answer

False

Question 3

The valuation issue deals with how the components of a transaction should be categorized.

Accepted Answer

The valuation issue deals with determining the value of each component of a transaction, not how they should be categorized. Categorization relates more to classification issues.

Question 4

Fair value is the exchange price of an actual or potential business transaction between market participants.

Accepted Answer

Fair value is determined based on what a market participant would be willing to pay or receive for an asset or liability in a transaction. This value is often used in financial reporting and accounting standards to provide a measure of an asset or liability's worth.

Question 5

A credit to an asset account means that asset account has been increased.

Accepted Answer

A credit to an asset account typically means that the asset account has been decreased, as per the rules of double-entry accounting where debits increase assets and credits decrease them.

Question 6

The Owner's Withdrawals account has a normal debit balance.

Accepted Answer

The Owner's Withdrawals account is a contra equity account and is used to record the withdrawal of funds by the owner(s) from the business. Since withdrawals decrease the owner's equity in the business, the account has a normal debit balance.

Question 7

Business transactions are economic events that should be recorded in the accounting records.

Accepted Answer

Business transactions involve exchanges of goods, services, or money and these events have financial implications that need to be properly tracked and recorded in the accounting system. Failure to record these transactions can result in inaccurate financial statements and can even lead to legal and regulatory issues.

Question 8

Generally accepted accounting principles state that all business transactions should be valued at fair value both when they occur and at all subsequent reporting dates.

Accepted Answer

Generally accepted accounting principles state that assets should be initially recorded at cost, not fair value. However, there are some exceptions to this rule, such as when a business is acquired or an asset is impaired. Furthermore, certain types of financial instruments and investments may be required to be recorded at fair value.

Question 9

For a T account,an account balance is the difference in total dollars between total debit footings and total credit footings.

Accepted Answer

An account balance is calculated by subtracting total credit footings from total debit footings in a T account.

Question 10

The normal balance of an account is the side (debit or credit)used to decrease the account.

Accepted Answer

The normal balance of an account is the side (debit or credit) used to increase the account.

Question 11

A decrease in the Owner's Capital account is recorded with a debit.

Accepted Answer

A decrease in any type of equity account is recorded with a debit entry according to the double-entry accounting system. Owner's Capital is an equity account, and a decrease in this account is also recorded with a debit.

Question 12

When a withdrawal is made,the Cash account is debited and the Withdrawals account is credited.

Accepted Answer

When a withdrawal is made, the Withdrawals account is debited (to increase the owner's drawing account) and the Cash account is credited (to decrease the cash balance).

Question 13

The first step in the accounting cycle is to post the journal entries to the ledger and prepare a trial balance.

Accepted Answer

The first step in the accounting cycle is to identify and record transactions and events in the journal, not to post journal entries to the ledger and prepare a trial balance.

Question 14

In accounting,to recognize means to record a transaction or event.

Accepted Answer

To recognize in accounting means to record a transaction or event in the financial statements.

Question 15

One of the general rules of the double-entry system is that total debits must always be equal to total credits.

Accepted Answer

This is one of the fundamental principles of the double-entry accounting system, which ensures that the accounting equation (assets = liabilities + equity) is always in balance. Every transaction is recorded with at least one debit and one credit, and the total of all debits must always equal the total of all credits.

Question 16

Normally,the value of an asset remains at its initial fair value or cost until the asset is sold,expires,or is consumed.

Accepted Answer

This is true. The value of an asset is usually recorded at its initial cost or fair value and remains at that value until the asset is disposed of, consumed, or otherwise determined to have decreased in value.

Question 17

The double-entry system is possible because all business transactions have at least two equal and opposite aspects.

Accepted Answer

Yes, the double-entry system is based on the principle that every business transaction has two equal and opposite aspects - a debit and a credit. This ensures that the accounting equation (assets = liabilities + equity) always remains in balance.

Question 18

A debit has an unfavorable effect on an account.

Accepted Answer

A debit does not inherently have an unfavorable effect on an account; it depends on the type of account. For example, a debit increases asset and expense accounts but decreases liability, equity, and revenue accounts.

Question 19

Owner's withdrawals should appear on the statement of owner's equity.

Accepted Answer

Owner's withdrawals represent a decrease in owner's equity and should be included on the statement of owner's equity.

Question 20

A decrease in a liability is recorded by a credit.

Accepted Answer

A decrease in a liability is recorded by a debit, not a credit. Credits increase liabilities, while debits decrease them.

Quiz 2: Analyzing and Recording Business Transactions