Understanding Asset, Liability, Equity, Revenue, and Expense Accounts

1. Chapter 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts

2. Question 1 • The purchase of an asset (like Equipment) on account will • increase total liabilities and decrease total assets. • have no effect on total assets or total liabilities. • increase total assets and increase total liabilities. • increase total assets and increase owner's equity. • increase total assets and decrease owner's equity.

3. Question 2 • Capital represents the owner's investment, or equity, in a business. • True • False

4. Question 3 • Which of the following is not considered an account? • Equipment • Revenues • Accounts Payable • Cash • Accounts Receivable

5. Question 4 • An owner can invest cash or other assets of value in the business. • True • False

6. Question 5 • When the rent for the business is paid with a check, • Cash is decreased and Rent Expense is decreased. • Cash is decreased and Rent Income is increased. • Cash is decreased and Rent Expense is increased. • Cash is decreased and Accounts Payable is decreased. • Cash is increased and Rent Expense is decreased.

7. Question 6 • When a business receives a payment from a charge customer, the revenue account is not affected. • True • False

8. Question 7 • Which of the following is a form of Revenue? • A check paying a mortgage • A credit purchase invoice • Credit sales to charge customers • A cash purchase invoice • A check paying utilities

9. Question 8 • The amounts owed by charge customers are recorded in the Accounts Receivable account. • True • False

10. Question 9 • The purchase of supplies for cash will • increase Supplies and decrease Cash. • increase Supplies Expense and decrease Cash. • decrease Cash and increase Accounts Payable. • increase Supplies Expense and increase Accounts Payable. • decrease Cash and increase Capital.

11. Question 10 • People who loan money to a company are considered the company’s debtors. • True • False

12. Chapter 2 T Accounts, Debits and Credits, Trial Balance, and Financial Statements

13. Question 11 • The normal balance of an account is on the • plus side. • left side. • debit side. • right side. • credit side.

14. Question 12 • An increase in an expense is recorded as a debit. • True • False

15. Question 13 • Which of the following classifications of accounts has/have a normal credit balance? • Drawing • Revenues • Liabilities • Revenues and liabilities • All of these

16. Question 14 • A verification of the equality of debits and credits in the ledger at the end of a fiscal period is called a balance sheet. • True • False

17. Question 15 • The receipt of cash on account from a customer should be recorded as • a debit to Cash and a credit to Accounts Payable. • a debit to Cash and a credit to Income from Services. • a debit to Cash and a credit to Accounts Receivable. • a debit to Cash and a credit to the Capital account. • none of these.

18. Question 16 • Recording $520 as $5.20 is an example of a slide. • True • False

19. Question 17 • A purchase of supplies on account should be recorded as • a debit to Supplies Expense and a credit to Cash. • a debit to Accounts Payable and a credit to Supplies. • a debit to Supplies Expense and a credit to Accounts Payable. • a debit to Supplies Expense and a credit to Accounts Receivable. • none of these.

20. Question 18 • The third line in the heading of a balance sheet indicates one specific date. • True • False

21. Question 19 • To locate an error in a trial balance, • re-add. • look for the correct location of normal balances. • verify figures transferred from the account to the trial balance. • check footings and balances of the accounts. • do all of these.

22. Question 20 • To prepare the financial statements for a business, you should prepare the balance • sheet first, followed by the income statement, and then the statement of owner’s equity. • True • False

23. Chapter 3 The General Journal and the General Ledger

24. Question 21 • A book of original entry is known as • a ledger account. • a general ledger • a trial balance. • a journal. • a T account.

25. Question 22 • The explanation for a transaction in the general journal in a manual system is indented under the credit part of the entry. • True • False

26. Question 23 • When posting from the journal to the ledger, the accountant failed to post a $52 debit to Cash. The effect of this error will be that • the amounts in the journal will be in error. • the trial balance will not balance. • the total debits in the trial balance will be larger than the total credits. • the Cash account balance will be overstated. • the trial balance will not be affected.

