Deck 3: The Accounting Information System

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

The payment of a liability decreases both cash and accounts payable.

Question 7

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

Question 8

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

Question 9

Collection on an account receivable will increase both cash and accounts receivable.

Question 10

An account consists of two parts: (1) a left or debit side and (2) a right or credit side.

Question 11

Revenue increases stockholders' equity and should be recorded whenever cash is received from customers.

Question 12

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

Question 13

The normal balance of all accounts is a debit.

Question 14

An increase in an asset is recorded by a debit.

Question 15

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

Question 16

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

Question 17

For a T account, an account balance is the difference in total dollars between total debit amounts and total credit amounts.

Question 18

The normal balance of an asset is a credit.

Question 19

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

Question 20

A credit means that an account has been increased.

Question 21

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

Question 22

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

Question 23

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

Question 24

A debit means that an account has been decreased.

Question 25

Source documents can provide evidence that a transaction has occurred.

Question 26

An increase in an asset is recorded by a debit.

Question 27

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

Question 28

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

Question 29

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

Question 30

Liabilities are increased with debits and decreased with credits.

Question 31

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

Question 32

Revenues are a subdivision of stockholders' equity.

Question 33

Assets are decreased with a credit.

Question 34

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

A decrease in a liability is recorded by a debit.

Question 37

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

Question 38

Transactions are recorded in alphabetical order in a journal.

Question 39

The normal balance of the dividend account is a credit.

Question 40

The journal is a chronological record of all transactions.

Question 41

If expenses are paid in cash, then

A) assets will increase.
B) liabilities will decrease.
C) stockholders' equity will increase.
D) assets will decrease.

Question 42

Unearned Service Revenue is classified as a liability on the balance sheet.

Question 43

A trial balance is prepared at the beginning of an accounting period.

Question 44

If services are rendered on account, then

A) assets will decrease.
B) liabilities will increase.
C) stockholders' equity will increase.
D) liabilities will decrease.

Question 45

If services are rendered for cash, then

A) assets will increase.
B) liabilities will increase.
C) stockholders' equity will decrease.
D) liabilities will decrease.

Question 46

Collection of a $600 Accounts Receivable

A) increases an asset $600; decreases an asset $600.
B) increases an asset $600; decreases a liability $600.
C) decreases a liability $600; increases stockholders' equity $600.
D) decreases an asset $600; decreases a liability $600.

Question 47

Salaries and wages payable is a type of expense.

Question 48

When the columns of the trial balance equal each other, it means that no errors have occurred in the recording and posting the transactions.

Question 49

Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.

Question 50

Prepaid expenses are assets.

Question 51

A general ledger should be arranged in financial statement order beginning with the balance sheet accounts.

Question 52

Dividends are classified as an expense.

Question 53

Operating activities are the types of activities the company performs to generate profits.

Question 54

If total liabilities decreased by $4,000, then

A) stockholders' equity must have decreased by $4,000.
B) assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000.
C) assets and stockholders' equity each increased by $2,000.
D) assets must have increased by $4,000.

Question 55

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 stockholders' equity.
C) there could be an equal decrease in another asset.
D) None of these answer choices are correct.

Question 56

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

Question 57

In a trial balance, all debits are listed before all credits.

Question 58

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

Question 59

The entire group of accounts maintained by a company is referred to collectively as the journal.

Question 60

Entering transactions into the journal is called posting.

Question 61

Courtney Company purchased equipment for $1,800 cash. As a result of this event,

A) equity decreased by $1,800.
B) assets increased by $1,800.
C) total assets remained unchanged.
D) Both assets and equity decreased by $1,800.

Question 62

The sale of an asset on credit for what it cost

A) increases assets and liabilities.
B) decreases assets and liabilities.
C) leaves total assets unchanged.
D) decreases assets and increases liabilities.

Question 63

A revenue generally

A) increases assets and liabilities.
B) increases assets and stockholders' equity.
C) increases assets and decreases stockholders' equity.
D) leaves total assets unchanged.

Question 64

If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck,

A) assets will be increased by $10,000.
B) equity will be reduced by $40,000.
C) assets will be increased by $40,000.
D) assets will be unchanged.

Question 65

The payment of a liability

A) decreases assets and stockholders' equity.
B) increases assets and decreases liabilities.
C) decreases assets and increases liabilities.
D) decreases assets and liabilities.

Question 66

An investment by the stockholders in a business increases

A) assets and stockholders' equity.
B) assets and liabilities.
C) liabilities and stockholders' equity.
D) assets only.

Question 67

Receiving payment of a portion of an accounts receivable will

A) not affect total assets.
B) increase liabilities.
C) increase stockholders' equity.
D) decrease net income.

Question 68

If a company buys a $700 machine on credit, this transaction will affect the

A) income statement and retained earnings statement only.
B) income statement only.
C) income statement, retained earnings statement, and balance sheet.
D) balance sheet only.

Question 69

Which of the following items has no effect on retained earnings?

A) Expense
B) Dividends
C) Land purchase
D) Revenue

Question 70

If a company pays dividends of $10,000,

A) stockholders' equity will be reduced by $10,000.
B) net income will be reduced by $10,000.
C) retained earnings will be reduced by $10,000.
D) Both retained earnings and stockholders' equity will be reduced by $10,000.

Question 71

A payment of a portion of an accounts payable will

A) not affect total assets.
B) increase liabilities.
C) not affect stockholders' equity.
D) decrease net income.

Question 72

The purchase of an asset on credit

A) increases assets and stockholders' equity.
B) increases assets and liabilities.
C) decreases assets and increases liabilities.
D) leaves total assets unchanged.

Question 73

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

A) Yes, they are treated as revenue at the time of receipt because the company has access to the cash.
B) No, the amount of revenue cannot be adequately determined until the company completes the work.
C) Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed.
D) No, revenue cannot be recognized until the work is performed.

Question 74

The purchase of an asset for cash

A) increases assets and stockholders' equity.
B) increases assets and liabilities.
C) decreases assets and increases liabilities.
D) leaves total assets unchanged.

Question 75

Budke Corporation paid dividends of $5,000. As a result of this event, the

A) Dividends account was increased by $5,000.
B) Dividends account was decreased by $5,000.
C) Cash account was increased by $5,000.
D) Cash was increased and the Dividends account was decreased by $5,000.

Question 76

When collection is made on Accounts Receivable,

A) total assets will remain the same.
B) stockholders equity will increase.
C) total assets will increase.
D) total assets will decrease.

Question 77

A paid dividend

A) decreases assets and stockholders' equity.
B) increases assets and stockholders' equity.
C) increases assets and decreases stockholders' equity.
D) decreases assets and increases stockholders' equity.

Question 78

Comstock Company provided consulting services and billed the client $2,500. As a result of this event

A) assets remained unchanged.
B) assets increased by $2,500.
C) equity increased by $2,500
D) Both assets and equity increased by $2,500.

Question 79

An expense

A) decreases assets and liabilities.
B) decreases stockholders' equity.
C) leaves stockholders' equity unchanged.
D) is basically the same as a liability.

Question 80

Powers Corporation received a cash advance of $500 from a customer. As a result of this event,

A) assets increased by $500.
B) equity increased by $500.
C) liabilities decreased by $500.
D) Both assets and equity increased by $500.