Deck 2: Analyzing for Business Transactions

Question 1

Stockholder investments always decrease equity.

Answer 1

False

Question 2

"Unearned" accounts are liabilities that must be fulfilled.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Dividends always decrease equity.

Question 9

Dividends distributed to stockholders should be treated as an expense of the business.

Question 10

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

Question 11

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

Question 12

Source documents identify and describe transactions and events entering the accounting process.

Question 13

Unearned revenues are classified as liabilities.

Question 14

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

Question 15

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

Question 16

Dividends paid to stockholders are a business expense.

Question 17

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

Question 18

Revenues always increase equity.

Question 19

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

Question 20

Expenses always decrease equity.

Question 21

The dividends account normally has a debit balance.

Question 22

Crediting an expense account decreases it.

Question 23

Increases in liability accounts are recorded as debits.

Question 24

A debit entry is always an increase in the account.

Question 25

Debits increase asset and expense accounts.

Question 26

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 27

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

Question 28

Debit means increase and credit means decrease for all accounts.

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

If a company provides services to a customer on credit,the company providing the service should credit Accounts Receivable.

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

Credits always increase account balances.

Question 36

A revenue account normally has a debit balance.

Question 37

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

Question 38

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

Question 39

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

Question 40

Asset accounts are decreased by debits.

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

The detail of individual revenue and expense accounts is reported on the statement of retained earnings.

Question 48

The journal is known as a book of original entry.

Question 49

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

Question 50

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 51

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 52

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

Question 53

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

Question 54

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 55

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

Question 56

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

Question 57

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 58

An income statement is also called an earnings statement,a statement of operations or a profit and loss statement.

Question 59

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

Question 60

If the common stock account had a $10,000 credit balance at the beginning of the period,and during the period,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 61

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

Question 62

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 63

Neither U.S.GAAP nor IFRS require the use of accrual basis accounting.

Question 64

Identify the account used by businesses to record the transfer of assets from a business to its stockholders:

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

Question 65

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 66

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 67

Which of the following statements is not true:

A) Accounts receivable are held by a seller.
B) Accounts receivable arise from credit sales.
C) Accounts receivable are increased by customer payments.
D) Accounts receivable are classified as assets.
E) Accounts receivable are increased by billings to customers.

Question 68

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 (or General Ledger).

Question 69

The amount of net income is added on the statement of retained earnings.

Question 70

Unearned revenues refer to a(n):

A) Asset that will be used over time.
B) Expense incurred because a customer has paid in advance.
C) Liability that is settled in the future when a company delivers its products or services.
D) Increase in revenues as a result of delivering products or services to a customer.
E) Decrease in an asset.

Question 71

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

Question 72

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 73

Prepaid accounts (also called prepaid expenses)are generally:

A) Payments made for products and services that never 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 74

An account used to record 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 75

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 76

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 77

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 common stock.

Question 78

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

Question 79

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 80

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.