27. Question 24 • The Item column in the ledger is mostly used at the end of a financial period to make brief notations about end-of-period entries. • True • False

28. Question 25 • If the number of an account is 211, this probably means that the account is • the first account in the Owner's Equity section. • the first account in the Assets section. • the first account in the Revenues section. • the first account in the Liabilities section. • the first account in the Expenses section.

29. Question 26 • A ledger account contains a complete record of the transaction activity in that account. • True • False

30. Question 27 • A cash payment of $130 on account was recorded as a $310 debit to Accounts Payable and a $310 credit to Cash. The necessary correcting entry is • debit Cash, $180; credit Accounts Receivable, $180. • debit Accounts Payable, $180; credit Cash, $180. • debit Cash, $180; credit Accounts Payable, $180. • debit Accounts Receivable, $180; credit Cash, $180. • debit Cash $130, credit Accounts Payable, $130.

31. Question 28 • A number in the Post. Ref. column in the ledger account indicates that the balance has been recorded in the trial balance. • True • False

32. Question 29 • Which of the following errors will probably show up in the preparation of a trial balance? • Posting the debit of a journal entry as a credit and the credit as a debit • Failure to record an entire entry in the journal • Failure to post an entire entry in the ledger • Failure to post part of an entry • Posting the correct amount to the incorrect credit account

33. Question 30 • Failure to post an entire transaction from the journal to the ledger will cause an error in the trial balance. • True • False

34. Chapter 4 Adjusting Entries and the Work Sheet

35. Question 31 • Accrued wages are • wages that have been paid. • wages that have been earned by employees but not paid. • wages that have been neither earned by employees nor paid. • wages that were earned by employees and have been paid. • wages that have been paid but not earned by employees.

36. Question 32 • Financial statements are prepared from the Adjusted Trial Balance columns of a work sheet. • True • False

37. Question 33 • If equipment cost $20,000 and accumulated depreciation amounts to $6,000, the book value of the equipment is • $26,000. • $6,000. • $14,000. • $20,000. • Cannot be determined with the information provided

38. Question 34 • The owner's personal withdrawals for the year cause a decrease in net income. • True • False

39. Question 35 • Failure to record the entry for accrued wages results in • wages payable being overstated. • net income being understated. • wages expense being understated. • total assets being understated. • total assets being overstated.

40. Question 36 • The cost of insurance used will appear in the Adjustments Debit column, the Adjusted Trial Balance Debit column, and the Income Statement Debit column. • True • False

41. Question 37 • The difference between the balance of the Equipment account and its related Accumulated Depreciation account is called • trade-in value. • a contra asset. • book value. • an accrued asset. • an accrued liability.

42. Question 38 • The purpose of a work sheet is to enable the accountant to prepare the financial statements. • True • False

43. Question 39 • If total credits exceed total debits in the Balance Sheet columns of a work sheet, • a mistake has been made. • a net income has occurred. • a net loss has occurred. • no conclusion can be drawn until the closing entries have been made. • assets exceed liabilities.

44. Question 40 • The book value of an asset is always equal to the asset’s true market value. • True • False

45. Chapter 5 Closing Entries and the Post-Closing Trial Balance

46. Question 41 • Which of the following sequences of documents or records describes the proper sequence in the accounting cycle? • Source documents, journal, ledger, work sheet, financial statements • Source documents, work sheet, journal, ledger, financial statements • Source documents, ledger, journal, work sheet, financial statements • Work sheet, source documents, financial statements, ledger, journal • Financial statements, journal, ledger, source documents, work sheet

47. Question 42 • Both income statement and balance sheet accounts are closed at the end of a fiscal period. • True • False

48. Question 43 • The owner's Drawing account for the current period is closed to • the Cash account. • the Income Summary account. • the Income from Services account. • the owner's Capital account. • the Wages Expense account.

49. Question 44 • The balance of Wages Payable will normally appear on the balance sheet. • True • False

50. Question 45 • Closing entries are prepared • before adjusting entries. • during the month. • the first day of the new accounting period. • after adjusting entries. • at the option of the company's accounting department.