Deck 4: Review of the Accounting Cycle

Question 1

Rent expense is normally considered a peripheral transaction of a company.

Answer 1

False

Question 2

The first step in the accounting cycle is recording transactions in the general journal.

Answer 2

False

Question 3

List the steps in the accounting cycle in the correct order.

Answer 3

1. Analyze the transactions.
2. Journalize the transactions.
3. Post journal entries to the general ledger.
4. Prepare an unadjusted trial balance.
5. Prepare adjusting journal entries.
6. Prepare an adjusted trial balance.
7. Prepare financial statements.
8. Close temporary accounts.
9. Prepare a post-closing trial balance.

Question 4

The accounting equation is correctly stated as ________.

A) Assets = Liabilities + Equity
B) Assets + Liabilities = Equity
C) Assets = Liabilities - Equity
D) Assets = Liabilities = Equity

Question 5

To be recorded in the general journal, a transaction must be an economic event.

Question 6

Decreases in equity that result from peripheral transactions of an entity are referred to as ________.

A) liabilities
B) expenses
C) losses
D) dividends

Question 7

The first four steps in the accounting cycle, in proper sequence, are ________.

A) journalize, analyze the transactions, post to the general ledger, prepare an unadjusted trial balance
B) analyze the transactions, journalize, post to the general ledger, prepare an unadjusted trial balance
C) analyze the transactions, prepare an unadjusted trial balance, post to the general ledger, prepare an adjusted trial balance
D) prepare an unadjusted trial balance, journalize, post to the general ledger, prepare an adjusted trial balance

Question 8

The accounting cycle describes a process that includes all of the following except ________.

A) recording business transactions
B) aggregating business transactions into the financial statements
C) creating a road map of events
D) summarizing business transactions into the financial statements

Question 9

Expenses and losses will decrease liabilities.

Question 10

The first step in the accounting cycle is to ________.

A) journalize transactions
B) analyze transactions
C) post journal entries to the general ledger
D) prepare a worksheet

Question 11

Revenues and gains will increase retained earnings.

Question 12

Financial statements are prepared after the temporary accounts are closed.

Question 13

The final step in the accounting cycle is to ________.

A) prepare an adjusted trial balance
B) close temporary accounts
C) prepare a post-closing trial balance
D) prepare financial statements

Question 14

The final step in the accounting cycle is the preparation of a post-closing trial balance.

Question 15

Accumulated other comprehensive income is included in retained earnings.

Question 16

Once the adjusting entries have been prepared (journalized and posted), which of the following steps of the accounting cycle are carried out in proper sequence?

A) Prepare an adjusted trial balance, prepare financial statements, close temporary accounts, prepare a post-closing trial balance.
B) Prepare an unadjusted trial balance, prepare financial statements, close temporary accounts, prepare a post-closing trial balance.
C) Prepare closing entries, prepare financial statements, prepare an adjusted trial balance, prepare a post-closing trial balance.
D) Prepare financial statements, prepare an adjusted trial balance, prepare closing entries, prepare a post-closing trial balance.

Question 17

The accounting equation may be stated as Assets = Liabilities + Shareholders' Equity.

Question 18

After transactions are recorded in the general journal, the next step in the accounting cycle is to ________.

A) prepare adjusting journal entries
B) prepare an adjusted trial balance
C) prepare financial statements
D) post journal entries to the general ledger

Question 19

Gains and losses result from peripheral transactions of a company.

Question 20

Liabilities represent claims of third parties against the assets of a business.

Question 21

Which of the following accounts has a normal credit balance?

A) Accounts Receivable
B) Taxes Payable
C) Patents
D) Equipment

Question 22

Helmsley Corporation received one year's rent in advance on a warehouse. This transaction results in a(n) ________.

A) expense
B) liability
C) asset
D) revenue

Question 23

Arnold Company provided services to its customers on credit for $25,000. This transaction ________.

A) increased assets
B) increased liabilities
C) increased expenses
D) decreased shareholders' equity

Question 24

Abacus Corporation purchased equipment costing $48,000. It paid $8,000 in cash and signed a note payable for $40,000. This transaction ________.

A) increased assets by $48,000, liabilities by $40,000 and shareholders' equity by $8,000
B) increased assets by $48,000 and liabilities by $40,000
C) increased assets and liabilities each by $40,000
D) increased assets and shareholders' equity each by $48,000

Question 25

Nature's Way used and paid for the services of its employees. As a result, it will ________.

