Question 1

Which of the following is not a principal purpose of an unadjusted trial balance?
A) It proves that debits and credits of equal amounts are in the ledger.
B) It is the basis for any adjustments to the account balances.
C) It supplies a listing of open accounts and their balances.
D) It proves that debits and credits were properly entered in the ledger accounts.

Accepted Answer

The unadjusted trial balance primarily serves to prove that the total debits equal the total credits in the ledger, provide a listing of accounts for adjusting entries, and show the balances of all accounts before adjustments. However, it does not prove that debits and credits were properly entered in the ledger accounts, as errors can still occur even if the totals match (e.g., an amount could be entered in the wrong account but still keep the totals balanced).

Question 2

Which of the following errors will cause an imbalance in the trial balance?
A) Omission of a transaction in the journal.
B) Posting an entire journal entry twice to the ledger.
C) Posting a credit of €720 to Accounts Payable as a credit of €720 to Accounts Receivable.
D) Listing the balance of an account with a debit balance in the credit column of the trial balance.

Accepted Answer

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

Question 3

Which of the following is an example of an accrued expense?
A) Office supplies purchased at the beginning of the year and debited to an expense account.
B) Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.
C) Depreciation expense.
D) Rent earned during the period, to be received at the end of the year.

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid. Property taxes incurred during the year, but not paid until the following year, are an example of an accrued expense. Option A is an example of a prepaid expense, Option C is an example of a non-cash expense, and Option D is an example of unearned revenue.

Question 4

The failure to properly record an adjusting entry to accrue an expense will result in an:
A) understatement of expenses and an understatement of liabilities.
B) understatement of expenses and an overstatement of liabilities.
C) understatement of expenses and an overstatement of assets.
D) overstatement of expenses and an understatement of assets.

Accepted Answer

Failing to record an adjusting entry to accrue an expense results in not recognizing the expense in the period it was incurred, leading to an understatement of expenses. Since the liability associated with the expense is also not recorded, liabilities are understated as well.

Question 5

A journal entry to record a receipt of rent revenue in advance will include a
A) debit to Rent Revenue.
B) credit to Rent Revenue.
C) credit to Cash.
D) credit to Unearned Rent Revenue.

Accepted Answer

Receipt of rent revenue in advance means that the rent has been received but it belongs to a future period. Hence, it is recorded as a liability called Unearned Rent Revenue. This liability will be reduced over time as the rent revenue is earned. Therefore, the journal entry to record a receipt of rent revenue in advance will include a credit to Unearned Rent Revenue.

Question 6

A journal entry to record a payment on account will include a
A) debit to Accounts Receivable.
B) credit to Accounts Receivable.
C) debit to Accounts Payable.
D) credit to Accounts Payable.

Accepted Answer

The answer of A journal entry to record a payment...

Question 7

Adjustments are often prepared
A) after the statement of financial position date, but dated as of that date.
B) after the statement of financial position date, and dated after that date.
C) before the statement of financial position date, but dated as of that date.
D) before the statement of financial position date, and dated after that date.

Accepted Answer

Adjustments are typically prepared after the statement of financial position date (also known as the balance sheet date) but are dated as of that date to reflect the financial condition and results of operations as accurately as possible at the balance sheet date.

Question 8

An adjusting entry should never include
A) a debit to an expense account and a credit to a liability account.
B) a debit to an expense account and a credit to a revenue account.
C) a debit to a liability account and a credit to revenue account.
D) a debit to a revenue account and a credit to a liability account.

Accepted Answer

A debit to an expense account and a credit to a revenue account would not be an appropriate adjusting entry because expenses and revenues are separate categories that should not be offset against each other. A and D are also incorrect because they involve offsetting a liability account with an expense or revenue account, which is not appropriate. C could be a possible adjusting entry if there is an unearned revenue account that needs to be adjusted.

Question 9

Posting
A) Accumulates the effects of ledger entries and transfers them to the general journal.
B) Is done only for income statement activity; activity related to the statement of financial position does not require posting.
C) Is done once per year.
D) Transfers journal entries to the ledger accounts.

Accepted Answer

Posting transfers journal entries to the ledger accounts.

Question 10

The omission of the adjusting entry to record depreciation expense will result in an:
A) overstatement of assets and an overstatement of equity.
B) understatement of assets and an understatement of equity.
C) overstatement of assets and an overstatement of liabilities.
D) overstatement of liabilities and an understatement of equity.

Accepted Answer

Failing to record depreciation expense leads to an overstatement of assets (since the asset's book value is not reduced) and an overstatement of equity (since expenses reduce net income and, consequently, retained earnings, part of equity).

Question 11

Accounts maintained within the ledger that appear on the statement of financial position include all of the following except
A) Salaries and Wages Expense.
B) Interest Payable.
C) Supplies.
D) Share Capital-Ordinary.

Accepted Answer

Salaries and Wages Expense is an income statement account that reflects expenses incurred during a specific period, whereas the statement of financial position shows a company's financial position at a specific point in time. The other options - Interest Payable, Supplies, and Share Capital-Ordinary - are all balance sheet accounts and would therefore appear on the statement of financial position.

Question 12

Which of the following properly describes a deferral?
A) Cash is received after revenue is earned.
B) Cash is received before revenue is earned.
C) Cash is paid after expense is incurred.
D) Cash is paid in the same time period that an expense is incurred.

Accepted Answer

Deferrals involve recognition of revenue or expenses in a period different from when the cash is exchanged. Specifically, when cash is received before the revenue is earned, it is considered a deferred revenue, which is a liability until the revenue is earned.

