Deck 2: The Accounting Information System

Question 1

An account receivable can best be defined as:

A) A payment to the owners.
B) A sale of goods and services.
C) A resource owned by the company.
D) An amount owed by the company.

Answer 1

C

Question 2

Pumpkin Inc. sold $500 in pumpkins to a customer on account on January 1. On January 11 Pumpkin collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the collection of cash?

A) No net effect to the accounting equation.
B) Decrease assets and increase liabilities.
C) Increase assets and increase liabilities.
D) Decrease assets and decrease liabilities.

Answer 2

A

Question 3

Receiving assets from customers before services are performed results in:

A) Prepaid Assets.
B) Service Revenue.
C) Unearned Revenues.
D) Accounts Receivable.

Answer 3

C

Question 4

Which of the following is not part of measuring external transactions?

A) Using source documents to analyze accounts affected.
B) Recording transactions.
C) Making payments on all amounts owed.
D) Analyzing transactions for their effect on the accounting equation.

Question 5

When cash payments are made to stockholders, what is the effect on the company's accounts?

A) Cash decreases and dividends increase.
B) Cash increases and dividends decrease.
C) Cash decreases and common stock decreases.
D) Cash increases and common stock increases.

Question 6

Investments by stockholders have what effect on the accounting equation?

A) Assets increase and liabilities increase.
B) Expenses increase and liabilities increase.
C) Assets increase and revenues increase.
D) Assets increase and stockholders' equity increases.

Question 7

Which of the following would increase assets and increase liabilities?

A) Provide services to customers on account.
B) Purchase office supplies on account.
C) Pay dividends to stockholders.
D) Received a utility bill but do not pay for it.

Question 8

For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:

A) Assets = Liabilities + Stockholders' Equity.
B) Cash Increases = Cash Decreases.
C) Revenues = Expenses + Dividends.
D) Assets = Liabilities.

Question 9

Which of the following is not an asset account?

A) Supplies.
B) Accounts Payable.
C) Equipment.
D) Accounts Receivable.

Question 10

Amounts owed to suppliers for supplies purchased on account are defined as:

A) Cash.
B) Accounts Receivable.
C) Accounts Payable.
D) Supplies Expense.

Question 11

Which of the following is not possible when recording a transaction?

A) Liabilities increase and assets decrease.
B) Stockholders' equity increases and assets increase.
C) One asset increases and another asset decreases.
D) Stockholders' equity decreases and assets decrease.

Question 12

When a company incurs workers' salaries but does not pay them, how will the basic accounting equation be affected?

A) Stockholders' equity decreases.
B) Revenues decrease.
C) Expenses decrease.
D) Liabilities decrease.

Question 13

The following amounts are reported in the ledger of Mariah Company: $$\begin{array} { l r } \text { Assets } & \$ 80,000 \\\text { Liabilities } & 36,000 \\\text { Retained Earnings } & 12,000\end{array}$$ What is the balance in the Common Stock account?

A) $44,000.
B) $32,000.
C) $48,000.
D) $42,000.

Question 14

A revenue has what effect on the accounting equation?

A) Increase liabilities.
B) Decrease assets.
C) Increase stockholders' equity.
D) No effect.

Question 15

An expense has what effect on the accounting equation?

A) Decrease liabilities.
B) Decrease stockholders' equity.
C) Increase assets.
D) No effect.

Question 16

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits?

A) Use source documents to determine accounts affected by the transaction.
B) Prepare a trial balance.
C) Analyze the impact of the transaction on the accounting equation.
D) Post the transaction to the T-account in the general ledger.

Question 17

Receiving cash from an account receivable:

A) Increases a revenue and decreases an asset.
B) Decreases a liability and increases an asset.
C) Increases an asset and increases a revenue.
D) Increases one asset and decreases another asset.

Question 18

External events include all of the following except:

A) Paying employees' salaries.
B) Purchasing equipment.
C) Using office supplies.
D) Collecting an account receivable.

Question 19

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

A) Decrease stockholders' equity and increase assets.
B) Increase liabilities and increase assets.
C) Decrease assets and decrease liabilities.
D) Decrease assets and decrease stockholders' equity.

