Deck 3: The Accounting Information System

Question 1

The double-entry accounting system records the dual effect of each transaction.

Answer 1

True

Question 2

Prepaid expenses are recorded as liabilities.

Answer 2

False

Question 3

A debit increases an account and a credit decreases an account.

Answer 3

False

Question 4

An increase in the Dividends account will result in an increase in the Retained Earnings account.

Question 5

If total assets are increased, there must be a corresponding increase in liabilities or an increase in shareholders' equity.

Question 6

An increase in an asset is recorded by a debit.

Question 7

The normal balance of an asset is a credit.

Question 8

If a revenue account is credited, this must increase shareholders' equity.

Question 9

Debit and credit can be interpreted to mean "bad" and "good," respectively.

Question 10

Revenue is only recorded when cash is received.

Question 11

An individual accounting record for a specific asset, liability or shareholders' equity item is called an account.

Question 12

Economic events that require recording in the accounting records are called accounting transactions.

Question 13

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

Question 14

A credit means that an account has been increased.

Question 15

The payment of an account payable decreases total assets.

Question 16

The normal balance of a liability account is a debit.

Question 17

In its simplest form, a T account consists of three parts: (1) its title, (2) a left or credit side and (3) a right or debit side.

Question 18

A decrease in a liability account is recorded by a debit.

Question 19

Cash received from a customer in advance of work being performed or goods provided is recorded as revenue.

Question 20

Collection of an account receivable will increase total assets.

Question 21

A simple journal entry affects two or more accounts.

Question 22

An expense account is a subdivision of the retained earnings account and decreases shareholders' equity.

Question 23

The chart of accounts is the framework for the accounting database.

Question 24

Assets are decreased with a credit.

Question 25

A journal is an accounting record in which transactions are initially recorded.

Question 26

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

Question 27

Transactions are entered in the general ledger and then transferred to the general journal.

Question 28

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

Question 29

Revenues are a subdivision of shareholders' equity.

Question 30

Source documents can provide evidence that a transaction has occurred.

Question 31

The journal is a chronological record of all transactions.

Question 32

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

Question 33

A general ledger should be arranged in financial statement order beginning with the statement of financial position accounts.

Question 34

All transactions must be entered first in the general ledger.

Question 35

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

Question 36

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

Question 37

Prepaid expenses are reported as assets on the statement of financial position.

Question 38

The first step in the recording process is entering the transaction into the general journal.

Question 39

A journal lists all the accounts maintained by a business.

Question 40

The normal balance of the Dividends account is a debit.

Question 41

If a journal entry is posted twice, this will be discovered by preparing a trial balance.

Question 42

An investment by the shareholders in a business increases
(a)assets and shareholders' equity.
(b)assets and liabilities.
(c)liabilities and shareholders' equity.
(d)assets only.

Question 43

Entering transactions into the journal is called posting.

Question 44

If an individual asset is increased, then
(a)there could be an equal decrease in a specific liability.
(b)there could be an equal decrease in shareholders' equity.
(c)there could be an equal decrease in another asset.
(d)none of these is possible.

Question 45

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

Question 46

A compound journal entry affects more than two accounts.

Question 47

Collection of a $1,500 accounts receivable
(a)increases an asset $1,500; decreases a liability $1,500.
(b)decreases a liability $1,500; increases shareholders' equity $1,500.
(c)decreases an asset $1,500; decreases a liability $1,500.
(d)has no effect on total assets.

Question 48

The purchase of an asset for cash
(a)increases assets and shareholders' equity.
(b)increases assets and liabilities.
(c)decreases assets and increases liabilities.
(d)has no effect on total assets.

Question 49

Shareholders' equity is increased by
(a)dividends.
(b)revenues.
(c)expenses.
(d)liabilities.

Question 50

If expenses are paid in cash, then
(a)assets will increase.
(b)liabilities will decrease.
(c)shareholders' equity will increase.
(d)assets will decrease.

Question 51

A trial balance can still balance even if an entry is posted to the wrong account.

Question 52

The account to be credited is entered first in a journal entry.

Question 53

If services are performed on credit, then
(a)assets will decrease.
(b)liabilities will increase.
(c)shareholders' equity will increase.
(d)liabilities will decrease.

Question 54

The retained earnings on the trial balance prepared immediately after posting represents the retained earnings at the beginning of the period.

