Accounting 189 Test #2

The total revenue for the month of June amounted to $7,500; total expenses amounted to $3,500; and withdrawals amounted to $600. The net income for the month amounted to

$4,000.

The balance sheet reports

. liabilities.

Which of the following is a normal operating cycle of a business?

The period of time required to purchase supplies and services and convert them back into cash

Instead of T accounts, businesses are more likely to use a

four-column account.

The process of copying the dates and dollar amounts from the journal to the ledger is known as

posting. The process of copying the dates and dollar amounts from the journal to the ledger is known as posting.

You are the accounting clerk for a plumber. You determine the expired insurance for the month to be $400. The Trial Balance column for Prepaid Insurance shows a debit of $1,600. Which of the following will be entered in the Adjusted Trial Balance columns for Prepaid Insurance?

$1,200 in the Adjusted Trial Balance Debit column Feedback Area. The $1,600 balance in the Trial Balance Debit column will be decreased by a $400 entry in the Adjustments Credit column, which will result in a $1,200 entry in the Adjusted Trial Balance Debit column for Prepaid Insurance.

Assume the running balance for Accounts Receivable is a debit balance of $2,250. The business received $750 from a client for services performed on account. After journalizing and posting this transaction to the ledger, what is the new running balance of Accounts Receivable?

$1,500, debit. The beginning debit balance of $2,250 is reduced by a credit of $750 to record the payment received. $2,250 - $750 = $1,500.

If the book value of an asset is $12,500 and the accumulated depreciation is $3,500, the original cost of the asset is

$16,000.

Mr. Balog owns Balog Arborists. He has a list of accounts he believes should be used to create the post-closing trial balance; however, he is not correct in his assumptions and the accountant is on vacation. Determine which accounts should appear on Balog Arborists' post-closing trial balance and calculate the value of the debit and credit balance sides. What is the value of the post-closing trial balance when debits equal credits?

$21,690. Debit balance accounts: Cash $2,180 + Accounts Receivable $1,900 + Office Supplies $760 + Prepaid Insurance $1,050 + Truck $12,500 + Equipment $3,300 = $21,690. Credit balance accounts: Accounts Payable $4,000 + Wages Payable $1,790 + Accumulated Depreciation—Equipment $900 + Ben Balog, Capital $15,000 = $21,690.

An asset costs $33,000. It has an expected useful life of 5 years and an expected salvage value of $3,000. Depreciation expense for the first year of the asset's life using the straight-line method is

$6,000.

Owner's equity at the start of the period is $35,000; net income for the period is $30,000; the total investments by the owner is $15,000; and total withdrawals by the owner is $5,000. The owner's equity at the end of the period is

$75,000.

The total assets amount to $26,000 and the total liabilities amount to $18,000. The amount of the owner's equity is

$8,000.

Which of the following best describes a general ledger?

A record of the transactions entered in each account

After the closing entries have been posted, which of the following accounts would still have a balance?

Accumulated Depreciation-Equipment

Which of the following will cause an account balance to increase from the Trial Balance columns to the Adjusted Trial Balance columns?

An account with a debit balance in the Trial Balance columns and a debit entry in the Adjustments column will cause the balance to increase in the Adjusted Trial Balance columns.

Which of the following steps is generally recognized as the first step of the accounting cycle?

Analyze source documents.

Which of the following is a list of accounts used by a business?

Chart of accounts. The accountant must know the accounts being used by the business. A list of all accounts used by a business is called a chart of accounts.

In April, Farmer Mac's Organic Produce purchased a delivery truck for $37,500 that is expected to last for five years. The depreciable cost of the truck is $30,000. Which of the following will be the general ledger balance in the truck's contra-asset account after adjusting entries are made in July?

Credit balance of $2,000. The monthly depreciation expense for the truck is the depreciable cost divided by the useful life: $30,000 ÷ 60 months = $500. The contra-asset, which has a credit balance, represents the depreciation that has accumulated since the truck was purchased in April. Four months of depreciation expense have been recorded since April (April, May, June, and July); therefore, the balance will be a credit of $2,000: $500 × 4 months = $2,000.