Question 20

A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true?

A) The company records service revenue on October 15.
B) The company records cash collection November 20.
C) The company records an unearned revenue on October 15.
D) The company records nothing on October 15.

Question 21

Consider the following transactions: Issued common stock for cash.
Purchased equipment by signing a note payable.
Provided services to customers on account.
Collected cash from customers on account.
How many of these four transactions increased the given company's total liabilities?

A) One.
B) Two.
C) Three.
D) Four.

Question 22

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash.
2) Purchased land for $12,000, signing a note payable for the full amount.
3) Purchased office equipment for $1,200 cash.
4) Received cash of $14,000 for services provided to customers during the month.
5) Purchased $300 of office supplies on account.
6) Paid employees $10,000 for their first month's salaries.
How many of these transactions decreased Gotebo's total assets?

A) One.
B) Two.
C) Three.
D) Four.

Question 23

The Unearned Revenue account is shown in which statement?

A) Income statement.
B) Statement of cash flows.
C) Balance sheet.
D) Statement of stockholders' equity.

Question 24

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash.
2) Purchased land for $12,000, signing a note payable for the full amount.
3) Purchased office equipment for $1,200 cash.
4) Received cash of $14,000 for services provided to customers during the month.
5) Purchased $300 of office supplies on account.
6) Paid employees $10,000 for their first month's salaries.
What was the total amount of Gotebo's liabilities following these six transactions?

A) $12,300.
B) $27,300.
C) $22,600.
D) $15,500.

Question 25

Purchasing supplies for cash has what effect on the accounting equation?

A) Increase assets.
B) Decrease stockholders' equity.
C) Decrease liabilities.
D) No effect.

Question 26

Purchasing office equipment on account has what impact on the accounting equation?

A) Stockholders' equity decreases and assets increase.
B) Liabilities increase and assets increase.
C) Assets decrease and liabilities decrease.
D) Assets increase and stockholders' equity increases.

Question 27

Purchasing office supplies on account will:

A) Not change assets.
B) Increase assets and decrease liabilities.
C) Increase assets and increase liabilities.
D) Increase assets and increase stockholders' equity.

Question 28

On January 1, Brad Inc. sold $30,000 in products to a customer on account. Then, on January 10, Brad collected the cash on that account. What is the impact on Brad's accounting equation from the collection of cash on January 10?

A) No net effect to the accounting equation.
B) Assets increase and liabilities decrease.
C) Assets decrease and liabilities decrease.
D) Assets increase and stockholders' equity increases.

Question 29

On September 30, MFP Co. paid employee salaries $7,000, including $1,000 it owed to its employees last month. What are the effects of this transaction on the accounting equation?

A) Expenses increased, liabilities increased, and assets increased.
B) Assets decreased, liabilities decreased, and expenses increased.
C) Assets decreased, expenses decreased, and liabilities increased.
D) Expenses decreased, liabilities decreased, and assets decreased.
E) Assets increased, expenses increased, and liabilities decreased.

Question 30

Providing services and receiving cash will:

A) Increase assets and increase stockholders' equity.
B) Increase assets and increase liabilities.
C) Decrease assets and increase liabilities.
D) Decrease liabilities and increase stockholders' equity.

Question 31

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash.
2) Purchased land for $12,000, signing a note payable for the full amount.
3) Purchased office equipment for $1,200 cash.
4) Received cash of $14,000 for services provided to customers during the month.
5) Purchased $300 of office supplies on account.
6) Paid employees $10,000 for their first month's salaries.
What was the balance of Gotebo's Cash account following these six transactions?

A) $29,800.
B) $19,300.
C) $17,800.
D) $22,400.

Question 32

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash.
2) Purchased land for $12,000, signing a note payable for the full amount.
3) Purchased office equipment for $1,200 cash.
4) Received cash of $14,000 for services provided to customers during the month.
5) Purchased $300 of office supplies on account.
6) Paid employees $10,000 for their first month's salaries.
How many of these transactions increased Gotebo's liabilities?