Question 55

A list of accounts and their account numbers is called the chart of accounts.

Question 56

Unearned revenues are classified as assets on the statement of financial position.

Question 57

Accounting systems should record
(a)all economic events.
(b)events that result in a change in assets, liabilities, or shareholders' equity items.
(c)only events that involve cash.
(d)only events that include revenues, expenses and cash.

Question 58

If total liabilities increased by $15,000, then
(a)assets must have increased by $15,000.
(b)only shareholders' equity must have increased by $15,000.
(c)assets must have increased by $15,000, or shareholders' equity must have decreased by $15,000.
(d)assets and shareholders' equity must have both decreased by $15,000.

Question 59

A trial balance lists all the debit balances first, then all the credit balances.

Question 60

The main purpose of the trial balance is to check that debits equal credits.

Question 61

The normal balance of any account is the
(a)left side.
(b)right side.
(c)side which increases the account.
(d)side which decreases the account.

Question 62

The equality of debits and credits is the basis for
(a)the double-entry accounting system.
(b)the single-entry accounting system.
(c)the T account.
(d)all accounting systems.

Question 63

The classification and normal balance of the unearned revenue account is
(a)asset, debit.
(b)liability, credit.
(c)revenues, credit.
(d)shareholders' equity, credit.

Question 64

A payment of a portion of accounts payable will
(a)not affect total assets.
(b)increase liabilities.
(c)not affect shareholders' equity.
(d)decrease profit.

Question 65

The payment of a liability
(a)decreases assets and shareholders' equity.
(b)increases assets and decreases liabilities.
(c)decreases assets and increases liabilities.
(d)decreases assets and liabilities.

Question 66

The right side of an account is
(a)always used to record increases.
(b)the credit side.
(c)the debit side.
(d)always used to record decreases.

Question 67

An individual accounting record of increases and decreases in a specific asset, liability, or shareholders' equity item is called a(n)
(a)single entry accounting system.
(b)accounting transaction.
(c)account.
(d)normal balance.

Question 68

The classification and normal balance of an expense account is
(a)revenue, credit.
(b)asset, debit.
(c)liability, credit.
(d)shareholders' equity, debit.

Question 69

A T account is
(a)a way of illustrating the basic form of an account.
(b)a special account used to record only debits.
(c)a special account used to record only credits.
(d)the actual account form used in real accounting systems.

Question 70

The purchase of an asset on credit
(a)increases assets and shareholders' equity.
(b)increases assets and liabilities.
(c)decreases assets and increases liabilities.
(d)has no effect on total assets.

Question 71

A credit to an asset account indicates a(n)
(a)error.
(b)credit was made to a liability account.
(c)decrease in the asset.
(d)increase in the asset.

Question 72

Recording revenue
(a)increases assets and liabilities.
(b)increases assets and shareholders' equity.
(c)increases assets and decreases shareholders' equity.
(d)has no effect on total assets.

Question 73

A T account consists of
(a)a title, a debit balance, and a credit balance.
(b)a title, a left side, and a debit balance.
(c)a title, a debit side, and a credit side.
(d)a title, a right side, and a debit balance.

Question 74

A credit is not the normal balance for
(a)common shares.
(b)revenues.
(c)liabilities.
(d)cash.

Question 75

A paid dividend
(a)decreases assets and shareholders' equity.
(b)increases assets and shareholders' equity.
(c)increases assets and decreases shareholders' equity.
(d)decreases assets and increases shareholders' equity.

Question 76

The double-entry system requires that each transaction must be recorded
(a)in at least two different accounts.
(b)in a T account.
(c)first as a revenue and then as an expense.
(d)twice.

Question 77

The left side of a T account is the
(a)credit side.
(b)debit side.
(c)description of the account.
(d)balance of the account.

Question 78

The classification and normal balance of the retained earnings account is
(a)asset, debit.
(b)shareholders' equity, credit.
(c)revenues, credit.
(d)liability, debit.

Question 79

Which of the following items has no effect on retained earnings?
(a)Expenses
(b)Dividends
(c)Revenues
(d)Hiring a new employee

Question 80

An expense
(a)decreases assets and liabilities.
(b)decreases shareholders' equity.
(c)has no effect on shareholders' equity.
(d)increases assets and decreases shareholder' equity.