Test Bank For Financial Accounting IFRS Edition 2nd Edition Weygandt, Kimmel, Kieso

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Test Bank For Financial Accounting IFRS Edition 2nd Edition Weygandt, Kimmel, Kieso

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WITH ANSWERS

 

Financial Accounting IFRS Edition 2nd Edition Weygandt, Kimmel, Kieso  Test Bank

 

CHAPTER 2

 

THE RECORDING PROCESS

 

CHAPTER LEARNING OBJECTIVES

  1. Explain what an account is and how it helps in the recording process. An account is a record of increases and decreases in specific asset, liability, and equity items.
  2. Define debits and credits and explain their use in recording business transactions. The terms debit and credit are synonymous with left and right. Assets, dividends, and expenses are increased by debits and decreased by credits. Liabilities, share capital-ordinary, retained earnings, and revenues are increased by credits and decreased by debits.
  3. Identify the basic steps in the recording process. The basic steps in the recording process are: (a) analyze each transaction for its effects on the accounts, (b) enter the transaction information in a journal, (c) transfer the journal information to the appropriate accounts in the ledger.
  4. Explain what a journal is and how it helps in the recording process. The initial accounting record of a transaction is entered in a journal before the data are entered in the accounts. A journal (a) discloses in one place the complete effects of a transaction, (b) provides a chronological record of transactions, and (c) prevents or locates errors because the debit and credit amounts for each entry can be readily compared.
  5. Explain what a ledger is and how it helps in the recording process. The ledger is the entire group of accounts maintained by a company. The ledger keeps in one place all the information about changes in specific account balances.
  6. Explain what posting is and how it helps in the recording process. Posting is the transfer of journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts.
  7. Prepare a trial balance and explain its purposes. A trial balance is a list of accounts and their balances at a given time. Its primary purpose is to prove the equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements.

 


TRUE-FALSE STATEMENTS

  1. A new account is opened for each transaction entered into by a business firm.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The recording process becomes more efficient and informative if all transactions are recorded in one account.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account is often referred to as a T-account because of the way it is constructed.

 

Ans: T   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit to an account indicates an increase in that account.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. If a revenue account is credited, the revenue account is increased.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of all accounts is a debit.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Debit and credit can be interpreted to mean increase and decrease, respectively.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A credit balance in a liability account indicates that an error in recording has occurred.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Revenues are a subdivision of retained earnings.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Under the double-entry system, revenues must always equal expenses.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. All accounts reported in the statement of financial position are increased by using debits on the left-hand side of the T-account.

 

Ans: F   LO2   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The rules for debit and credit and the normal balance of Share CapitalOrdinary are the same as for assets.

 

Ans: F   LO2   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Companies report share capitalordinary and dividends in the equity section of the statement of financial position.

 

Ans: F   LO2   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transaction information may be entered directly into the accounts without using a journal.

 

Ans: T   LO3   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Business documents can provide evidence that a transaction has occurred.

 

Ans: T   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

 

Ans: T   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are entered in the ledger accounts and then transferred to journals.

 

Ans: F   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. All business transactions must be entered first in the general ledger.

 

Ans: F   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A simple journal entry requires only one debit to an account and one credit to an account.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A compound journal entry requires several debits to one account and several credits to one account.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are recorded in alphabetic order in a journal.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A journal is also known as a book of original entry.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The complete effect of a transaction on the accounts is disclosed in the journal.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Entries that impact the income statement are called simple entries, whereas entries that impact the statement of financial position are called compound entries.

 

Ans: F   LO4   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The general ledger contains all the accounts that are reported on the statement of financial position, whereas the general journal contains all the accounts that are reported on the income statement.

 

Ans: F   LO5   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts lists accounts and the account numbers that identify their location in the ledger starting with the accounts that are reported on the income statement.

 

Ans: F   LO5   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts is a special ledger used in accounting systems.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the statement of financal position accounts.

 

Ans: T   LO5   BT:C K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Posting is the process of proving the equality of debits and credits in the trial balance.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After a transaction has been posted, the reference column in the journal should not be blank.

 

Ans: T   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Posting involves transferring the journalized debits and credits to the statement of financial position.

