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

Revenues are a subdivision of shareholders' equity.

Answer 2

True

Question 3

Assets are decreased with a credit.

Answer 3

True

Question 4

An increase in an asset is recorded by a debit.

Question 5

The normal balance of a liability account is a debit.

Question 6

The normal balance of the Dividends Declared account is a debit.

Question 7

Revenue is only recorded when cash is received.

Question 8

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

Question 9

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

Question 10

The normal balance of an asset is a credit.

Question 11

Collection of an account receivable will increase total assets.

Question 12

A credit means that an account has been increased.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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 21

Entering transactions into the journal is called posting.

Question 22

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

Question 23

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

Question 24

The journal is a chronological record of all transactions.

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

If total assets are increased, there must be a corresponding

A) increase in liabilities only.
B) increase in shareholders' equity only.
C) increase in liabilities and decrease in shareholders' equity.
D) increase in liabilities and/or increase in shareholders' equity.

Question 30

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

Question 31

An increase in the Dividends Declared account will result in

A) an increase in the Retained Earnings account.
B) an increase in expenses.
C) a decrease in the Retained Earnings account.
D) a decrease in expenses.

Question 32

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

Question 33

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

Question 34

A compound journal entry affects more than two accounts.

Question 35

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

Question 36

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

Question 37

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

Question 38

Prepaid expenses are recorded as

A) expenses on the income statement.
B) assets on the statement of financial position.
C) revenues on the income statement.
D) liabilities on the statement of financial position.

Question 39

Source documents can provide evidence that a transaction has occurred.

Question 40

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

Question 41

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 42

An investment by the shareholders in a company increases

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

Question 43

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 44

Shareholders' equity is increased by

A) dividends declared.
B) revenues.
C) expenses.
D) liabilities.

Question 45

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 46

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

A) expenses
B) dividends declared
C) revenues
D) hiring a new employee

Question 47

The payment of an account payable

A) decreases total assets.
B) increases total assets.
C) has no effect on total assets.
D) increases total liabilities.

Question 48

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 49

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 50

Debit and credit can be interpreted to mean

A) "bad" and "good," respectively.
B) increase and decrease, respectively.
C) decrease and increase, respectively.
D) either an increase or decrease depending on the account.

Question 51

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.

Question 52

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 53

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 54

Collection of an $800 accounts receivable

A) increases an asset $800; decreases a liability $800.
B) decreases a liability $800; increases shareholders' equity $800.
C) decreases an asset $800; decreases a liability $800.
D) has no effect on total assets.

Question 55

A paid income tax instalment

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

Question 56

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 57

If total liabilities increased by $22,500, then

A) assets must have increased by $22,500.
B) only shareholders' equity must have increased by $22,500.
C) assets must have increased by $22,500, or shareholders' equity must have decreased by $22,500.
D) assets and shareholders' equity must have both decreased by $22,500.

Question 58

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 59

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 60

A payment of a portion of accounts payable will

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

Question 61

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 62

An account will have a credit balance if the

A) credits exceed the debits.
B) first transaction entered was a credit.
C) debits exceed the credits.
D) last transaction entered was a credit.

Question 63

A credit is not the normal balance for

A) common shares.
B) revenues.
C) liabilities.
D) cash.

Question 64

An accountant has debited an asset account for $2,000 and credited an expense account for $4,000. Which of the following would be the correct way to complete the recording of the transaction?

A) Credit an asset account for $4,000.
B) Credit a liability account for $2,000.
C) Credit a shareholders' equity account for $2,000.
D) Debit a shareholders' equity account for $2,000.

Question 65

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 66

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 67

In recording an accounting transaction in a double-entry system,

A) the number of accounts to be debited must equal the number of accounts to be credited.
B) there must always be entries made on both sides of the accounting equation.
C) the amount of the debits must equal the amount of the credits.
D) there must only be two accounts affected by any transaction.

Question 68

Which of the following correctly identifies the normal balances of accounts?

Question 69

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 70

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 71

Which pair of accounts follows the rules of debit and credit in the same manner?

A) Accounts Payable and Rent Expense
B) Repair and Maintenance Expense and Bank Loan Payable
C) Prepaid Insurance and Advertising Expense
D) Service Revenue and Accounts Receivable

Question 72

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 73

An accountant has debited an asset account for $5,000 and credited a revenue account for $10,000. What can be done to complete the recording of the transaction?

A) Nothing further can be done.
B) Credit a shareholders' equity account for $5,000.
C) Debit another asset account for $5,000.
D) Credit another asset account for $5,000.

Question 74

The best interpretation of the word credit is the

A) left side of an account.
B) increase side of an account.
C) right side of an account.
D) decrease side of an account.

Question 75

Which of the following statements is true?

A) Debits increase assets and increase liabilities.
B) Credits decrease assets and decrease liabilities.
C) Credits decrease assets and increase liabilities.
D) Debits increase liabilities and decrease assets.

Question 76

Which of the following is not true of the terms debit and credit?

A) They can be abbreviated as Dr. and Cr.
B) They can be interpreted to mean increase and decrease.
C) They can be used to describe the balance of an account.
D) They can be interpreted to mean left and right.

Question 77

For the basic accounting equation to stay in balance, each transaction recorded must

A) affect two or fewer accounts.
B) affect two or more accounts.
C) always affect exactly two accounts.
D) affect the same number of asset and liability accounts.

Question 78

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 79

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 80

Which one of the following represents the expanded basic accounting equation?

A) Assets = Liabilities + Common Shares + Retained Earnings + Revenues - Expenses - Dividends Declared.
B) Assets + Liabilities = Dividends Declared + Expenses + Common Shares + Revenues.
C) Assets - Liabilities - Dividends Declared = Common Shares + Revenues - Expenses.
D) Assets = Revenues + Expenses - Liabilities.