ACC 221 Exam 1

the moving of the entry from the General Journal to the accounts in the General Ledger is called

"posting the entry"

The Retained Earnings amount on the Post-Closing Trial Balance will always be greater than the Retained Earnings amount on the Pre-Closing Trial Balance.

False

The Trial Balance lists all of the individual transactions that were entered into the Asset, Liability, and Equity accounts

False

The collection of cash from a customer will always result in an increase in the Retained Earnings account.

False

The cost of goods sold account is an Asset account similar to the Inventory account

False

The largest transaction occurring during the Accounting Period is always entered first in the General Journal

False

When a sale is made to a customer on credit, there is no entry made to the Sales Revenue account because no cash has been received.

False

When a transaction increases a company's Accounts Receivable account the Retained Earnings account must be decreased to keep the accounting system in balance

False

On the Balance Sheet, Retained Earnings is shown the the Equity section

True

Revenue accounts will always start each new accounting period with a beginning balance of zero.

True

Revenue accounts will always start each new accounting period, with a zero balance

True

The After Close Balance for both revenue and expense accounts should always be a zero balance.

True

The Balance Sheet is a point-in-time financial report.

True

The Balance Sheet is produced from the account balances shown in the General Ledger

True

The Credit side of all accounts is the right side

True

The Equipment account is increased by a Debit entry.

True

The Inventory account is decreased by a Credit entry

True

The Retained Earnings account is similar to the Common Stock account, in that they are both owners' claim-to-assets accounts

True

The Retained Earnings account tracks the owners' claim to assets that result from the operation of the business

True

The Retained Earnings amount needed for the Balance Sheet can be calculated as follows: the current balance in the Retained Earnings account, plus the sum of the revenue account balances, less the sum of the expense account balances.

True

The asset account balances, liability account balances, and the Common Stock account balance will always be the same on both the Pre-Closing Trial Balance and the Post-Closing Trial Balance.

True

The following is a correct summary of the increase / decrease rules for accounts: - In all Asset accounts, if the amount is placed on the left (debit) side of the account, the balance in the account is increased. - In all Liability accounts and all in Equity accounts, if the amount is placed on the right (credit) side of the account, the balance in the account is increased. - In all Asset accounts, if the amount is placed on the right (credit) side of the account, the balance in the account is decreased. - In all Liability accounts and all in Equity accounts, if the amount is placed on the left (debit) side of the account, the balance in the account is decreased.

True

The main purpose of Equity accounts is to keep track of owners claims to an organizations assets

True

The main purpose of liability accounts is to keep track of non-owners claims to an organizations assets

True

The payment of wages to employees for work they performed during the current accounting period will result in a credit to the cash account

True

The primary reason the accountant prepares a Trial Balance is to determine if the accounting system is in balance.

True

The sequence of steps a company's accounting system goes through each Accounting Period is called the Accounting Cycle

True

The temporary accounts should always have a zero balance on the Post-Closing Trial Balance.

True

A liability account that records the claim to assets of someone who is not an owner of the business; paid off by a service

Unearned Revenue

An account that records advance payments that have been received but not earned; also called Deferred Revenue Liabilities

Unearned Revenue

An account calculated by adding together all the debit entires in the Retained Earnings account that relate to the payment of wages to employees

Wages Expense

The Common Stock account tracks the owners' claim to assets that result from the operation of the business

False

The Cost of Goods Sold account is an asset account similar to the Inventory account.

False

The Debit side of an asset account is the left side and the Debit side of a liability account is the right side

False

The Note Payable account is increased by a Debit entry.

False

Any length of time

period of time assumption

Making insurance payments in advance is known as

prepaid assets

The Post-Closing Trial Balance should be prepared after the Income Statement is prepared but before the Balance Sheet is prepared.

False

The Retained Earnings account is an asset account similar to the Inventory account

False

The Retained Earnings account is increased by a debit and decreased by a credit

False

In an accounting system, if Total Assets are not equal to Total Claims-to-Assets, then the Balance Sheet report will simply be relabeled as the UnBalance Sheet report

False

An account when a company makes a purchase, but does not pay cash at the time of purchase

Accounts Payable

Asset with the right to receive cash in the future

Accounts Receivable

business transactions are recorded in the accounting period in which they take place even if no cash is received

Accrual Basis

Transactions must be recorded when they occur, not when cash is received in or given out

Accrual Basis of Accounting

Records revenue that has been earned but not yet billed; also called Accrued Revenue

Accrued Asset

not the result of a transaction, but rather the result of the passage of time causing interest to be due to the bank

Adjusting Entry

Which of the following statements is correct for revenue and expense accounts?