 

Ans: F   LO6   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The trial balance lists accounts and their balances at a given point in time in the order in which they appear on the statement of financial position.

 

Ans: F   LO7   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When debits do not equal credits on the trial balance, this indicates that the company has net income that needs to be transferred to the retained earnings account.

 

Ans: F   LO7   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Errors on the statement of financial position are called transpositions and errors on the income statement are called irregularities.

 

Ans: F   LO7   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Currency signs are typically used only in the trial balance and the financial statements.

 

Ans: T   LO7   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The general rules of debit and credit, and the steps in the recording processthe journal, ledger, and chart of accountsare the same under both GAAP and IFRS.

 

Ans: T   LO7   BT: K   Difficulty: Medium   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 


Additional True-False Questions

 

  1. The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of an expense is a credit.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The journal provides a chronological record of transactions.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

 

Ans: T   LO6   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The trial balance will not balance when incorrect account titles are used in journalizing or posting.

 

Ans: F   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 9. F 17. F 25. F 33. T 41. T 49. T
2. F 10. F 18. T 26. T 34. F 42. T 50. F
3. F 11. F 19. T 27. T 35. F 43. T    
4. T 12. T 20. T 28. F 36. T 44. T    
5. F 13. F 21. F 29. F 37. F 45. F    
6. T 14. F 22. F 30. F 38. F 46. T    
7. F 15. F 23. T 31. F 39. F 47. F    
8. F 16. F 24. F 32. F 40. F 48. T    


MULTIPLE CHOICE QUESTIONS

  1. An account consists of
  2. one part.
  3. two parts.
  4. three parts.
  5. four parts.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The left side of an account is
  2. blank.
  3. a description of the account.
  4. the debit side.
  5. the balance of the account.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which one of the following is not a part of an account?
  2. Credit side
  3. Trial balance
  4. Debit side
  5. Title

 

Ans: b   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account is a part of the financial information system and is described by all except which one of the following?
  2. An account has a debit and credit side.
  3. An account is a source document.
  4. An account may be part of a manual or a computerized accounting system.
  5. An account has a title.

 

Ans: b   LO1   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The right side of an account
  2. is the correct side.
  3. reflects all transactions for the accounting period.
  4. shows all the balances of the accounts in the system.
  5. is the credit side.

 

Ans: d   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account consists of
  2. a title, a debit balance, and a credit balance.
  3. a title, a left side, and a debit balance.
  4. a title, a debit side, and a credit side.
  5. a title, a right side, and a debit balance.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. A T-account is
  2. a way of depicting the basic form of an account.
  3. what the computer uses to organize bytes of information.
  4. a special account used instead of a trial balance.
  5. used for accounts that have both a debit and credit balance.

 

Ans: a   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Credits
  2. decrease both assets and liabilities.
  3. decrease assets and increase liabilities.
  4. increase both assets and liabilities.
  5. increase assets and decrease liabilities.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit to an asset account indicates
  2. an error.
  3. a credit was made to a liability account.
  4. a decrease in the asset.
  5. an increase in the asset.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of any account is the
  2. left side.
  3. right side.
  4. side which increases that account.
  5. side which decreases that account.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double-entry system requires that each transaction must be recorded
  2. in at least two different accounts.
  3. in two sets of books.
  4. in a journal and in a ledger.
  5. first as a revenue and then as an expense.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following accounts does not have a normal credit balance?
  2. Share CapitalOrdinary
  3. Revenue account
  4. Liability account
  5. Dividends

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. Which one of the following represents the expanded basic accounting equation?
  2. Assets = Liabilities + Share CapitalOrdinary account + Retained Earnings + Dividends Revenue Expenses.
  3. Assets + Dividends + Expenses = Liabilities + Share CapitalOrdinary + Retained Earnings + Revenues.
  4. Assets Liabilities Dividends = Share CapitalOrdinary + Retained Earnings + Revenues Expenses.
  5. Assets = Revenues + Expenses Liabilities.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following correctly identifies normal balances of accounts?
  2. Assets Debit