A) decrease assets and decrease stockholders' equity
B) decrease assets and increase stockholders' equity
C) increase assets and increase stockholders' equity
D) increase assets and decrease stockholders' equity

Question 26

Atlas Corporation sold a used machine for less than its carrying value. This transaction results in a(n) ________.

A) revenue
B) expense
C) gain
D) loss

Question 27

The normal balance of an account is the side on which an increase in the account balance is recorded.

Question 28

Bradley Company paid $25,000 in dividends to its shareholders. This transaction ________.

A) increased expenses
B) decreased revenues
C) increased liabilities
D) decreased shareholders' equity

Question 29

Jenner Corporation paid its annual dividend. This transaction represents a(n) ________.

A) liability
B) distribution to shareholders
C) loss
D) expense

Question 30

The normal balance of a liability account is a debit.

Question 31

List and define the elements of the accounting equation.
$$\begin{array} { | l | l | } \hline { \text { Element } } & \text { Definition } \\\hline \text { Assets } & \\\hline \text { Liabilities } & \\\hline \text { Shareholders' } & \\\text { Equity } & \\\hline \text { Revenues } & \\\hline \text { Expenses } & \\\hline \text { Gains } & \\\hline \text { Losses } & \\\hline \text { Distributions to } & \\\text { Owners } & \\\hline \text { Investments by } & \\\text { Owners } & \\\hline\end{array}$$

Question 32

Which of the following accounts has a normal debit balance?

A) Accounts Payable
B) Advertising Expense
C) Gain on Sale of Assets
D) Retained Earnings

Question 33

Each of the following accounts has a normal credit balance except ________.

A) Sales Revenue
B) Accumulated Depreciation
C) Investments
D) Accounts Payable

Question 34

Murphy Corporation engaged in the following transactions during the month of February. Please analyze these transactions and indicate whether they cause an increase (+) or decrease (-) in the balance sheet and income statement accounts.

Question 35

A revenue account has a normal debit balance.

Question 36

The balance in the common stock account is increased by a credit.

Question 37

The Dark Chocolate Shoppe collected cash for amounts owed to the company. As a result, it will ________.

A) increase revenue and increase cash
B) increase revenue and decrease accounts receivable
C) increase accounts receivable and decrease revenue
D) increase cash and decrease accounts receivable

Question 38

Douglas Corporation paid $6,000 for monthly rental on its warehouse. This transaction ________.

A) decreased liability
B) increased shareholders' equity
C) increased assets
D) increased expenses

Question 39

Jackson Company sold land that had been held for future plant expansion for more than its carrying value. This transaction results in a(n) ________.

A) revenue
B) expense
C) gain
D) loss

Question 40

Murphy Corporation engaged in the following transactions during the month of January. Please analyze these transactions and indicate whether they cause an increase (+) or decrease (-) in the balance sheet and income statement accounts.

Question 41

Formally recording the transaction in the accounting system is an example of ________.

A) posting
B) journalizing
C) preparing
D) closing

Question 42

A numerical listing of account names and numbers is called the ________.

A) chart of accounts
B) general journal
C) general ledger
D) chart of journals

Question 43

ABC Corporation issued no-par common stock to its investors for $125,000. The journal entry to record this transaction includes a ________.

A) debit to Investments
B) credit to Revenue
C) credit to Common Stock
D) debit to Expense

Question 44

The process of transferring information into individual ledger accounts is called ________.

A) ledgering
B) transferring
C) journalizing
D) posting

Question 45

The issuance of common stock for cash would be recorded by a ________.

A) credit to Retained Earnings
B) credit to Common Stock
C) debit to Investments
D) credit to Revenues

Question 46

Accounts are presented in the general ledger in the same order as they are presented in the balance sheet.

Question 47

Orlando Company began operations on December 1. The company had the following transactions during December. Record these transactions in proper form, including explanations. If an entry is not required, please write "No Entry."
a. Issued 50,000 shares of no par common stock and received $350,000 cash.
b. Extended an offer of employment to a sales manager who will begin work on January 1.
c. Purchased machinery on account for $450,000 from Tampa Company.
d. Purchased a two-year insurance policy for $4,800. Paid cash. This policy will become effective on January 1.
e. Paid $2,500 in office rent for the month of January.
f. Purchased office furniture for $50,000 with a 10% down payment and a six month note payable for the balance.
g. Paid wages of $15,000 to employees.
h. Provided services to customers on account for $85,000.
i. Paid $200,000 to Tampa Company on account.
j. Received payment in full for services rendered in part (h).
k. Paid a telephone bill for $525.