What is the journal entry to close the drawing account if it has a balance of $2,100?

Debit Capital for $2,100 and credit Drawing for $2,100. Drawing has a debit balance and reduces owner's equity; therefore, it is credited $2,100 to create a zero balance and the owner's capital account is debited the same amount.

Which of the following would be the appropriate journal entry to record this transaction: Business owner Mac Cole withdrew $2,500 for personal use, which he used to buy a tractor for his home.

Debit Mac Cole, Drawing, $2,500 and credit Cash, $2,500. The journal entry is a debit to Mac Cole, Drawing of $2,500 and a credit to Cash of $2,500.

Which of the following statements regarding journal entries is true?

Debits must equal credits. Each entry must contain at least one debit and one credit and debits must equal credits.

All amounts on the post-closing trial balance are the same as on the Balance Sheet columns of the work sheet except

Drawing and Capital. Drawing was closed. The owner's capital account was updated to reflect revenues, expenses, and drawing for the accounting period.

Blake's Pet Care has provided a partial work sheet for the year ended December 31, 20--. In advance of preparing an income statement, what are Blake's total expenses for the year? What is the net income?

Expenses $36,150; net income $35,950. Total Expenses = $36,150. Revenue $72,100 - Expenses $36,150 = Net Income $35,950.

Which of the following would most likely cause an error on the work sheet?

Extending the amount for Sales Revenue to the Balance Sheet Credit column. Extending the amount for Sales Revenue to the Balance Sheet Credit column would cause an error because Sales Revenue should be extended to the Income Statement Credit column.

As a business owner, you make it a practice to review the daily transactions of the business. Where would you most likely look to find that information?

General journal. You would look in the general journal, a day-by-day listing of transactions of the business.

Assume the Trial Balance Debit column shows Prepaid Rent is $900, the Adjustments Credit column shows Prepaid Rent is $300, the Adjusted Trial Balance Debit column shows Prepaid Rent is $1,200, and the Balance Sheet Debit column shows Prepaid Rent is $1,200. Which of the following statements best describes the error (if any) on the work sheet?

In the Adjusted Trial Balance Debit column, Prepaid Rent should be $600. In the Adjusted Trial Balance Debit column, Prepaid Rent should be $600 because the debit balance in the Trial Balance column would be decreased by the credit adjustment of $300.

The account to which revenue and expenses are closed is called

Income Summary.

Which of the following is not a major column heading of a 10-column work sheet?

Journal Entries. The five major column headings for the work sheet are Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet. Journal Entries is not one of the five.

Which of the following is posted to the general ledger?

Journal entries

Which of the following principles ensures the best measure of net income?

Matching principle. Matching revenues earned with expenses incurred to produce those revenues offers the best measure of net income, which is ensured by the matching principle.

Which of the following statements regarding journalizing adjusting entries is true?

No explanations are required for adjusting entries.

Once the closing process is completed, which of the following are the only remaining open accounts with balances?

Permanent accounts. Only the permanent accounts remain open after the closing process is completed.

Assume a $500 payment for Phone Expense was incorrectly debited as a payment for Supplies, $500. Which of the following would be the appropriate correcting entry?

Phone Expense500 Supplies500

Which of the following is the first step involved in the accounting cycle when the end of the accounting period has arrived?

Prepare a trial balance. Preparing a trial balance assures the equality of debits and credits before the adjusting process begins. It is the first step taken as of the last day of the accounting period and is typically recorded in the first two columns of a work sheet.

Assume that you own a landscaping business and have decided to build a new equipment shed. You go to a lumber yard to pick up materials. In the sales office, a sales agent helps you determine the materials that you will need and creates an invoice. You pay for the materials with a check, and the sales agent gives you an itemized receipt and tells you where to pick up the materials. Which of the following items is most likely to be required by the lumber yard attendant before you can leave with the materials?

Receipt. The lumber yard attendant will need to see the itemized receipt as proof of payment and to know what items were purchased.