Liabilities                            Credit

Equity                                Credit

Revenues                          Debit

Expenses                          Credit

  1. Assets Debit

Liabilities                            Credit

Equity                                Credit

Revenues                          Credit

Expenses                          Credit

  1. Assets Credit

Liabilities                            Debit

Equity                                Debit

Revenues                          Credit

Expenses                          Debit

  1. Assets Debit

Liabilities                            Credit

Equity                                Credit

Revenues                          Credit

Expenses                          Debit

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The best interpretation of the word credit is the
  2. offset side of an account.
  3. increase side of an account.
  4. right side of an account.
  5. decrease side of an account.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In recording an accounting transaction in a double-entry system
  2. the number of debit accounts must equal the number of credit accounts.
  3. there must always be entries made on both sides of the accounting equation.
  4. the amount of the debits must equal the amount of the credits.
  5. there must only be two accounts affected by any transaction.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accounting convention is best described as
  2. an absolute truth.
  3. an accounting custom.
  4. an optional rule.
  5. something that cannot be changed.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit is not the normal balance for which account listed below?
  2. Dividends
  3. Cash
  4. Accounts Receivable
  5. Service Revenue

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
  2. Nothing further must be done.
  3. Debit an equity account for $500.
  4. Debit another asset account for $500.
  5. Credit a different asset account for $500.

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accountant has debited an asset account for $1,000 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
  2. Credit an asset account for $500.
  3. Credit another liability account for $500.
  4. Credit an equity account for $500.
  5. Debit an equity account for $500.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is not true of the terms debit and credit?
  2. They can be abbreviated as Dr. and Cr.
  3. They can be interpreted to mean increase and decrease.
  4. They can be used to describe the balance of an account.
  5. They can be interpreted to mean left and right.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account will have a credit balance if the
  2. credits exceed the debits.
  3. first transaction entered was a credit.
  4. debits exceed the credits.
  5. last transaction entered was a credit.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. For the basic accounting equation to stay in balance, each transaction recorded must
  2. affect two or less accounts.
  3. affect two or more accounts.
  4. always affect exactly two accounts.
  5. affect the same number of asset and liability accounts.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is true?
  2. Debits increase assets and increase liabilities.
  3. Credits decrease assets and decrease liabilities.
  4. Credits decrease assets and increase liabilities.
  5. Debits decrease liabilities and decrease assets.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Assets normally show
  2. credit balances.
  3. debit balances.
  4. debit and credit balances.
  5. debit or credit balances.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
  2. A debit balance in the dividends account
  3. A credit balance in an expense account
  4. A credit balance in a liabilities account
  5. A credit balance in a revenue account

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. If a company has overdrawn its bank balance, then
  2. its cash account will show a debit balance.
  3. its cash account will show a credit balance.
  4. the cash account debits will exceed the cash account credits.
  5. it cannot be detected by observing the balance of the cash account.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which account below is not a subdivision of retained earnings?
  2. Dividends
  3. Revenues
  4. Expenses
  5. Share Capital-Ordinary

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When a company pays dividends
  2. the dividend doesnt have to be cash, it could be another asset.
  3. the dividends account will be increased with a credit.
  4. the retained earnings account will be directly increased with a debit.
  5. the dividends account will be decreased with a debit.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The Dividends account
  2. appears on the income statement along with the expenses of the business.
  3. must show transactions every accounting period.
  4. is increased with debits and decreased with credits.
  5. is not a proper subdivision of retained earnings.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is not true?
  2. Expenses increase equity.
  3. Expenses have normal debit balances.
  4. Expenses decrease equity.
  5. Expenses are a negative factor in the computation of net income.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A credit to a liability account
  2. indicates an increase in the amount owed to creditors.
  3. indicates a decrease in the amount owed to creditors.
  4. is an error.
  5. must be accompanied by a debit to an asset account.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In the first month of operations, the total of the debit entries to the cash account amounted to $700 and the total of the credit entries to the cash account amounted to $500. The cash account has a
  2. $500 credit balance.
  3. $700 debit balance.
  4. $200 debit balance.
  5. $200 credit balance.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Martins Mail Service purchased equipment for $4,000. Martin paid $500 in cash and signed a note for the balance. Martin debited the Equipment account, credited Cash and
  2. nothing further must be done.
  3. debited the retained earnings account for $3,500.
  4. credited another asset account for $500.
  5. credited a liability account for $3,500.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Taylor Industries purchased supplies for 1,000. They paid 500 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for 1,000, a credit to a liability account for 500. Which of the following would be the correct way to complete the recording of the transaction?
  2. Credit an asset account for 500.
  3. Credit another liability account for 500.
  4. Credit the retained earnings account for 500.
  5. Debit the retained earnings account for 500.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On January 14, Ericsson Industries purchased supplies of $500 on account. The entry to record the purchase will include
  2. a debit to Supplies and a credit to Accounts Payable.
  3. a debit to Supplies Expense and a credit to Accounts Receivable.
  4. a debit to Supplies and a credit to Cash.
  5. a debit to Accounts Receivable and a credit to Supplies.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On June 1, 2014, Alma Inc. reported a cash balance of 12,000. During June, Alma made deposits of 3,000 and made disbursements totalling 16,000. What is the cash balance at the end of June?
  2. 1,000 debit balance
  3. 15,000 debit balance
  4. 1,000 credit balance
  5. 4,000 credit balance

