Deck 3: The Accounting Information System

Question 1

Under International Financial Reporting Standards (IFRS) the dividends account is considered a real account.

Answer 1

False

Question 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.

Answer 2

False

Question 3

All liability and equity accounts are increased on the credit side and decreased on the debit side.

Answer 3

False

Question 4

The trial balance is a listing of all the accounts and thier balances in the order the accounts appear on the statement of financial position.

Question 5

A ledger is where the company initially records transactions and selected other events.

Question 6

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

Question 7

In general, debits refer to increases in account balances, and credits refer to decreases.

Question 8

On the income statement, revenues are increased by a debit whereas on the statement of financial position retained earnings is increased by a credit.

Question 9

Basic steps in the recording process include transferring the journal information to the appropriate account in the statement of financial position.
.

Question 10

Posting is done for income statement activity; activity related to statement of financial position does not require posting.

Question 11

Under International Financial Reporting Standards (IFRS) the "book of original entry" is also known as the journal.

Question 12

The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities.

Question 13

Both a corporation and a proprietorship commonly use the share capital account.

Question 14

The first step in the accounting cycle is the journalizing of transactions and selected other events.

Question 15

The trial balance uncovers any errors in journalizing and posting prior to preparation of the statement of financial position.

Question 16

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

Question 17

One purpose of a trial balance is to prove that debits and credits of an equal amount are in the general ledger.

Question 18

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed.

Question 19

The trail balance is used to prepare statement of financial position while the general ledger is used to prepare the income statement.

Question 20

The trial balance will not balance when a company debits two statement of financial position accounts and no income statement accounts.

Question 21

A company must make adjusting entries each time it prepares an income statement and a statement of financial position.

Question 22

All revenues, expenses, and the dividends account are closed through the Income Summary account.

Question 23

The book value of any depreciable asset is the difference between its cost and its salvage value.

Question 24

Adjusting entries are often prepared after the statement of financial position date, but dated as of the statement of financial position date.

Question 25

Each adjusting entry affects one statement of financial position account and one income statement account.

Question 26

Companies can prepare the income statement and the statement of financial position directly from the adjusted trial balance.

Question 27

The closing process transfers all income statement items to their related statement of financial position accounts (for example, salaries expense transfers to salaries payable).

Question 28

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

Question 29

Factors that shape an accounting information system include the

A)nature of the business.
B)size of the firm.
C)volume of data to be handled.
D)all of these.

Question 30

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.

Question 31

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period.

Question 32

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.

Question 33

Under International Financial Reporting Standards (IFRS) the cash-basis method of accounting is accepted.

Question 34

A document prepared to prove the equality of debits and credits after all adjustments have been prepared is the adjusted statement of financial position.

Question 35

The accrual basis recognizes revenue when earned and expenses in the period when cash is paid.

Question 36

An adjustment for wage expense, earned but unpaid at year end, is an example of an accrued expense.

Question 37

The post-closing trial balance consists of asset, liability, equity, revenue and expense accounts.

Question 38

Adjusting entries are necessary to enable the financial statements to conform to International Financial Reporting Stanadard (IFRS).

Question 39

Debra, Inc.is preparing its annual financial statements based on its adjusted trial balance and will prepare its statement of financial position first followed by its income statement.

Question 40

The ending retained earnings balance is reported on both the retained earnings statement and the statement of financial position.

Question 41

Under International Financial Reporting Standards (IFRS) real accounts include all of the following except

A)Dividends
B)Assets
C)Liabilities
D)Equity

Question 42

Debit always means

A)right side of an account.
B)increase.
C)decrease.
D)none of these.

Question 43

Which of the following statement is true regarding debits and credits?

A)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.
B)Before adjustments, debits will not equal credits in the trial balance.
C)The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities.
D)On the income statement, revenues are increased by debit whereas on the statement of financial position retained earnings is increased by a credit.

Question 44

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

A)Salaries expense.
B)Interest payable.
C)Supplies.
D)Share capital-ordinary.

Question 45

Under International Financial Reporting Standards (IFRS) the "book of original entry" is also known as the

A)Subsidiary ledger
B)Trial balance
C)General ledger
D)Journal

Question 46

The double-entry accounting system means

A)Each transaction is recorded with two journal entries.
B)Each item is recorded in a journal entry, then in a general ledger account.
C)The dual effect of each transaction is recorded with a debit and a credit.
D)More than one of the above.

Question 47

Which of the following accounts is reported in the Equity section statement of financial postion?

A)Dividends.
B)Share capital-ordinary.
C)Revenues.
D)All of the choices are reported in the Equity section of the statement of financial position.

Question 48

Which of the following is a nominal (temporary) account?

A)Unearned Revenue
B)Salary Expense
C)Inventory
D)Retained Earnings

Question 49

The accounting equation must remain in balance

A)throughout each step in the accounting cycle.
B)only when journal entries are recorded.
C)only at the time the trial balance is prepared.
D)only when formal financial statements are prepared.

Question 50

Equity is not affected by all

A)cash receipts.
B)dividends.
C)revenues.
D)expenses.

Question 51

Nominal accounts are also called

A)temporary accounts.
B)permanent accounts.
C)real accounts.
D)none of these.

Question 52

The debit and credit analysis of a transaction normally takes place

A)before an entry is recorded in a journal.
B)when the entry is posted to the ledger.
C)when the trial balance is prepared.
D)at some other point in the accounting cycle.

Question 53

An optional step in the accounting cycle is the preparation of

A)adjusting entries.
B)closing entries.
C)a statement of cash flows.
D)a post-closing trial balance.

Question 54

When a corporation pays a note payable and interest,

A)the account Notes Payable will be increased.
B)the account Interest Expense will be decreased.
C)they will debit Notes Payable and interest expense.
D)they will debit Cash.

Question 55

An accounting record where a company initially records transactions and selected other events is called the

A)ledger.
B)account.
C)trial balance.
D)journal.

Question 56

Basic steps in the recording process include all of the following except

A)Transfer the journal information to the appropriate account in the statement of financial postion.
B)Analyze each transaction for its effect on the accounts.
C)Enter the transaction information in a journal.
D)All of the choices are corrrect regarding the basic steps in the recording process.

Question 57

The trial balance will not balance when a company

A)Fails to journalize a transaction.
B)Omits posting a correct journal entry.
C)Posts a journal entry twice.
D)Debits two statement of financial position accounts and no income statement accounts.

Question 58

Revenues are

A)Impacted by debits and credits in the same way that expenses are impacted by debits and credits.
B)A subdivision of equity, providing information about why equity increased.
C)Reported on the statement of financial position as a current item.
D)All of the choices are correct regarding revenues.

Question 59

The trial balance

A)Proves that debits are greater than credits when the company has net income.
B)Uncovers any errors in journalizing and posting prior to preparation of the statement of financial position.
C)Is useful in preparing the statement of financial position.
D)All of the choices are correct.

Question 60

Which of the following is a real (permanent) account?

A)Goodwill
B)Sales
C)Accounts Receivable
D)Both Goodwill and Accounts Receivable

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

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.

Question 65

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.

Question 66

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 related to the statement of financial position.
C)A journal entry is posted twice.
D)A journal entry to purchase $100 worth of equipment is posted as a $1,000 purchase.

Question 67

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.

Question 68

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.
D)credit to cost of goods sold.

Question 69

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.

Question 70

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.

Question 71

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.

Question 72

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.

Question 73

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.

Question 74

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.

Question 75

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.

Question 76

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

A)expense account and a credit to a prepaid 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.

Question 77

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.

Question 78

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.

Question 79

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for

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

Question 80

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.