A) Four.
B) Three.
C) Two.
D) One.

Question 33

Which of the following transactions causes a decrease in stockholders' equity?

A) Pay dividends to stockholders.
B) Obtain cash by borrowing from a local bank.
C) Provide services to customers on account.
D) Purchase office equipment for cash.

Question 34

Which of the following is NOT possible for a business transaction?

A) Increase assets and decrease revenue.
B) Decrease assets and increase expense.
C) Increase liabilities and increase expense.
D) Decrease liabilities and increase revenue.

Question 35

Consider the following transactions: Issued common stock for cash.
Purchased equipment by signing a note payable.
Paid rent for the current month.
Collected cash from customers on account.
How many of these four transactions increased the given company's total assets?

A) One.
B) Two.
C) Three.
D) Four.

Question 36

When a company provides services on account, the accounting equation would be affected as follows:

A) Assets increase.
B) Revenues increase.
C) Assets increase and liabilities decrease.
D) Assets increase and stockholders' equity increases.

Question 37

If a company provides services on account, which of the following is true?

A) Expenses increase.
B) Liabilities increase.
C) Stockholders' equity increases.
D) Assets decrease.

Question 38

How many of the following events would require an expense to be recorded? Ordering office supplies
Hiring a receptionist
Paying employee salaries for the current month
Receiving but not paying a current utility bill
Paying for insurance in advance

A) One.
B) Two.
C) Three.
D) Four.

Question 39

When a payment is made on an account payable:

A) Assets and stockholders' equity decrease.
B) Assets and liabilities decrease.
C) Liabilities and revenues decrease.
D) Assets and expenses decrease.

Question 40

Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of $10,000 on April 1, and that the company had the following transactions during April. Issued common stock for cash, $5,000.
Provided services to customers on account, $2,000.
Provided services to customers in exchange for cash, $900.
Purchased equipment and paid cash, $4,300.
Paid April rent, $800.
Paid workers salaries for April, $700.
What was Sallisaw's retained earnings balance at the end of April?

A) $11,400.
B) $12,100.
C) $16,400.
D) Some other amount.

Question 41

Liabilities normally carry a _______ balance and are shown in the _________.

A) Debit; Statement of stockholders' equity
B) Debit; Income statement
C) Credit; Balance sheet
D) Debit; Balance Sheet

Question 42

Dividends normally carry a _______ balance and are shown in the _________.

A) Debit; Statement of stockholders' equity
B) Debit; Income statement
C) Credit; Balance sheet
D) Debit; Balance Sheet

Question 43

Which of the following is possible for a particular business transaction?

A) Increase assets; Decrease liabilities
B) Decrease assets; Increase assets
C) Decrease assets; Increase stockholders' equity
D) Decrease liabilities; Increase expenses

Question 44

Which of the following accounts has a credit balance?

A) Salaries Expense.
B) Income Tax Payable.
C) Land.
D) Prepaid Rent.

Question 45

Which of the accounts are increased with a debit and decreased with a credit?

A) Liabilities, stockholders' equity, and revenues.
B) Dividends, liabilities, and assets.
C) Expenses, dividends, and stockholders' equity.
D) Assets, dividends, and expenses.

Question 46

Expenses normally carry a _______ balance and are shown in the _________.

A) Debit; Statement of stockholders' equity
B) Debit; Income statement
C) Credit; Balance sheet
D) Debit; Balance Sheet

Question 47

Which of the following is/are true about a "credit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance.
II) It represents a decrease to assets.
III) It represents an increase to liabilities.
IV) It is on the right side of a T-account.

A) I and II.
B) IV only.
C) I, II, and III.
D) I, II, III, and IV.

Question 48

When a company issues common stock for cash, what is the effect on the accounting equation for the company?

A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Assets decrease and liabilities decrease.
D) Liabilities decrease and stockholders' equity increases.

Question 49

If the liabilities of a company increased by $55,000 during a month and the stockholders' equity decreased by $21,000 during that same month, did assets increase or decrease and by how much?

A) $34,000 increase
B) $55,000 increase
C) $34,000 decrease
D) $76,000 increase

Question 50

Which of the following accounts would normally have a debit balance?