Question 13

The failure to properly record an adjusting entry to accrue a revenue item will result in an:
A) understatement of revenues and an understatement of liabilities.
B) overstatement of revenues and an overstatement of liabilities.
C) overstatement of revenues and an overstatement of assets.
D) understatement of revenues and an understatement of assets.

Accepted Answer

Failure to record an adjusting entry to accrue a revenue item will result in understating the revenue and assets. This is because the revenue is recognized when it is earned, even if it is not yet received or invoiced, and therefore needs to be accrued or recognized through an adjusting entry to accurately reflect the financial position of a company. If this is not done, both the revenue and asset accounts will be understated.

Question 14

A trial balance may prove that debits and credits are equal, but
A) an amount could be entered in the wrong account.
B) a transaction could have been entered twice.
C) a transaction could have been omitted.
D) All of these answers are correct

Accepted Answer

Even though a trial balance proves that debits and credits are equal, there could still be errors such as an amount being entered in the wrong account, a transaction being entered twice, or a transaction being omitted. Therefore, all of the answers are correct.

Question 15

At the time a company prepays a cost
A) it debits an asset account to show the service or benefit it will receive in the future.
B) it debits an expense account to match the expense against revenues earned.
C) its credits a liability account to show the obligation to pay for the service in the future.
D) More than one of these answers are correct.

Accepted Answer

When a company prepays a cost, it is making an advance payment for a service or benefit it will receive in the future. To record this transaction, the company will debit an asset account (such as prepaid insurance or prepaid rent) to show the amount paid and the future benefit it will receive. This is because the prepayment is an asset to the company until the service or benefit is received.

Question 16

The trial balance
A) Is a listing of all the accounts and their balances in the order the accounts appear on the statement of financial position.
B) Has as its primary purpose to prove (check) that all journal entries were made for the period.
C) Can be used to uncover errors in journalizing and posting.
D) Is used to prepare the statement of financial position while the general ledger is used to prepare the income statement.

Accepted Answer

The trial balance is primarily used to check the accuracy of the bookkeeping entries by ensuring that the total debits equal the total credits, which can help uncover errors in journalizing and posting.

Question 17

Numerous errors may exist even though the trial balance columns agree. Which of the following is not one of these types of errors?
A) A transaction is not journalized.
B) Transposition error in the amount posted as a debit.
C) A journal entry is posted twice.
D) A journal entry to purchase $100 worth of equipment is posted as a $1,000 purchase.

Accepted Answer

A transposition error in the amount posted as a debit would cause the trial balance columns to disagree, as it involves switching digits, leading to an imbalance.

Question 18

A journal entry to record the sale of inventory on account will include a
A) debit to Inventory.
B) debit to Accounts Receivable.
C) debit to Sales Revenue.
D) credit to Cost of Goods Sold.

Accepted Answer

A sale on account increases Accounts Receivable (an asset), which is debited, and increases Sales Revenue, which is credited. Inventory and Cost of Goods Sold are affected, but Inventory is credited (reduced) and Cost of Goods Sold is debited (increased) when goods are sold.

Question 19

A general journal
A) chronologically lists transactions and other events, expressed in terms of debits and credits.
B) contains one record for each of the asset, liability, equity, revenue, and expense accounts.
C) lists all the increases and decreases in each account in one place.
D) contains only adjusting entries.

Accepted Answer

A general journal lists transactions and events in chronological order and expresses them in terms of debits and credits. It is a record of all transactions and is used to create entries in other accounting records such as the general ledger. Option B is not correct because a general journal is not limited to one record per account. Option C is incorrect because a general journal lists transactions and events, not just the increases and decreases in each account. Option D is incorrect because a general journal contains all types of transactions, not just adjusting entries.

Question 20

An adjusting entry to record an accrued expense involves a debit to a(an):
A) expense account and a credit to a prepaid expense account.
B) expense account and a credit to Cash.
C) expense account and a credit to a liability account.
D) liability account and a credit to an expense account.

Accepted Answer

An accrued expense is an expense that has been incurred but has not yet been paid or recorded. Therefore, an adjusting entry is needed to record the expense by debiting the related expense account and crediting the related liability account to show the obligation to pay in the future. Choice A is incorrect because a prepaid expense account is used to record expenses that have been paid in advance but not yet used or consumed. Choice B is incorrect because cash is not involved in an adjusting entry for an accrued expense. Choice D is incorrect because a liability account would be credited, not debited in an adjusting entry for an accrued expense.

Quiz 3: The Accounting Information System

Which of the following is not a principal purpose of an unadjusted trial balance?

Which of the following errors will cause an imbalance in the trial balance?

Which of the following is an example of an accrued expense?

The failure to properly record an adjusting entry to accrue an expense will result in an:

A journal entry to record a receipt of rent revenue in advance will include a

A journal entry to record a payment on account will include a

Adjustments are often prepared

An adjusting entry should never include

Posting

The omission of the adjusting entry to record depreciation expense will result in an:

Accounts maintained within the ledger that appear on the statement of financial position include all of the following except

Which of the following properly describes a deferral?

The failure to properly record an adjusting entry to accrue a revenue item will result in an:

A trial balance may prove that debits and credits are equal, but

At the time a company prepays a cost

The trial balance

Numerous errors may exist even though the trial balance columns agree. Which of the following is not one of these types of errors?

A journal entry to record the sale of inventory on account will include a

A general journal

An adjusting entry to record an accrued expense involves a debit to a(an) :