Deck 2: Analyzing for Business Transactions

Question 1

In a double-entry accounting system, the total dollar amount debited must always equal the total dollar amount credited.

Answer 1

True

Question 2

Source documents provide evidence of business transactions and are the basis for accounting entries.

Answer 2

True

Question 3

The right side of an account is called the debit side.

Answer 3

False

Question 4

Crediting an expense account decreases it.

Question 5

Dividends paid to the stockholders are a business expense.

Question 6

An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

Question 7

The purchase of land and buildings will generally be recorded in the same ledger account.

Question 8

When a company provides services for which cash will not be received until some future date, the company should record the amount charged as accounts receivable.

Question 9

The first step in the processing of a transaction is to analyze the transaction and source documents.

Question 10

An account's balance is the difference between the total debits and total credits for the account, including any beginning balance.

Question 11

Cash paid to stockholders by the business of a corporation and used for personal expenses, should be treated as an expense of the business.

Question 12

Increases in liability accounts are recorded as debits.

Question 13

Preparation of a trial balance is the first step in processing a financial transaction.

Question 14

A company's chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.

Question 15

Unearned revenues are classified as liabilities.

Question 16

Debits increase asset and expense accounts.

Question 17

A revenue account normally has a debit balance.

Question 18

Credits always increase account balances.

Question 19

Items such as sales tickets, bank statements, checks, and purchase orders are examples of a business's source documents.

Question 20

A customer's promise to pay on credit is classified as an account payable by the seller.

Question 21

If a company purchases equipment paying cash, the journal entry to record this transaction will include a debit to Cash.

Question 22

A dividend normally has a debit balance.

Question 23

A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

Question 24

If a company is highly leveraged, this means that it has relatively high risk of not being able to repay its debt.

Question 25

Debit means increase and credit means decrease for all accounts.

Question 26

Asset accounts normally have debit balances and revenue accounts normally have credit balances.

Question 27

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Question 28

A debit entry is always an increase in the account.

Question 29

When a company bills a customer for $700 for services rendered, the journal entry to record this transaction will include a $700 debit to Services Revenue.

Question 30

Booth Industries has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%.

Question 31

The debt ratio is calculated by dividing total assets by total liabilities.

Question 32

Transactions are recorded first in the ledger and then transferred to the journal.

Question 33

A transaction that credits an asset account and credits a liability account must also affect one or more other accounts.

Question 34

If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance.

Question 35

Asset accounts are normally decreased by debits.

Question 36

The higher a company's debt ratio, the lower the risk of a company not being able to meet its obligations.

Question 37

The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.

Question 38

Posting is the transfer of journal entry information to the ledger.

Question 39

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.

Question 40

A journal entry that affects no more than two accounts is called a compound entry.

Question 41

The general journal is known as the book of final entry because financial statements are prepared from it.

Question 42

Dividends are not reported on a business's income statement.

Question 43

An account used to record the stockholders' investments in a business is called a(n):

A) Dividends account.
B) Common stock account.
C) Revenue account.
D) Expense account.
E) Liability account.

Question 44

The financial statement that summarizes the changes in retained earnings is called the balance sheet.

Question 45

An income statement reports the revenues earned less the expenses incurred by a business over a period of time.

Question 46

The ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, that is, assets first, then liabilities, then common stock and dividends, followed by revenues and expenses.

Question 47

A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction.

Question 48

A balanced trial balance is proof that no errors were made in journalizing transactions, posting to the ledger, and preparing the trial balance.

Question 49

The heading on every financial statement lists the three W's-Who (the name of the business); What (the name of the statement); and Where (the organization's address)

Question 50

The trial balance can serve as a replacement for the balance sheet, since total debits must equal total credits.

Question 51

A business's source documents may include all of the following except:

A) Sales tickets.
B) Ledgers.
C) Checks.
D) Purchase orders.
E) Bank statements.

Question 52

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

A) Journal.
B) Posting.
C) Trial balance.
D) Account.
E) Chart of accounts.

Question 53

The same four basic financial statements are prepared by both U.S. GAAP and IFRS.

Question 54

If cash was incorrectly debited for $100 instead of correctly crediting it for $100, the cash account's balance will be overstated (too high).

Question 55

A business's source documents:

A) include the ledger.
B) Provide objective evidence that a transaction has taken place.
C) must be in electronic form.
D) are prepared internally to ensure accuracy.
E) include the chart of accounts.

Question 56

The accounting process begins with:

A) Analysis of business transactions and source documents.
B) Preparing financial statements and other reports.
C) Summarizing the recorded effect of business transactions.
D) Presentation of financial information to decision-makers.
E) Preparation of the trial balance.