Question 48

All of the following accounts have a normal debit balance except ________.

A) Dividends
B) Loss on Sale of Land
C) Additional Paid in Capital
D) Land

Question 49

The posting reference in the general ledger is the general journal page number.

Question 50

Bay City Corporation received $27,000 for 12 months' rent in advance. What entry is used to record this transaction?

A) $$\begin{array} { l } \text { Cash }&27,000 \\\quad \text { Prepaid Rent }&&27,000\end{array}$$
B) $\begin{array}{l}\text { Rent Expense }&27,000 \\\text { Cash }&&27,00\end{array}$

C) $$\begin{array} { l } \text { Cash } &27,000\\\quad \text { Unearned Rent Revenue }&&27,000\end{array}$$
D) $\begin{array}{ll}\text { Unearned Rent Revenue } & 27,000 \\\quad \text { Rent Revenue } && 27,000\end{array}$

Question 51

A simplified version of a ledger account is known as a ________.

A) t-account
B) debit account
C) credit account
D) GL account

Question 52

Significant Technologies Corporation had the following transactions in the month of August. Record these transactions in proper form, including explanations. If an entry is not required, please write "No Entry."
a. Significant Technologies received $100,000 cash in exchange for shares of Significant Technologies' common stock.
b. Purchased store equipment for $11,000 cash
c. Provided services for cash of $9,000.
d. Provided services on credit for $20,000.
e. Received bill and paid utilities of $5,000
f. Paid sales salaries of $8,000. Ignore withholding and related payroll taxes.
g. Incurred legal fees of $6,000 to be paid later.
h. Declared and paid dividends to stockholders of $2,000.
i. Collected $15,000 for services to be provided over the coming year but has not yet provided those services
j. Paid $12,000 for a three-year insurance policy with coverage starting on September 1.
k. Paid $1,000 for rental of some servers which will be returned to the leasing company on August 30th.
l. Collected $10,000 from the transaction described in part d.
m. Paid $6,000 of the amount owed for legal fees incurred in the transaction described in part g.

Question 53

The general journal presents transactions ________.

A) by account
B) chronologically
C) by normal balance
D) None of the above

Question 54

When a company receives a utility bill for electricity used this past month and payable next month, the entry includes a ________.

A) debit to a liability
B) credit to an asset
C) debit to an expense
D) debit to an asset

Question 55

Cameron Diaz Corporation purchased a computer system for $19,000. The company paid $4,000 cash and issued a $15,000 note payable for the entire balance. The journal entry to record this transaction includes a ________.

A) debit to Equipment for $19,000
B) credit to Accounts Payable for $15,000
C) debit to Expense for $19,000
D) credit to Cash for $19,000

Question 56

Mobile Corporation had the following transactions for the month of January. Record these transactions along with explanations. If no entry is required, state "No Entry."
a. Issued 10,000 shares of no-par common stock for $250,000.
b. Signed an agreement with CompuSource to purchase three new computers costing a total of $6,000 in 10 days. Computers will be used by employees of Mobile.
c. Purchased office furniture for $70,000 on account from Birmingham Company.
d. Purchased a two-year insurance policy for $3,600. Paid cash. This policy will become effective February 1.
e. Paid $1,500 in office rent for the month of January.
f. Accepted delivery of the new computers and paid cash.
g. Paid wages of $5,000 to employees.
h. Provided services on account for $80,000.
i. Paid $50,000 to Birmingham Company on account.
j. Received payment in full from customers in part (h).
k. Paid an electricity bill for $325.

Question 57

Realistic Rentals collected $10,000 in payment of advance rent for 6 months. This an example of ________.

A) an accrued receivable
B) a prepaid expense
C) an unearned revenue
D) an accrued liability

Question 58

Smith Corporation purchased $68,000 of merchandise on credit. The company uses the perpetual method of recording inventory purchases. What would be the correct journal entry to record the purchase?