A) Accounts Payable, Service Revenue, Common Stock.
B) Salaries Payable, Unearned Revenue, Utilities Expense.
C) Income Tax Payable, Service Revenue, Dividends.
D) Cash, Delivery expense, Dividends.

Question 51

Providing services to customers on account would affect the balances reported in which financial statement(s)?

A) Income statement
B) Statement of stockholders' equity
C) Balance sheet
D) All of the financial statements would be affected

Question 52

Which of the following accounts would normally have a debit balance and appear in the balance sheet?

A) Accounts Receivable.
B) Unearned Revenue.
C) Salaries Expense.
D) Dividends.

Question 53

Which of the accounts are decreased on the debit side and increased on the credit side?

A) Liabilities, stockholders' equity, and revenues.
B) Dividends, liabilities, and assets.
C) Expenses, dividends, and stockholders' equity.
D) Assets, dividends, and expenses.

Question 54

Which of the following accounts would normally have a credit balance?

A) Accounts Payable, Service Revenue, Common Stock.
B) Salaries Payable, Unearned Revenue, Delivery Expense.
C) Income Tax Payable, Service Revenue, Dividends.
D) Cash, Repairs and Maintenance Expense, Dividends.

Question 55

Which of the following transactions would cause a decrease in both assets and stockholders' equity?

A) Paying insurance premium for the next two years.
B) Purchasing office equipment on account.
C) Paying advertising for the current month.
D) Providing installation services to customers.

Question 56

Which of the following is/are true about a "debit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance.
II) It represents an increase to assets.
III) It represents a decrease to liabilities.
IV) It is on the right side of a T-account.

A) I and II.
B) IV only.
C) I, II, and III.
D) I, II, III, and IV.

Question 57

Which of the following accounts has a debit balance?

A) Accounts Payable.
B) Unearned Revenue.
C) Service Revenue.
D) Salaries Expense.

Question 58

Consider the following list of accounts: Accounts Payable
Cash
Prepaid Rent
Common Stock
Salaries Payable
Equipment
Supplies
Rent Expense
How many of these accounts have a normal credit balance?

A) Two.
B) Three.
C) Four.
D) Five.

Question 59

Consider the following accounts: Utilities Expense
Accounts Payable
Service Revenue
Common Stock
How many of these accounts are increased with debits?

A) One.
B) Two.
C) Three.
D) Four.

Question 60

Consider the following list of accounts: $$\begin{array} { l l } \text { Cash } & \text { Retained Earnings } \\\text { Service Revenue } & \text { Utilities Expense } \\\text { Salaries Expense } & \text { Accounts Receivable } \\\text { Accounts Payable } & \text { Common Stock } \\\text { Equipment } & \text { Dividends }\end{array}$$ How many of these accounts have a normal debit balance?

A) Four.
B) Five.
C) Six.
D) Seven.

Question 61

Consider the following accounts: Dividends
Insurance Expense
Cash
Service Revenue
How many of these accounts are increased with credits?

A) One.
B) Two.
C) Three.
D) Four.

Question 62

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:

A) Debit Rent Expense, credit Cash.
B) Debit Prepaid Rent, credit Rent Expense.
C) Debit Prepaid Rent, credit Cash.
D) Debit Cash, credit Prepaid Rent.

Question 63

When a company pays utilities of $1,800 in cash, the transaction is recorded as:

A) Debit Utilities Expense $1,800, credit Utilities Payable $1,800.
B) Debit Utilities Payable $1,800, credit Cash $1,800.
C) Debit Cash $1,800, credit Utilities Expense $1,800.
D) Debit Utilities Expense $1,800, credit Cash $1,800.

Question 64

Which one of the following accounts will have a credit balance?

A) Dividends
B) Salary Expense
C) Supplies
D) Common Stock

Question 65

Childers Service Company provides services to customers totaling $3,000, for which it billed the customers. How would the transaction be recorded?