Question 57

The balance sheet reports the financial position of a company at a point in time.

Question 58

If common stock account had a $10,000 credit balance at the beginning of the period, and during the period, the stockholders invest an additional $5,000, the balance in the common stock account listed on the trial balance will be equal to a debit balance of $5,000.

Question 59

The journal is known as a book of original entry.

Question 60

At a given point in time, a business's trial balance is a list of all of its general ledger accounts and their balances

Question 61

A business uses a credit to record:

A) An increase in an expense account.
B) A decrease in an asset account.
C) A decrease in an unearned revenue account.
D) A decrease in a revenue account.
E) A decrease in an equity account.

Question 62

A company's formal promise to pay (in the form of a promissory note) a future amount is a(n):

A) Unearned revenue.
B) Prepaid expense.
C) Credit account.
D) Note payable.
E) Account receivable.

Question 63

Identify the account below that is classified as a liability account:

A) Cash
B) Accounts Payable
C) Salaries Expense
D) Common Stock
E) Equipment

Question 64

Identify the statement below that is incorrect.

A) The normal balance of accounts receivable is a debit.
B) The normal balance of dividends is a debit.
C) The normal balance of unearned revenues is a credit.
D) The normal balance of an expense account is a credit.
E) The normal balance of the common stock account is a credit.

Question 65

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:

A) A revenue account.
B) The dividends account.
C) The common stock account.
D) An expense account.
E) A liability account.

Question 66

Identify the account below that impacts the Equity of a business:

A) Utilities Expense
B) Accounts Payable
C) Accounts Receivable
D) Cash
E) Unearned Revenue

Question 67

Unearned revenues are generally:

A) Revenues that have been earned and received in cash.
B) Revenues that have been earned but not yet collected in cash.
C) Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D) Recorded as an asset in the accounting records.
E) Increases to stockholders equity.

Question 68

A credit is used to record an increase in all of the following accounts except:

A) Accounts Payable
B) Service Revenue
C) Unearned Revenue
D) Wages Expense
E) Common Stock

Question 69

A company's list of accounts and the identification numbers assigned to each account is called a:

A) Source document.
B) Journal.
C) Trial balance.
D) Chart of accounts.
E) General Journal.

Question 70

Identify the account below that is classified as an asset in a company's chart of accounts:

A) Accounts Receivable
B) Accounts Payable
C) Common Stock
D) Unearned Revenue
E) Service Revenue

Question 71

Identify the statement below that is correct.

A) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense.
B) Promises of future payment by the customer are called accounts receivable.
C) Increases and decreases in cash are always recorded in the common stock account.
D) An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
E) Accrued liabilities include accounts receivable.

Question 72

A debit is used to record an increase in all of the following accounts except:

A) Supplies
B) Cash
C) Accounts Payable
D) Dividends
E) Prepaid Insurance

Question 73

The record of all accounts and their balances used by a business is called a:

A) Journal.
B) Book of original entry.
C) General Journal.
D) Balance column journal.
E) Ledger.

Question 74

Prepaid expenses are generally:

A) Payments made for products and services that do not ever expire.
B) Classified as liabilities on the balance sheet.
C) Decreases in equity.
D) Assets that represent prepayments of future expenses.
E) Promises of payments by customers.

Question 75

A debit:

A) Always increases an account.
B) Is the right-hand side of a T-account.
C) Always decreases an account.
D) Is the left-hand side of a T-account.
E) Is not need to record a transaction.

Question 76

The right side of a T-account is a(n):

A) Debit.
B) Increase.
C) Credit.
D) Decrease.
E) Account balance.

Question 77

A company's ledger is:

A) A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item.
B) A journal in which transactions are first recorded.
C) A collection of documents that describe transactions and events entering the accounting process.
D) A list of all accounts a company uses with an assigned identification number.
E) A record containing all accounts and their balances used by the company.

Question 78

Identify the account below that is classified as a liability in a company's chart of accounts:

A) Cash
B) Unearned Revenue
C) Salaries Expense
D) Accounts Receivable
E) Supplies

Question 79

Identify the account below that is classified as an asset account:

A) Unearned Revenue
B) Accounts Payable
C) Supplies
D) Common Stock
E) Service Revenue

Question 80

The numbering system used in a company's chart of accounts:

A) Is the same for all companies.
B) Is determined by generally accepted accounting principles.
C) Depends on the source documents used in the accounting process.
D) Typically begins with balance sheet accounts.
E) Typically begins with income statement accounts.