Assume that you are the owner of a florist business. Which of the following source documents would you review to determine the flower arrangements and plants sold for the day?

Sales tickets

Farmer Mac's Organic Produce had supplies costing $150 at the beginning of the month. During the month, Mac purchased additional supplies costing $575. At the end of the month, Mac counted his supplies which showed that supplies costing $225 were still unused. Which of the following is the correct adjusting journal entry?

Supplies Expense500 Supplies500 The cost for supplies purchased is added to the beginning balance for supplies. The cost of the unused supplies is deducted from that total, resulting in the amount of supplies used for the month [($150 + $575) - $225 = $500]. This amount is recorded as a debit to Supplies Expense and a credit to Supplies.

You have been asked to review the work sheet for Farmer Mac's Organic Plants. The Income Statement Debit column shows a total of $85,500, the Income Statement Credit column shows a total of $103,200, the Balance Sheet Debit column shows a total of $346,700, and the Balance Sheet Credit column shows a total of $329,000. Net income of $17,700 has been subtracted from the Income Statement Credit column and the Balance Sheet Debit column. Which of the following would you report to Farmer Mac regarding the work sheet?

The net income of $17,700 should be added to the Income Statement Debit column and the Balance Sheet Credit column, not subtracted from the Income Statement Credit column and the Balance Sheet Debit column. The net income of $17,700 should be added to the Income Statement Debit column and the Balance Sheet Credit column, not subtracted from the Income Statement Credit column and the Balance Sheet Debit column.

How does the posting of adjusting entries to the general ledger differ from all other entries?

The only exception is that "Adjusting" is written in the Item column of the general ledger. Adjusting entries are posted to the general ledger in the same manner as all other entries, except that "Adjusting" is written in the Item column of the general ledger.

Which of the following statements indicates an error on the work sheet?

The total of the Adjusted Trial Balance Debit column is not equal to the total of the Adjusted Trial Balance Credit column. Feedback Area

You are the accounting clerk for a plumber. You review the April 25 daily sales invoices amounting to $675, of which $300 was received and the remainder was on account. Which of the following statements about this transaction is true?

The transaction would be recorded as a compound entry.

Which of the following statements regarding adjusting entries is true?

They ensure that revenues and expenses are reported, they are recorded at the end of the accounting period, and they reflect items that do not involve exchanges with an outside party. Adjusting entries ensure that revenues and expenses are reported, they are recorded at the end of the accounting period, and they reflect items that do not involve exchanges with an outside party.

What is the purpose of the post-closing trial balance?

To prove that debits equal credits in the permanent general ledger accounts. After posting the closing entries, a post-closing trial balance should be prepared to prove the equality of the debit and credit balances in the general ledger accounts.

Which of the following is a permanent account?

Wages Payable. All expense and revenue accounts get closed out to Income Summary. Wages Payable is a liability and does not get closed out to zero at the end of the fiscal period; it is a permanent account.

Analyzing source documents and journalizing transactions accurately are very important first steps in the accounting cycle because

a mistake made in step 1 is carried through the entire accounting cycle. Properly analyzing and journalizing transactions is very important because a mistake made in step 1 is carried through the entire accounting cycle.

A correcting entry is not required if

a transaction has been correctly journalized but posted incorrectly.

If a business records revenues when earned, regardless of whether cash has been received, and records expenses when they are incurred, the accounting system is a(n)

accrual basis of accounting.

Adjustments on the work sheet

are journalized but not posted to the ledger so that the ledger account balances are not affected.

Once closing entries are posted, the general ledger account balances will be in agreement with amounts reported on the

balance sheet. Once the closing entries are posted, the general ledger account balances will agree with the amounts reported on the balance sheet.

Checks that have been written and cleared in a bank account are called canceled checks, and they provide information about

cash payments.

A balance sheet that groups similar items is called a(n)

classified balance sheet.

The journal entry to purchase equipment on account includes a:

credit to Accounts Payable.

