Deck 2: Analyzing and Recording Transactions

Question 1

Increases in liability accounts are recorded as debits.

Answer 1

False

Question 2

Withdrawals by the owner are a business expense.

Answer 2

False

Question 3

Cash withdrawn by the owner of a proprietorship for personal expenses,should be treated as an expense of the business.

Answer 3

False

Question 4

Debits increase asset and expense accounts.

Question 5

An account's balance is the difference between the total debits and total credits for the account,including any beginning balance.

Question 6

Preparation of a trial balance is the first step in processing a financial transaction.

Question 7

The right side of an account is called the debit side.

Question 8

An account is a record of increases and decreases in a specific asset,liability,equity,revenue,or expense item.

Question 9

A company's chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.

Question 10

Credits always increase account balances.

Question 11

A revenue account normally has a debit balance.

Question 12

In a double-entry accounting system,the total dollar amount debited must always equal the total dollar amount credited.

Question 13

When a company provides services for which cash will not be received until some future date,the company should record the amount charged as accounts receivable.

Question 14

The first step in the processing of a transaction is to analyze the transaction and source documents.

Question 15

A customer's promise to pay on credit is classified as an account payable by the seller.

Question 16

Items such as sales tickets,bank statements,checks,and purchase orders are examples of a business's source documents.

Question 17

The purchase of land and buildings will generally be recorded in the same ledger account.

Question 18

Crediting an expense account decreases it.

Question 19

Unearned revenues are classified as liabilities.

Question 20

Source documents provide evidence of business transactions and are the basis for accounting entries.

Question 21

The higher a company's debt ratio,the lower the risk of a company not being able to meet its obligations.

Question 22

A transaction that credits an asset account and credits a liability account must also affect one or more other accounts.

Question 23

Asset accounts normally have debit balances and revenue accounts normally have credit balances.

Question 24

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.

Question 25

A debit entry is always an increase in the account.

Question 26

The debt ratio is calculated by dividing total assets by total liabilities.

Question 27

A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

Question 28

The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.

Question 29

If a company provides services to a customer on credit,the company providing the service should credit Accounts Receivable.

Question 30

A journal entry that affects no more than two accounts is called a compound entry.

Question 31

Posting is the transfer of journal entry information to the ledger.

Question 32

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Question 33

Transactions are recorded first in the ledger and then transferred to the journal.

Question 34

Asset accounts are normally decreased by debits.

Question 35

If insurance coverage for the next two years is paid for in advance,the amount of the payment is debited to an asset account called Prepaid Insurance.

Question 36

When a company bills a customer for $700 for services rendered,the journal entry to record this transaction will include a $700 debit to Services Revenue.

Question 37

Debit means increase and credit means decrease for all accounts.

Question 38

An owner's withdrawal account normally has a debit balance.

Question 39

If a company is highly leveraged,this means that it has relatively high risk of not being able to repay its debt.

Question 40

If a company purchases equipment paying cash,the journal entry to record this transaction will include a debit to Cash.

Question 41

The accounting process begins with:

A)Analysis of business transactions and source documents.
B)Preparing financial statements and other reports.
C)Summarizing the recorded effect of business transactions.
D)Presentation of financial information to decision-makers.
E)Preparation of the trial balance.

Question 42

A business's source documents:

A)include the ledger.
B)Provide objective evidence that a transaction has taken place.
C)must be in electronic form.
D)are prepared internally to ensure accuracy.
E)include the chart of accounts.

Question 43

The general journal is known as the book of final entry because financial statements are prepared from it.

Question 44

A business's source documents may include all of the following except:

A)Sales tickets.
B)Ledgers.
C)Checks.
D)Purchase orders.
E)Bank statements.

Question 45

An income statement reports the revenues earned less the expenses incurred by a business over a period of time.

Question 46

A general journal gives a complete record of each transaction in one place,and shows the debits and credits for each transaction.

Question 47

At a given point in time,a business's trial balance is a list of all of its general ledger accounts and their balances.

Question 48

The heading on every financial statement lists the three W's-Who (the name of the business);What (the name of the statement);and Where (the organization's address).

Question 49

A balanced trial balance is proof that no errors were made in journalizing transactions,posting to the ledger,and preparing the trial balance.

Question 50

The trial balance can serve as a replacement for the balance sheet,since total debits must equal total credits.

Question 51

The financial statement that summarizes the changes in an owner's capital account is called the balance sheet.

Question 52

A business's record of the increases and decreases in a specific asset,liability,equity,revenue,or expense is known as a(n):

A)Journal.
B)Posting.
C)Trial balance.
D)Account.
E)Chart of accounts.

Question 53

The same four basic financial statements are prepared by both U.S.GAAP and IFRS.

Question 54

The balance sheet reports the financial position of a company at a point in time.

Question 55

All of the following statements regarding a sales invoice are true except:

A)A sales invoice is a type of source document.
B)A sales invoice is used by sellers to record the sale and for control.
C)A sales invoice is used by buyers to record purchases and monitor purchasing activity.
D)A sales invoice gives rise to an entry in the accounting process.
E)A sales invoice does not provide objective evidence about a transaction.