A) Debit Cash $3,000, credit Service Revenue $3,000.
B) Debit Accounts Receivable $3,000, credit Service Revenue $3,000.
C) Debit Accounts Receivable $3,000, credit Cash $3,000.
D) Debit Service Revenue $3,000, credit Accounts Receivable $3,000.

Question 66

Providing services on account would be recorded with a:

A) Debit to Service Revenue.
B) Credit to Accounts Receivable.
C) Credit to Accounts Payable.
D) Debit to Accounts Receivable.

Question 67

Tyler Incorporated receives $150,000 from investors for issuing them shares of its common stock. Tyler Incorporated records this transaction with a:

A) Debit to Investments.
B) Credit to Retained Earnings.
C) Credit to Common Stock.
D) Credit to Service Revenue.

Question 68

Daniel Dino Restaurant owes workers' salaries of $15,000. This would be recorded as:

A) Debit Salaries Expense, credit Cash.
B) Debit Salaries Payable, credit Cash.
C) Debit Salaries Expense, credit Salaries Payable.
D) Debit Salaries Payable, credit Salaries Expense.

Question 69

A company received a bill for newspaper advertising services received, $400. The bill will be paid in 10 days. How would the transaction be recorded today?

A) Debit Advertising Expense $400, credit Accounts Payable $400.
B) Debit Accounts Payable $400, credit Advertising Expense $400.
C) Debit Accounts Payable $400, credit Cash $400.
D) Debit Advertising Expense $400, credit Cash $400.

Question 70

Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a:

A) Debit to Investments.
B) Credit to Retained Earnings.
C) Credit to Notes Payable.
D) Credit to Interest Expense.

Question 71

Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as:

A) Debit Equipment, credit Cash.
B) Debit Cash, credit Notes Payable.
C) Debit Notes Payable, credit Equipment.
D) Debit Equipment, credit Notes Payable.

Question 72

The following statements pertain to recording transactions. Which of them are true? I. Total debits should equal total credits.
II) It is possible to have multiple debits or credits in one journal entry.
III) Assets are always listed first in journal entries.
IV) Some journal entries will have debits only.

A) I only.
B) I and II.
C) I, II, and IV.
D) II, III, and IV.

Question 73

Which of the following is not a possible journal entry?

A) Credit assets; Debit expenses.
B) Debit assets; Debit stockholders' equity.
C) Credit revenues; Debit assets.
D) Debit expenses; Credit liabilities.

Question 74

Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit are:

A) Debit Insurance Expense $18,000, credit Prepaid Insurance $18,000.
B) Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000.
C) Debit Prepaid Insurance $18,000, credit Cash $18,000.
D) Debit Cash $18,000, credit Prepaid Insurance $18,000.

Question 75

Incurring an expense for advertising on account would be recorded by:

A) Debiting liabilities.
B) Crediting assets.
C) Debiting an expense.
D) Debiting assets.

Question 76

When a company pays $2,500 dividends to its stockholders, the transaction should be recorded as:

A) Debit Cash; credit Dividends.
B) Debit Retained Earnings; credit Dividends.
C) Debit Dividends; credit Cash.
D) Debit Dividends; credit Accounts Payable.

Question 77

Summer Leasing received $12,000 for 24 months rent in advance. How should Summer record this transaction?

A) Debit Prepaid Rent; credit Rent Expense.
B) Debit Cash; credit Unearned Revenue.
C) Debit Cash; credit Service Revenue.
D) Debit Rent Expense; credit Cash.

Question 78

Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as:

A) Debit Service Revenue, credit Cash.
B) Debit Cash, credit Service Revenue.
C) Debit Cash, credit Accounts Receivable.
D) Debit Accounts Receivable, credit Service Revenue.

Question 79

Jerome purchased a building for his business by signing a note to pay the amount due over the next ten years. Which of the following correctly describes how to record this transaction?

A) Debit assets, credit liabilities.
B) Debit assets, credit stockholders' equity.
C) Debit liabilities, credit assets.
D) Debit expenses, credit liabilities.

Question 80

The owner of an office building should report rent collected in advance as a debit to Cash and a credit to:

A) A liability.
B) An asset other than Cash.
C) A revenue.
D) An owners' equity.