A) $\begin{array}{lrr} \text {Merchandise Inventory } &68,000\\ \text {Accounts Payable } &&68,000\\\end{array}$

B) $\begin{array}{lrr} \text {Purchases } &68,000\\ \text {Accounts Payable } &&68,000\\\end{array}$


C) $\begin{array}{lrr} \text {Merchandise Inventory } &68,000\\ \text { Cash } &&68,000\\\end{array}$


D) $\begin{array}{lrr} \text {Purchases } &68,000\\ \text { Interest Payable } &&68,000\\\end{array}$

Question 59

Which of the following accounts has a normal credit balance?

A) Interest Expense
B) Deferred Revenue
C) Investments
D) Loss on Sale of Equipment

Question 60

Jones Company sold merchandise on account for $70,000. This merchandise cost $52,000. The company uses the perpetual method of accounting for inventory. What would be the correct journal entry or entries to record the transaction?

A) $\begin{array}{lrr} \text {Accounts Receivable } &70,000\\ \text {Sales Revenue } &&70,000\\\end{array}$

B) $\begin{array}{ll}\text { Accounts Receivable } & 70,000 \\\quad \text { Sales Revenue } & &70,000\\\text { Cost of Goods Sold } & 52,000 \\\quad \text { Merchandise Inventory } &&52,000\end{array}$

C) $$\begin{array} { l l l } \text { Accounts Receivable } & 70,000 & \\\text { Merchandise Inventory } && 52,000 \\\text { Gain on Sale } && 18,000\end{array}$$
D) $\begin{array} { l l } \text { Accounts Receivable } & 18,000 \\ \text { Cost of Goods Sold } & 52,000\\\text { Sales Revenue }&&70,000 \end{array}$

Question 61

What are the common errors that a trial balance will not reveal?

Question 62

If the total of all debit entries equals the total of all credit entries on the unadjusted trial balance, all transactions have been correctly recorded.

Question 63

The account number associated with an account in the general ledger refers to ________.

A) Chart of Account numerical listing
B) chronological order of the entry
C) general journal page number
D) general ledger page number

Question 64

Financial statements are prepared using data from the unadjusted trial balance.

Question 65

Adjusting journal entries are made to ensure that all revenues and/or expenses are recognized in the period in which they are incurred.

Question 66

Which of the following errors will not be revealed by the unadjusted trial balance?

A) incorrectly posting a debit for Salaries Expense to Supplies Expense
B) failing to post one side of a journal entry
C) posting a $50,000 debit to Accounts Receivable as $5,000 while recording the credit to revenue as $50,000
D) posting a credit to cash for $5,400 as $4,500 while posting the debit to expense as $5,400

Question 67

If a company initially records a prepaid expense as an asset, an adjusting entry must be made at the end of the period to increase the expense account.

Question 68

Balance sheet accounts are the first accounts to be listed on the unadjusted trial balance.

Question 69

Every adjusting journal entry will affect one balance sheet account and one income statement account.

Question 70

Which of the following recording errors will be revealed by the unadjusted trial balance?

A) incorrectly posting a debit for Supplies Expense to Salaries Expense
B) inadvertently omitting from posting an entry recording the purchase of small tools on account
C) posting a journal entry to record rent expense and the credit to cash twice
D) posting a $50,000 entry to Accounts Receivable as $5,000 while correctly recording the corresponding revenue correctly

Question 71

Deferrals occur when a company receives or pays cash before recognizing the revenue or expense in the financial statements.

Question 72

Accruals occur when a company receives or pays cash before recognizing the revenue or expense in the financial statements.

Question 73

Amazing Grapes wine store paid utilities and recorded the economic event in the general journal. When posting the related journal entries to the ledger, an impacted account or accounts would include ________.

A) Retained Earnings
B) Accounts Payable
C) Utilities Expense
D) Both B and C

Question 74

An entry to record depreciation in the current period will be recorded after the unadjusted trial balance is prepared.

Question 75

If a journal entry has not been posted to the general ledger, the unadjusted trial balance will still balance.

Question 76

In transferring information to the general ledger, the reference column in the ledger contains the ________.

A) chronological order of the entry
B) general journal page number
C) account abbreviation
D) general ledger page number

Question 77

The amounts on a company's unadjusted trial balance are taken from the general ledger.

Question 78

Adjusting journal entries are normally not necessary when cash-basis accounting is used.

Question 79

If a debit to Repairs Expense is inadvertently posted to Rent Expense, the unadjusted trial balance will still balance.

Question 80

The unadjusted trial balance reflects all of a company's events and transactions.