Question 56

If cash was incorrectly debited for $100 instead of correctly crediting it for $100,the cash account's balance will be overstated (too high).

Question 57

The journal is known as a book of original entry.

Question 58

The ordering of accounts in a trial balance typically follows their identification number from the chart of accounts,that is,assets first,then liabilities,then owner's capital and withdrawals,followed by revenues and expenses.

Question 59

Neither U.S.GAAP nor IFRS require the use of accrual basis accounting.

Question 60

An account used to record the owner's investments in a business is called a(n):

A)Withdrawals account.
B)Capital account.
C)Revenue account.
D)Expense account.
E)Liability account.

Question 61

A debit:

A)Always increases an account.
B)Is the right-hand side of a T-account.
C)Always decreases an account.
D)Is the left-hand side of a T-account.
E)Is not need to record a transaction.

Question 62

Identify the account below that is classified as an asset in a company's chart of accounts:

A)Accounts Receivable
B)Accounts Payable
C)Owner's Capital
D)Unearned Revenue
E)Service Revenue

Question 63

Prepaid expenses are generally:

A)Payments made for products and services that do not ever expire.
B)Classified as liabilities on the balance sheet.
C)Decreases in equity.
D)Assets that represent prepayments of future expenses.
E)Promises of payments by customers.

Question 64

Identify the statement below that is correct.

A)When a future expense is paid in advance,the payment is normally recorded in a liability account called Prepaid Expense.
B)Promises of future payment by the customer are called accounts receivable.
C)Increases and decreases in cash are always recorded in the owner's capital account.
D)An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
E)Accrued liabilities include accounts receivable.

Question 65

Identify the account below that is classified as an assetaccount:

A)Unearned Revenue
B)Accounts Payable
C)Supplies
D)J.Jackson,Capital
E)Service Revenue

Question 66

Unearned revenues are generally:

A)Revenues that have been earned and received in cash.
B)Revenues that have been earned but not yet collected in cash.
C)Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D)Recorded as an asset in the accounting records.
E)Increases to owners' capital.

Question 67

Identify the account below that impacts the Equity of a business:

A)Utilities Expense
B)Accounts Payable
C)Accounts Receivable
D)Cash
E)Unearned Revenue

Question 68

A company's ledger is:

A)A record containing increases and decreases in a specific asset,liability,equity,revenue,or expense item.
B)A journal in which transactions are first recorded.
C)A collection of documents that describe transactions and events entering the accounting process.
D)A list of all accounts a company uses with an assigned identification number.
E)A record containing all accounts and their balances used by the company.

Question 69

Identify the statement below that is incorrect.

A)The normal balance of accounts receivable is a debit.
B)The normal balance of owner's withdrawals is a debit.
C)The normal balance of unearned revenues is a credit.
D)The normal balance of an expense account is a credit.
E)The normal balance of the owner's capital account is a credit.

Question 70

Identify the account below that is classified as a liability account:

A)Cash
B)Accounts Payable
C)Salaries Expense
D)J.Jackson,Capital
E)Equipment

Question 71

A company's list of accounts and the identification numbers assigned to each account is called a:

A)Source document.
B)Journal.
C)Trial balance.
D)Chart of accounts.
E)General Journal.

Question 72

Identify the account below that is classified as a liability in a company's chart of accounts:

A)Cash
B)Unearned Revenue
C)Salaries Expense
D)Accounts Receivable
E)Supplies

Question 73

A company's formal promise to pay (in the form of a promissory note)a future amount is a(n):

A)Unearned revenue.
B)Prepaid expense.
C)Credit account.
D)Note payable.
E)Account receivable.

Question 74

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:

A)A revenue account.
B)The owner's withdrawals account.
C)The owner's capital account.
D)An expense account.
E)A liability account.

Question 75

A debit is used to record an increase in all of the following accounts except:

A)Supplies
B)Cash
C)Accounts Payable
D)Owner's Withdrawals
E)Prepaid Insurance

Question 76

The numbering system used in a company's chart of accounts:

A)Is the same for all companies.
B)Is determined by generally accepted accounting principles.
C)Depends on the source documents used in the accounting process.
D)Typically begins with balance sheet accounts.
E)Typically begins with income statement accounts.

Question 77

The record of all accounts and their balances used by a business is called a:

A)Journal.
B)Book of original entry.
C)General Journal.
D)Balance column journal.
E)Ledger.

Question 78

The right side of a T-account is a(n):

A)Debit.
B)Increase.
C)Credit.
D)Decrease.
E)Account balance.

Question 79

A credit is used to record an increase in all of the following accounts except:

A)Accounts Payable
B)Service Revenue
C)Unearned Revenue
D)Wages Expense
E)Owner's Capital

Question 80

A business uses a credit to record:

A)An increase in an expense account.
B)A decrease in an asset account.
C)A decrease in an unearned revenue account.
D)A decrease in a revenue account.
E)A decrease in a capital account.