Deck 3: The Double-Entry Accounting System

Question 1

To record the acquisition of office supplies on account, an accountant would credit Office Supplies.

Answer 1

False
Explanation: This is false. The acquisition of office supplies would include a debit to office supplies, an asset account.

Question 2

To record an asset source transaction, an asset account would be credited and a liability or equity debited.

Answer 2

False
Explanation: This is false. An asset is increased in an asset source transaction, so the asset account is debited and the liability or equity is credited.

Question 3

Many companies choose to end their fiscal years during a part of the year when they expect low activity.

Answer 3

True
Explanation: This is true. It is easier to end a fiscal year in a period of low activity. For many companies, this is in January or February.

Question 4

The left side of a T-account is the credit side.

Question 5

An increase to a liability account is recorded with a credit entry.

Question 6

Debits decrease asset accounts.

Question 7

Double entry accounting requires that every entry must include at least one debit and at least one credit.

Question 8

The general journal is a list of a business's accounts and their account numbers.

Question 9

The balance in Retained Earnings is decreased by debiting the account.

Question 10

When a company receives cash in advance from a customer, it should debit Cash and credit Accounts Receivable.

Question 11

Generally accepted accounting principles require that a business's fiscal year must end on December 31.

Question 12

A list of a company's ledger accounts and their account numbers is a chart of accounts.

Question 13

A company's general ledger provides a chronological record of its business transactions.

Question 14

An increase to the account Dividends would be recorded as a debit; as a result, the account Dividends normally has a debit balance.

Question 15

The entry to record revenue earned on account includes a debit to accounts receivable and a credit to retained earnings.

Question 16

Source documents provide information that serves as the basis for entries into the accounting system. Examples of source documents include invoices and deposit tickets.

Question 17

The year for which companies prepare their financial statements is their fiscal year.

Question 18

The type of transaction that would be represented by a debit to one asset and a credit to another is an asset source transaction.

Question 19

A liability account normally has a debit balance.

Question 20

The three primary asset use transactions are incurring expenses, settling liabilities, and paying dividends.

Question 21

Which of the following accounts normally has a debit balance?

A)Accounts Payable
B)Unearned service revenue
C)Prepaid Insurance
D)Common Stock

Question 22

The left side of a T-account is known as the:

A)Equity side
B)Claims side
C)Debit side
D)Credit side

Question 23

Any error in the accounting system will cause the trial balance to be out of balance.

Question 24

Select the true statement (note: an answer may be true even if it does not identify all accounts that have debit balances).

A)Account numbers 2, 4, and 5 normally have debit balances.
B)Account numbers 1, 3, and 5 normally have debit balances.
C)Account numbers 2, 5, and 8 normally have debit balances.
D)Account numbers 4, 5, and 6 normally have debit balances.

Question 25

Wilson Company began the accounting period with a $16,000 debit balance in its accounts receivable account. During the accounting period, the company recorded revenue on account amounting to $44,000. The accounts receivable account at the end of the accounting period contained a $8,000 debit balance. Based on this information, the cash collected from accounts receivable during the period is

A)$42,000
B)$20,000
C)$40,000
D)$52,000

Question 26

The difference between the debit and credit side of a T-account is known as the

A)Net income.
B)Account balance.
C)Equality.
D)Trial balance.

Question 27

Select the true statement (note: an answer may be true even if it does not identify all accounts that appear on a particular statement).

A)Account numbers 1, 3, and 7 will appear on the balance sheet.
B)Account numbers 2, 4, and 5 will appear on the income statement.
C)Account numbers 2, 5, and 8 will appear on the statement of cash flows.
D)Account numbers 4, 5, and 6 will appear on the statement of changes in equity.

Question 28

At the end of its fiscal year, a company must adjust its accounting records for unrecorded accruals and deferrals before it can prepare financial statements.

Question 29

Journals are sometimes called books of original entry because transactions are recorded in journals before amounts are entered into the ledger.

Question 30

A company's adjusted trial balance provides the information needed to prepare the balance sheet and income statement.

Question 31

A trial balance can only be prepared at the end of the fiscal year, as part of the adjusting and closing processes.

Question 32

The financial statement ratio that may be of greatest interest to a company's stockholders is the amount of its return on equity.

Question 33

The right side of a T-account is known as the

A)Equity side.
B)Claims side.
C)Debit side.
D)Credit side

Question 34

Posting is the process of determining the balance in an account by subtracting debits and credits.

Question 35

Calculating the debt to assets ratio measures how efficiently a company is using its assets in the normal scope of business.

Question 36

An adjusting entry can never be an asset exchange transaction.

Question 37

Closing entries move all the yearly data for revenues, expenses, and dividends into the Retained Earnings account.

Question 38

A debit entry

A)increases assets.
B)increases expenses.
C)decreases liabilities.
D)all of these.

Question 39

A business's chart of accounts is prepared to verify the equality of debits and credits.

