Question 1

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

Accepted Answer

The general ledger is considered the book of final entry, as it contains all the transactions recorded in different journals and is used to prepare financial statements.

Question 2

Dividends are not reported on a business's income statement.

Accepted Answer

Dividends are reported on the statement of changes in shareholder's equity or the statement of retained earnings. They are not part of the business's revenues or expenses and do not affect its net income.

Question 3

An account used to record the stockholders' investments in a business is called a(n):
A) Dividends account.
B) Common stock account.
C) Revenue account.
D) Expense account.
E) Liability account.

Accepted Answer

A common stock account is used to record the stockholders' investments in a business. Dividends, revenue, and expense accounts are used to track the distribution of profits, income earned, and expenses incurred, respectively. A liability account is used to record debts and obligations owed by the business.

Question 4

The financial statement that summarizes the changes in retained earnings is called the balance sheet.

Accepted Answer

The financial statement that summarizes the changes in retained earnings is called the statement of retained earnings. The balance sheet summarizes the assets, liabilities, and equity of a company at a specific point in time.

Question 5

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

Accepted Answer

An income statement is a financial statement that reports the revenues earned and expenses incurred by a business over a specific period of time, typically a month or a year. It shows the net income or loss of the business during that period.

Question 6

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 common stock and dividends, followed by revenues and expenses.

Accepted Answer

The ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, with assets listed first, followed by liabilities, then common stock and dividends, and finally revenues and expenses.

Question 7

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

Accepted Answer

A general journal is a chronological record of all transactions, with each transaction being recorded in one place and showing the debits and credits for each account involved.

Question 8

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

Accepted Answer

The answer of A balanced trial balance is proof that...

Question 9

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)

Accepted Answer

The answer of The heading on every financial statement lists...

Question 10

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

Accepted Answer

The trial balance includes all accounts and their balances, but it does not provide information on the specific items that make up each account or their classification as assets, liabilities, or equity. Therefore, it cannot replace the balance sheet, which presents a detailed summary of a company's financial position at a specific point in time.

Question 11

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.

Accepted Answer

Ledgers are not a source document, but rather a summary of accounts or transactions recorded in source documents. The other options listed are all examples of source documents.

Question 12

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.

Accepted Answer

A record of the increases and decreases in a specific item is called an account. A journal is used to record transactions before they are entered into accounts. Posting is the process of transferring information from the journal to the accounts. A trial balance is a list of all the accounts and their balances at a specific point in time. A chart of accounts is a list of all the accounts used by a company.

Question 13

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

Accepted Answer

Both U.S. GAAP and IFRS require the preparation of the same four basic financial statements, which are the balance sheet, income statement, statement of cash flows, and statement of changes in equity.

Question 14

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

Accepted Answer

If cash was incorrectly debited instead of being credited, it means that the cash account was increased by $100 instead of being decreased by $100. As a result, the cash account's balance will be higher than it should be, leading to an overstatement of the balance.

Question 15

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.

Accepted Answer

Source documents provide objective evidence that a transaction has taken place, such as receipts, invoices, and bank statements. The ledger, chart of accounts, and internal preparation of documents are not necessarily source documents themselves but might serve as tools or records for managing the information contained in the source documents. Additionally, source documents may be in electronic or physical form, depending on the transaction and the preferences of the parties involved.

Question 16

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.

Accepted Answer

The accounting process starts with the analysis of business transactions and source documents. This is where the accountant or bookkeeper collects all relevant financial information, such as receipts, invoices, and bills, and records them in the accounting system for further processing.

Question 17

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

Accepted Answer

The balance sheet is a financial statement that reports a company's assets, liabilities, and equity at a specific point in time, usually at the end of a fiscal quarter or year.

Question 18

If common stock account had a $10,000 credit balance at the beginning of the period, and during the period, the stockholders invest an additional $5,000, the balance in the common stock account listed on the trial balance will be equal to a debit balance of $5,000.

Accepted Answer

$10,000cr + $5,000cr =$15,000 credit balance

Question 19

The journal is known as a book of original entry.

Accepted Answer

A journal is a book of original entry where all financial transactions are recorded in chronological order.

Question 20

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

Accepted Answer

A trial balance is indeed a list of all the general ledger accounts and their balances taken at a specific point in time, usually at the end of an accounting period.

Quiz 2: Analyzing for Business Transactions