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At January 1, 2014, LeAnna Industries reported retained earnings of $195,000. During 2014, LeAnna had a net loss of $45,000 and paid dividends of $30,000. At December 31, 2014, the amount of retained earnings is
  2. $195,000.
  3. $210,000.
  4. $150,000.
  5. $120,000.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Omega Company pays its employees twice a month, on the 7th and the 21st. On June 21, Omega Company paid employee salaries of $4,000. This transaction would
  2. increase equity by $4,000.
  3. decrease the balance in Salaries and Wages Expense by $4,000.
  4. decrease net income for the month by $4,000.
  5. be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense.

 

Ans: c   LO2   BT: K   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In the first month of operations for Widget Industries, the total of the debit entries to the cash account amounted to 9,000 (5,000 investment by the owners and revenues of 4,000). The total of the credit entries to the cash account amounted to 5,000 (purchase of equipment 2,000 and payment of expenses 3,000). At the end of the month, the cash account has a(n)
  2. 3,000 credit balance.
  3. 3,000 debit balance.
  4. 4,000 debit balance.
  5. 4,000 credit balance.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Rusthe Company showed the following balances at the end of its first year:

Cash                                                      $  17,000

Prepaid insurance                                         1,400

Accounts receivable                                     7,000

Accounts payable                                        5,600

Notes payable                                              8,400

Share capital-ordinary                                   2,800

Dividends                                                    1,400

Revenues                                                   45,000

Expenses                                                   35,000

What did Rusthe Company show as total credits on its trial balance?

  1. $63,200
  2. $61,800
  3. $60,400
  4. $64,600

 

Ans: b   LO2   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

  1. Ayala Company showed the following balances at the end of its first year:

Cash                                                      $  8,000

Prepaid insurance                                        500

Accounts receivable                                 2,500

Accounts payable                                     2,000

Notes payable                                           6,000

Share capital-ordinary                              1,000

Dividends                                                     500

Revenues                                                15,000

Expenses                                                12,500

 

What did Ayala Company show as total credits on its trial balance?

  1. $24,500
  2. $24,000
  3. $23,500
  4. $25,000

 

Ans: b   LO2   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

  1. During February 2014, its first month of operations, the owner of Alona Enterprises invested cash of $75,000. Alona had cash revenues of $12,000 and paid expenses of $21,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?
  2. $9,000 credit
  3. $66,000 debit
  4. $87,000 debit
  5. $54,000 credit

 

Ans: b   LO2   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is true regarding debits and credits?
  2. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.
  3. The basic equation on the statement of financial position is Assets + Liabilities = Equity.
  4. The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities.
  5. On the income statement, revenues are increased by debits whereas on the statement of financial position retained earnings is increased by a credit.

 

Ans: c   LO2   BT: K   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following accounts is reported in the equity section of the statement of financial position?
  2. Dividends
  3. Share capital-ordinary
  4. Revenues
  5. All of these answer choices are correct.