Question 40

A high value of the debt to asset ratio may indicate that a company has a high level of debt risk.

Question 41

Verne Company recorded a business event in T-accounts as follows: Which of the following reflects how this event affects the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 42

On October 1, 2013, Siegel Company recorded a journal entry debiting prepaid rent and crediting cash for $1,200 in payment for one year of office rent. At December 31, 2013, the financial statements should report:

A)Option A
B)Option B
C)Option C
D)Option D

Question 43

Which of the following is decreased with a debit?

A)Accounts Payable
B)Accounts Receivable
C)Prepaid Rent
D)Rent Expense

Question 44

Which of the following is increased with a debit?

A)Consulting Revenue
B)Supplies Expense
C)Accounts Payable
D)Common Stock

Question 45

Pena Corporation recorded a business event using T-accounts as follows: Which of the following reflects how this event affects the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 46

Haskins Company recorded a business event in these T-accounts: Which of the following choices accurately reflects how this event would affect the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 47

The employees of Acorn Company have worked the last two weeks of 2013, but the employees' wages have not been paid or recorded as of December 31, 2013. The adjusting entry that Acorn should make for these unpaid wages on December 31, 2013 is:

A)debit to Wages Expense and credit to Wages Payable.
B)debit to Wages Expense and credit to Cash.
C)debit to Wages Payable and credit to Wages Expense.
D)no entry is required until the employee is paid next perioD.Accruing wages will increase wages expense and increase wages payable, a liability. The journal entry would be a debit to wages expense and a credit to wages payable.

Question 48

Which account is increased by a credit to the account?

A)Accounts Receivable.
B)Prepaid Rent.
C)Service Revenue.
D)Supplies.

Question 49

Credit entries

A)increase the common stock account.
B)increase asset accounts.
C)decrease liability accounts.
D)all of these.

Question 50

The information in the following T-accounts indicates that

A)the company repaid a $850 debt.
B)the company loaned $850 to another company.
C)the company borrowed $850.
D)stockholders invested $850 cash in the corporation.

Question 51

The information in the following T-accounts of Gibson Company indicates that:

A)Cash has been paid out to a company that will provide future services to Gibson Company.
B)Cash has been received by Gibson for services that Gibson will provide in the future.
C)Gibson has provided services to a customer and the cash account has been increased.
D)None of these

Question 52

Domino Co. purchased land and paid the full purchase price in cash. The journal entry necessary to record this event includes a:

A)debit to Land and a credit to Cash.
B)debit to Cash and a credit to Land.
C)credit to Land and a credit to Cash.
D)debit to Land and a debit to Cash.

Question 53

On August 1, 2013, Jonas and Associates collected $18,000 in advance for legal services to be rendered for one year. Which of the following entries reflect the end of the year adjustment to reflect revenue earned?

A)
B)
C)
D)

Question 54

Which of the following is decreased with a credit?

A)Unearned Service Revenue
B)Consulting Revenue
C)Accounts Payable
D)Prepaid Rent

Question 55

Bates Corporation recorded the adjusting entry to recognize $4,000 of revenue previously recorded as unearned. Which of the following shows the proper entry using T-accounts?

A)
B)
C)
D)

Question 56

Which of the following is increased with a credit?

A)Salaries Expense
B)Prepaid Rent
C)Dividends
D)Salaries Payable

Question 57

The Billetts Company purchased $1,000 of supplies on account. After this transaction has been recorded in T-accounts, the $1,000 would appear

A)on the left side of the Supplies account.
B)on the right side of the Supplies account.
C)on the left side of the Accounts Payable account.
D)on the right side of the Cash account.

Question 58

The Greene Corporation recorded a business event using T-accounts as follows: Which of the following reflects how this event affects the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 59

Fenwick Company recorded $500 of accrued salaries expense. Which of the following shows the proper entry using T-accounts?

A)
B)
C)
D)

Question 60

The Warner Company issued common stock for $500,000 cash. Which of the following shows the proper entry using T-accounts?

A)
B)
C)
D)

Question 61

Ferris Company prepared a trial balance at December 31, 2013. A trial balance that balances

A)proves that all transactions have been properly recorded.
B)proves the equality of debits and credits.
C)can only be achieved after adjusting entries have been recorded.
D)proves that there are no missing transactions.

Question 62

The following is a random list of the accounts of Florida Company: If these accounts were presented in a trial balance, the total of the credit column would be equal to:

A)$56,100.
B)$58,100.
C)$57,100.
D)None of these

Question 63

Which of the following errors would cause the debit side of a trial balance to be larger than the credit side?

A)Revenue earned on account was recorded with a debit to Cash and a credit to Revenue.
B)Purchase of supplies on account was recorded with a credit to Supplies and a debit to Accounts Payable.
C)Land purchased with cash was recorded with a debit to the Land account and a credit to Accounts Payable.
D)None of these.

