Deck 2: Analyzing and Recording Transactions

Question 1

The chart of accounts is a list of all the accounts used by a company and a corresponding identification number.

Answer 1

True

Question 2

Debits increase both asset and expense accounts.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The first step in the analyzing and recording process is to analyze each transaction and event from source documents.

Question 5

As prepaid expenses are used up, the costs of these assets become expenses.

Question 6

According to the seller, a customer's promise to pay is called an account payable.

Question 7

Cash dividends should be treated as an expense to the business.

Question 8

An account balance is the difference between the debits and credits for an account including any beginning balance.

Question 9

Increases in liability accounts are recorded as debits.

Question 10

It is not necessary to keep separate accounts for all items of importance for business decisions.

Question 11

Preparation of a trial balance is the first step in the analyzing and recording process.

Question 12

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

Question 13

Dividends are a type of business expense.

Question 14

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

Question 15

Land and buildings are generally recorded in the same ledger account.

Question 16

Accounting records are also referred to as the books.

Question 17

Unearned revenues are classified as liabilities.

Question 18

Items such as sales slips, invoices, checks and purchase orders are source documents.

Question 19

When a company provides services for which cash will not be received until some future date, the company should record unearned revenue for the amount charged to the customer.

Question 20

Debit means the right-hand side of any account.

Question 21

Common Stock normally has a debit balance.

Question 22

Double entry accounting requires that the impact of each transaction be recorded in at least two accounts.

Question 23

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

Question 24

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

Question 25

Credits always increase account balances.

Question 26

Accounts are normally decreased by debits.

Question 27

Crediting an expense account decreases it.

Question 28

The dividends account normally has a credit balance since it is an equity account.

Question 29

When a company bills a customer for $600 for services rendered, the journal entry to record this transaction will include a $600 debit to Services Revenue.

Question 30

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

Question 31

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

Question 32

The debt ratio reflects the risk of a company to both its owners and creditors.

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

A debit entry is always favorable.

Question 38

A revenue account normally has a debit balance.

Question 39

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

Question 40

If a company pays cash to purchase land, the journal entry to record this transaction will include a debit to Cash.

Question 41

Hamilton Industries has liabilities of $105 million and total assets of $350 million. Its debt ratio is 33.3%.

Question 42

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

Question 43

Transactions are first recorded in the ledger.

Question 44

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

Question 45

IFRS requires that companies report four financial statements with explanatory notes: Balance Sheet; Income Statement; Statement of Changes in Equity and Statement of Cash Flows.

Question 46

The journal is known as a book of original entry.

Question 47

A trial balance that balances is not proof of complete accuracy in recording transactions.

Question 48

Another name for the balance sheet is the statement of financial position.

Question 49

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

Question 50

If cash was incorrectly debited for $100 instead of correctly credited for $100, the cash account is out of balance by $100.

Question 51

High financial leverage is always bad for a company's owners.

Question 52

Other names for the income statement are the earnings statement, statement of operations or a profit and loss statement.

Question 53

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

Question 54

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

Question 55

A compound journal entry affects no more than two accounts.

Question 56

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

Question 57

The accounting process begins with:

A) Analysis of business transactions and events
B) Preparation of financial statements and other reports
C) Summarizing the recorded effects of business transactions
D) Presentation of financial information to decision-makers
E) Preparation of the trial balance

Question 58

The balance sheet provides a link between beginning and ending income statements.

Question 59

Generally, the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts: assets, liabilities, equity, revenues and expenses.

Question 60

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

Question 61

The general ledger of a business

A) Is a collection of all accounts used in a company's information system
B) Must be kept in a computer file
C) A and B
D) Is a set standard not affected by a company's size and diversity
E) A, B and D

Question 62

Which of the following statements about the Cash account are true?

A) Because most companies earn their fees in cash, the cash account is categorized as revenue
B) For any given transaction Accounts Receivable and Cash can be used interchangeably because both accounts are measured in terms of cash
C) The cash account includes the value of any medium of exchange that a bank accepts for deposit
D) Both A and B are true statements
E) Both B and C are true statements

Question 63

A ledger is:

A) A record containing all accounts (with amounts) for a business
B) A journal in which transactions are first recorded
C) A collection of documents that describe transactions and events during the accounting process
D) A list of all accounts with their debit balances at a point in time
E) A list of all accounts a company uses and includes an identification number assigned to each account

Question 64

An account used to record the owner's investments in the business is called:

A) Dividends
B) Common Stock
C) Revenue
D) Expense
E) Liability

Question 65

Which of the following list of events properly reflects the early steps taken in the accounting process?

A) Record relevant transactions, Post journal information to ledger accounts Analyze each transaction, Prepare and analyze the trial balance
B) Post journal information to ledger accounts, Analyze each transaction, Post journal information to ledger accounts, Prepare and analyze the trial balance
C) Prepare and analyze the trial balance, Analyze each transaction, Post journal information to ledger accounts, Record relevant transactions
D) Analyze each transaction, Post journal information to ledger accounts, Record relevant transactions, Prepare and analyze the trial balance
E) Analyze each transaction, Record relevant transactions, Post journal information to ledger accounts, Prepare and analyze the trial balance

Question 66

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

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

Question 67

Source documents:

A) Include the ledger
B) Are the sources of accounting information
C) Must be in electronic form
D) Are based on accounting entries
E) Include the chart of accounts

Question 68

A collection of all accounts (with account 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 69

Prepaid expenses are:

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

Question 70

The account used to record the transfers of assets from a business to its stockholders is:

A) A revenue account
B) The retained earnings account
C) Common stock account
D) An expense account
E) A liability account

Question 71

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

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

Question 72

A debit is:

A) An increase in an account
B) The right-hand side of a T-account
C) A decrease in an account
D) The left-hand side of a T-account
E) An increase to a liability account

Question 73

Various types of documents and other papers that companies use when they conduct their business:

A) Are called source documents
B) Can include sales tickets
C) Are the source of information for recording accounting entries
D) Can be in electronic form
E) All of the above

Question 74

A written promise to pay a definite sum of money on a specific future date is a(n):

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

Question 75

Source documents include all of the following except:

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

Question 76

For what reason do most sellers require customers to have their receipts in order to exchange or return purchased items?

A) The receipt contains coded information which the seller needs to prepare and analyze the trial balance
B) Sellers wish to ensure that the sale in question was rung up on the register in the first place
C) This is a legal requirement mandated by a federal law
D) The receipt is serving as a promissory note
E) To create an environment in which customer's do not want to return items.

Question 77

Unearned revenues are:

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 retained earnings

Question 78

Which of the following statements 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 are called accounts payable
C) Increases and decreases in cash are always recorded in the retained earnings 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 79

A list of all accounts used by a company and the identification number assigned to each account is called a:

A) Ledger
B) Journal
C) Trial balance
D) Chart of accounts
E) General Journal

Question 80

A sales invoice:

A) Is a type of use document
B) Is used by sellers for recording purposes
C) Is not needed by buyers
D) Gives rise to an entry in the accounting process
E) Is not necessary in accounting