 

Ans: b   LO2   BT: K   Difficulty: Hard   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Revenues are
  2. impacted by debits and credits in the same way that expenses are impacted by debits and credits.
  3. a subdivision of equity, providing information about why equity increased.
  4. reported on the statement of financial position as a current item.
  5. All of these answer choices are correct.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. Basic steps in the recording process include all of the following except
  2. transfer the journal information to the appropriate account in the statement of financial position.
  3. analyze each transaction for its effect on the accounts.
  4. enter the transaction information in a journal.
  5. All of these answer choices are correct.

 

Ans: a   LO3   BT: K   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At January 31, 2014, the balance in Bota Inc.s supplies account was $500. During February, Bota purchased supplies of $600 and used supplies of $800. At the end of February, the balance in the supplies account should be
  2. $500 debit.
  3. $700 credit.
  4. $1,100 debit.
  5. $300 debit.

 

Ans: d   LO3   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At December 1, 2014, Gibson Companys accounts receivable balance was 2,400. During December, Gibson had credit revenues of 10,000 and collected accounts receivable of 8,000. At December 31, 2014, the accounts receivable balance is
  2. 2,400 debit.
  3. 4,400 debit.
  4. 12,400 debit.
  5. 4,400 credit.

 

Ans: b   LO3   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At October 1, 2014, Padilla Industries had an accounts payable balance of $60,000. During the month, the company made purchases on account of $50,000 and made payments on account of $80,000. At October 31, 2014, the accounts payable balance is
  2. $60,000.
  3. $20,000.
  4. $30,000.
  5. $80,000.

 

Ans: c   LO3   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. During 2014, its first year of operations, Yaspos Bakery had revenues of $100,000 and expenses of $55,000. The business paid dividends of $30,000. What is the amount of equity at December 31, 2014?
  2. $0
  3. $30,000 debit
  4. $15,000 credit
  5. $45,000 credit

 

Ans: c   LO3   BT: C   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. On July 7, 2014, Anaya Enterprises performed cash services of $1,400. The entry to record this transaction would include
  2. a debit to Service Revenue of $1,400.
  3. a credit to Accounts Receivable of $1,400.
  4. a debit to Cash of $1,400.
  5. a credit to Accounts Payable of $1,400.

 

Ans: c   LO3   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At September 1, 2014, Crews Co. reported equity of 204,000. During the month, Crews generated revenues of 30,000, incurred expenses of 18,000, purchased equipment for 7,500 and paid dividends of 3,000. What is the amount of equity at September 30, 2014?
  2. 204,000
  3. 12,000
  4. 205,500
  5. 213,000

 

Ans: d   LO3   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The final step in the recording process is to
  2. analyze each transaction.
  3. enter the transaction in a journal.
  4. prepare a trial balance.
  5. transfer journal information to ledger accounts.

 

Ans: d   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The usual sequence of steps in the transaction recording process is:
  2. journal   analyze    ledger.
  3. analyze   journal    ledger.
  4. journal   ledger    analyze.
  5. ledger   journal    analyze.

 

Ans: b   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In recording business transactions, evidence that an accounting transaction has taken place is obtained from
  2. business documents.
  3. the taxing authority.
  4. the public relations department.
  5. the IASB.

 

Ans: a   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
  2. the companys bank.
  3. equity.
  4. ledger accounts.
  5. financial statements.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The first step in the recording process is to
  2. prepare financial statements.
  3. analyze each transaction for its effect on the accounts.
  4. post to a journal.
  5. prepare a trial balance.

 

Ans: b   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)
  2. cash register sales tape.
  3. bill.
  4. advertising brochure.
  5. check.

 

Ans: c   LO3   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After transaction information has been recorded in the journal, it is transferred to the
  2. trial balance.
  3. income statement.
  4. book of original entry.
  5. ledger.

 

Ans: d   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
  2. journal, and transfer the information to the ledger accounts.
  3. ledger, and transfer the information to the journal.
  4. book of accounts, and transfer the information to the journal.
  5. book of original entry, and transfer the information to the journal.

 

Ans: a   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The final step in the recording process is to transfer the journal information to the
  2. trial balance.
  3. financial statements.
  4. ledger.
  5. file cabinets.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The recording process occurs
  2. once a year.
  3. once a month.
  4. repeatedly during the accounting period.
  5. infrequently in a manual accounting system.

 

Ans: c   LO3   BT: K   Diff

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