Cash and other assets that will be converted into cash within one year or the normal operating cycle of the business, whichever is longer, are called

current assets.

In April, Farmer Mac's Organic Produce purchased a delivery truck for $42,000 that is expected to last for six years. The depreciable cost of the truck is $36,000. Which of the following is the adjusting journal entry to record the reduction of the truck's value due to wear and tear in April?

d. Depreciation Expense—Truck500 Accumulated Depreciation—Truck500 The monthly depreciation expense for the truck is the depreciable cost divided by the useful life: $36,000 ÷ 72 months = $500. The correct adjusting entry is:

Supplies originally cost $600, but only $150 worth of supplies were used this period. The adjusting entry would be

debit Supplies Expense, $150; credit Supplies, $150.

The transaction to record payment for delivery equipment that was purchased on account in the previous month would include

debiting Accounts Payable and crediting Cash.

If cash is paid for worker salaries, the transaction includes

debiting Salaries Expense and crediting Cash.

The journal entry to close the drawing account includes

debiting the owner's capital account and crediting the drawing account.

Matching the cost of an asset with the revenue it is expected to produce is called

depreciation.

If you have forgotten to post the debit portion of a transaction, it will cause an error in the trial balance

equal to the amount of the transaction. If you have forgotten to post the debit or credit portion of a transaction, the difference in the debit and credit totals of the trial balance will be equal to the amount of that transaction.

A T account is most similar to the

general ledger. A general ledger accumulates a complete record of the debits and credits made to each account, similar to T accounts.

The Posting Reference column of the journal provides a cross-reference between the

journal and ledger.

A chronological record of financial transactions expressed as debits and credits to accounts is provided by the

journal.

All of the following steps in the accounting cycle can be performed prior to the last day of the accounting period except

journalize and post the adjusting entries. Journalizing and posting the adjusting entries occurs as of the last day of the accounting period.

Adjusting entries for expenses that have been incurred but not yet paid will result in an increase in

liabilities.

Depreciation is consistent with the

market value principle. Depreciation is a method of matching an asset's original cost with the revenues produced over its useful life. This is consistent with the matching principle.

An error will occur if

net income is added to the Income Statement Credit column. An error will occur if net income is added to the Income Statement Credit column. Net income should be added to the Income Statement Debit column.

The accounts in the chart of accounts are arranged in

numerical order.

Accounts used to accumulate information across accounting periods, their balances brought forward for each new period, are called

permanent accounts. Permanent accounts contain the results of all transactions since the business started and their balances are carried forward to each new accounting period.

To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, prepare the

post-closing trial balance.

Adjusting entries are

posted to the general ledger at the end of the accounting period.

Purchase invoices received from suppliers provide information about

purchases of goods or services.

The flow of financial data through the accounting information system does NOT include

receiving payment for all accounts receivable.

What is the correct sequence for closing the temporary accounts?

revenue accounts, expense accounts, Income Summary, drawing account

The matching principle in accounting requires the matching of

revenue earned with the expenses incurred to produce the revenue.

Revenues are recognized when ____________ and expenses are recognized when ____________.

services or products have been provided; services or assets are received

You have just received an electric bill for $225. This is evidence of

services received from a provider.

Business transactions are recorded in the general journal using information from the

source documents and the chart of accounts.

Forms and papers that provide information about a business transaction are called

source documents.

Changes in owner's equity that result from investments or withdrawals of assets by the owner are included in the

statement of owner's equity.

If you have committed a transposition error, the difference between the debit and credit totals of the trial balance will result in an amount

that is evenly divisible by 9. If you have committed a transposition error, the difference between the debit and credit totals of the trial balance will result in an amount that is evenly divisible by 9.

The chart of accounts of XYZ Company includes the following accounts: 101 Cash; 210 Wages Payable; 310 Owner, Capital; 401 Sales; and 602 Office Expense. Based on the selected accounts of XYZ Company, the first digit of the account number indicates

the classification of the account. Based on the accounts provided, the first digit of the account number indicates the classification of the account.

The time an asset is expected to last is called its

useful life.