Question 64

If a $200 credit to Revenue was posted as a $200 debit to Salaries Expense:

A)the credit column of the trial balance would be $200 more than the debit column.
B)the credit column of the trial balance would be $400 more than the debit column.
C)the debit column of the trial balance would be $400 more than the credit column.
D)the debit column of the trial balance would be $200 more than the credit column.

Question 65

What effect will the following entry have on Retained Earnings?

A)Retained Earnings will increase by $2,550.
B)Retained Earnings will decrease by $2,550.
C)Retained Earnings will remain unchanged.
D)Retained Earnings will be transferred to the income statement.

Question 66

The following account balances prior to closing entries were taken from the records of Keswick Company: After closing entries at December 31, 2013, Retained Earnings will be:

A)$2,900.
B)$7,400.
C)$19,900.
D)$24,400.

Question 67

What transaction does the following general journal entry represent?

A)Provided services on account.
B)Paid cash owed to a supplier.
C)Collected cash from customers.
D)Borrowed money to support operating activities.

Question 68

Newcomb Company began operations on December 1, 2013. The following transactions were recorded in December: 1) The business received $3,000 cash from the issuance of common stock to its stockholders.
2) Provided services on account for $2,500.
3) Paid $1,500 cash for land.
4) Accrued $1,000 of salaries expenses.
5) Purchased $300 of supplies on account to be used in January.
6) Collected $1,300 from customers.
At December 31, 2011, the total debits in the company's adjusted trial balance would be

A)$6,800.
B)$5,300.
C)$2,700.
D)None of these.

Question 69

The following is a trial balance of Barnhart Company as December 31, 2013: Based on the trial balance, the total amount of assets appearing on the balance sheet would be:

A)$15,750.
B)$12,500.
C)$21,350.
D)$23,200.

Question 70

The closing entry for the Dividends account would involve which of the following?

A)A debit to Retained Earnings
B)A debit to Dividends
C)A credit to Common Stock
D)A credit to Cash

Question 71

During a company's first year, the asset account, Office Supplies, was debited for $2,300 for the purchases of supplies. At year end, office supplies on hand were counted and determined to be $825. The proper adjusting entry crediting supplies will

A)increase liabilities and decrease assets by $1,475.
B)decrease assets and increase expenses by $825.
C)increase expenses and decrease assets by $1,475.
D)have no effect on net income or the accounting equation.

Question 72

The trial balance of Grundy Company at the end of the accounting period, immediately prior to recording closing entries, showed: After closing entries, the Retained Earnings account will have a balance of

A)$3,600
B)$4,600
C)$18,600
D)$17,600

Question 73

Which of the following statements is true?

A)Adjusting entries are recorded after the closing entries have been recorded.
B)The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet after closing entries have been posted to the general ledger.
C)Debits are equal to credits only after closing entries have been made.
D)Equal totals in a trial balance guarantees that no errors were made in the recording process.

Question 74

Adjusting entries are made at the end of the period because of the need to

A)adjust the balance in the cash account for the effects of all daily transactions with customers and creditors.
B)assure that all revenues and expenses are recognized in the period in which they are earned or incurred.
C)assure that debits are equal to credits prior to preparing the trial balance.
D)prepare revenue and expense accounts for recording transactions in the next accounting period by bringing the balances to zero.

Question 75

On November 1, 2013, Schumacher Company paid $1,200 in advance for an insurance policy that covered the company for six months. Assuming that Schumacher recorded this purchase as an asset, the adjusting entry required on December 31, 2013 would include:

A)a debit to Prepaid Insurance for $1,200.
B)a credit to Prepaid Insurance for $1,200.
C)a credit to Insurance Expense for $400.
D)a debit to Insurance Expense for $400.

Question 76

Explain how the following general journal entry affects the accounting equation.

A)Both assets and equity increase.
B)Both liabilities and assets increase.
C)Assets increase and liabilities decrease.
D)Liabilities increase and equity decreases.

Question 77

At the end of 2013, Vortex Company's adjusted trial balance showed a zero balance in retained earnings. What is the most likely explanation for this?

A)Vortex Company reported zero net income in 2013.
B)2013 was Vortex Company's first year in business.
C)Vortex Company's trial balance will be out of balance until closing entries are made.
D)An error must have been made in preparing Vortex's trial balance.

Question 78

Magnum Corporation earned net income of $32,000 and paid cash dividends of $8,500 to its stockholders. Which of the following choices reflects the effect of closing entries on Magnum's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 79

What statement is true regarding the trial balance?

A)A balance of debits and credits ensures that all transactions have been recorded correctly.
B)The income statement is prepared using the post-closing trial balance.
C)Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance.
D)Trial balances are only prepared at the end of an accounting perioD.Debiting the accounts receivable account instead of the cash account would not cause the trial balance to be out of balance. It would only cause the balances in those two accounts to be inaccurate.

Question 80

Which one of the following would not be included in a closing entry at the end of the accounting year?

A)A credit to rent expense
B)A debit to service revenue
C)A debit to unearned revenue
D)A credit to salaries expense