All of the revenue and expense account balances are used to prepare the Income Statement

Prepared from the ending balances in the asset, liability, and owner's equity accounts

Balance Sheet

record inventory at cost paid, not if it was a good/bad move for the company

Cost Principle

An account calculated by adding together all the debit entries in the Retained Earning's account that relate to the cost of the inventory items sold to customers

Cost of Goods Sold (expense account)

Assets that will turn into cash or be consumed during the next 12 months

Current Assets

Liabilities that will require payment or become due during the next 12 months

Current Liabilities

The Board of Directors declares the dividend

Date of Declaration

Dividend is paid to shareholders

Date of Payment

The individuals who own the stock of the corporation on this date will receive the dividend; determines who receives the dividend; doesn't require any entry

Date of Record

Some of the revenue and expense accounts are used to prepare the Income Statement, and some of the revenue and expense accounts appear on the Balance Sheet.

False

The Balance Sheet is produced from the account balances shown in the General Journal.

False

The process of allocating the cost of Property, Plant, and Equipment to the accounting periods in which these assets are used

Depreciation

The account used when a dividend is declared and paid to owners

Dividends Payable

only record transactions related to a company's entity

Entity assumption

A company's Accounting Period must always be one month long.

False

A transaction which decreases the Retained Earnings account must always decrease an asset account to keep the accounting system in balance

False

Adjusting entries should be entered into the General Journal and posted to the General Ledger accounts after preparing a Pre-Closing Trial Balance.

False

After certain types of transactions it is OK for the accounting system to have more Total Assets than Total Liabilities + Owners' Equity

False

All entries must affect both the Asset side and the Liabilities + Equity side of the accounting equation for the accounting system to stay in balance.

False

As a result of the closing process all General Ledger accounts will be reset to zero.

False

As a result of the closing process, all General Ledger accounts will be reset to zero.

False

Asset accounts track the dollar amount of a physical asset and who has a claim to that physical asset

False

Entries are posted from the General Journal to the Trial Balance

False

Expense accounts will always start each new accounting period with a beginning balance equal to all of the debit entries that were made into the expense account during the previous accounting period.

False

The Common Stock account is decreased by a debit; while the Retained Earnings account is increased by a debit.

False

assuming a company will stay in business for a long time

Going Concern Assumption

Sales revenue less cost of goods sold

Gross profit

A report for a period of time when all the ending balances in the revenue and expense accounts are used to prepare the report

Income Statement

An account determined by identifying the debit entry in the Retained Earnings account that relates to recording the bank's claim to assets for interest on the loan

Interest Expense

The credit balance in this account is the amount of interest we owe on money we have borrowed

Interest Payable

Claims to stuff who is not the owner

Liabilities

Assets a company will keep and use for more than one year; most are the Plant, Property, and Equipment type

Long-term assets

Matching of revenues and expenses in the same accounting period; company must record expenses in the same accounting period in which the related revenue was recorded

Matching Principle

only record transactions that can be stated in terms of money

Monetary Unit Assumption

Gross profit less total expenses

Net Income

Indicates the owner's claim to assets has been decreased as a result of operations of business; when the sum of all expense accounts is greater than the sum of revenue accounts

Net Loss

Claims to stuff of the owners

Owner's Equity

Shows General Ledger account balances after closing entries

Post-Closing Trial Balance

An account determined by identifying the debit entry in the Retained Earnings account that relates to the payment of rent

Rent Expense

The credit balance in this account is the amount of rent we owe as a tenant to our landlord

Rent Payable

Calculated by adding the net income to the current balance in the account

Retained Earnings

An account calculated by adding together all the credit entries in the Retained Earnings account that relate to customer sales

Sales Revenue

Method used to calculate the monthly reduction amount when the amount of depreciation is the same each accounting period

Straight-line depreciation method

A company will have a Net Loss when the sum of all the expense accounts is greater than the sum of all the revenue accounts.

True

After the closing process, the temporary accounts will always have a zero balance on the Post-Closing Trial Balance

True

Credit amounts entered into the Sales Revenue account increase the account balance and will ultimately increase Retained Earnings.

True

Debit amounts entered into an expense account increase the expense account and will ultimately decrease Retained Earnings.

True

During the closing process for expense accounts, the Retained Earnings account is debited, which decreases Retained Earnings.

True

During the closing process for revenue accounts, the Retained Earnings account is credited, which increases Retained Earnings.

True

For each entry in the General Journal, the total dollar amount of the debits and the total dollar amount of the credits must always be equal.

True

If the sum of the Ending Balance(s) in the revenue account(s) is greater than the sum of the Ending Balances in the expense accounts, then Retained Earnings will increase as a result of the closing entries.

True

If there was no need to prepare the Income Statement, then there would be no need to have revenue and expense accounts.

True

In a traditional accounting system all entries must be first put in the General Journal

True

In an accounting system that uses debits and credits, only positive numbers will be put into the accounts

True

Which of the following is true regarding characteristics of adjusting entries?

adjusting entries allow for the proper recognition of expenses

an example of an adjusting entry would not include

paying salaries to company employees

This account is increased when the operation of the business results in an increase in the owners' claim to assets

retained earnings

A report the accountant prepares for his/her own use before preparing the financial statements that is not generally distributed outside the accounting department

the trial balance

What do debit entries that are put into expense accounts do?

tracks decreases in owner's claim to assets

What do credit entries that are put into revenue accounts do?

tracks increases in owner's claim to assets