ACCT CH2 Quiz

Which of the following is an external transaction?

Purchasing supplies from a vendor

The accounting equation is: Assets = Liabilities +

SHE

The type of information included in an account includes

the account title. columns for debits and credits.

Three steps for analyzing the effect of transactions in the correct order

1. Determine one account in the accounting equation that will increase or decrease 2. Determine a second account in the accounting equation that will increase or decrease 3. Confirm that assets are equal to liabilities plus stockholders equity

A transaction will always affect at least Blank______ accounts.

2

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

Accounts receivable

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected?

Cash Common stock

Deferred revenue

Cash received from customers for services to be performed in the future

Which of the following accounts normally have a credit balance?

Common stock Retained earnings

Computerized system

Journal entries are instantly posted to the general ledger

The last step for analyzing the effect of transactions is

Confirm that assets are equal to liabilities plus stockholders' equity

Farmer, Inc. purchases a tractor for $80,000 cash. Recording this transaction will require which of the following?

Credit cash Debit equipment

Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following?

Credit note payable Debit cash

National Company provides services to customers on account for $20,000. Which of the following journal entries is used to record this transaction?

Debit accounts receivable; credit service revenue.

On August 2, Garner Company provides services to a long-time customer for $50,000. Payment for this service is due on September 1. Which of the following journal entries is made to record this transaction on August 2?

Debit accounts receivable; credit service revenue.

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

Debit cash $3,000; credit note payable $3,000.

Fuller Company provides services to customers for $25,000 cash. Which of the following is used to record this transaction?

Debit cash; credit service revenue.

Oasis Company provides services to customers for $10,000 cash. Which of the following is used to record this transaction?

Debit cash; credit service revenue.

Porter Company pays for three years of rent in advance. Which of the following is used to record this transaction?

Debit prepaid rent; credit cash

Resnick purchases supplies on account. Which of the following is used to record this transaction?

Debit supplies; credit accounts payable.

Torrence purchases supplies for cash. Which of the following is used to record this transaction?

Debit supplies; credit cash.

The sum of accounts with _____ balances must equal the sum of the accounts with ____ balances.

Debit, credit

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

False

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns

False

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction?

February 15 and 27

Which of the following contains a list of transactions affecting each account and the account's balance?

General ledger

Which of the following represents a common advantage of a computerized accounting system?

Journal entries are instantly posted to the ledger

Manual system

Journal entries are posted periodically to the general ledger

Which of the following includes the list of transactions affecting each individual account and the account's balance?

Ledger

The accounting equation is: Assets = Blank______ + Stockholders' Equity

Liabilities

Revenue

Services performed for customers for cash or on account

A simplified version that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:

T-account

True or false: After posting all journal entries to accounts. the sum of accounts with debit balances should equal the sum of accounts with credit balances

True

When cash is received in advance for services to be performed at a later date, an asset is increased and

a liability is increased.

A(n) Blank______ is maintained for each financial statement item, whereas a(n) Blank______ contains all of the accounts of the company

account; general ledger

Marcy receives $10,000 cash in advance from customers for services to be performed in the following year. This transaction would cause

assets to increase and liabilities to increase

Turkey Corp. provides services to customers on account for $3,000. Recording this transaction will include a

credit to revenues.

The purpose of a trial balance is to

ensure debits equals credits. assist in preparing adjusting entries.

True or false: A ledger provides a chronological record of all transactions affecting the firm

false

Revenues cause retained earnings to

increase

A chronological record of all economic events affecting a firm are recorded in a(n)

journal

How is deferred revenue classified?

liability

An increase in revenues increases _________ which increases retained earnings, which increases stockholders' equity.

net income

Stockholders' equity is increased by revenues because revenues increase

net income

The process of transferring information from the journal to the ledger is referred to as

posting

Pilot Company pays for two years of rent in advance. Recording this transaction would include a debit to

prepaid rent

Prepaid rent is

rent paid in advance

Consistent with the _______ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) _____ ______

trial balance

True or false: A trial balance is used for internal purpose to check that debits equal credits

true

True or false: A trial balance is used for internal purpose to check that debits equal credits.

true

What are the three components of retained earnings?

Revenues, expenses, and dividends

Rory purchases supplies for cash. Which of the following occurs?

Total assets remain the same

When should revenue be recorded?

When the services are performed

The account deferred revenue is used to record

an obligation to perform services in the future.

Dividends paid to stockholders will cause retained earnings to

decrease

When services are provided on account, what is the effect on stockholders' equity?

increase

Cray purchases equipment for cash. Total assets will

remain the same

On January 1, Linden has total assets of $100,000, total liabilities of $30,000, and total stockholders' equity of $70,000. Linden purchases $20,000 of supplies on account, and $2,000 of prepaid rent for cash. After these transactions, total assets equal

100,000 + 20,000 supplies + 2,000 prepaid rent - 2,000 cash = $120,000 total assets

Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are

18,000 Reason: The issuance of stock will cause assets to increase by $10,000. The purchase of supplies for cash will have no affect on total assets (cash decreases and supplies increases). Borrowing from bank will increase cash (an asset) by $8,000. Therefore, total assets equals $18,000.

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is

3

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?

A liability is decreased Another asset is increased

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

Borrowing cash and signing a promissory note

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Common stock is increased. Cash is increased.

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?

Debit to cash Credit common stock

Which type of account is increased with a debit?

Expense

Identify the three components of retained earnings

Expenses Revenues Dividends

A(n) ____ transaction involves an exchange between the company and a separate economic entity.

External

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?

Increase assets and increase retained earnings

Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation?

Increase retained earnings Increase assets

What are the effects of providing services on account to customers?

Increase retained earnings Increase assets

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?

May 15

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

Notes payable increases Cash increases

Which of the following are external transactions?

Purchasing inventory from suppliers Borrowing money from the bank Paying salaries to employees

True or false: An external transaction is a transaction the firm conducts with a separate economic entity

True

True or false: Revenue is recorded when services are performed, whereas deferred revenue is recorded when cash is received from customers in advance before services are performed.

True

True or false: The accounting equation must always remain in balance

True

Indicate which situations would require Zenda Company to record revenue in the current period.

Zenda performs services on account. Zenda performs services for cash

Where is the Deferred Revenue account reported in the financial statements?

as a liability

Accounts receivable are

assets

Slim purchases equipment with cash. The accounts affected are

cash and equipment

A journal provides a

chronological record of all transactions affecting a firm

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

common stock

Which of the following are stockholder equity accounts?

common stock retained earnings

The two components of stockholders' equity are

common stock and retained earnings.

The two roles of financial accounting are to:

communicate information to external parties for decision making purposes. measure business activities of the company

Stockholders' equity accounts normally have a _____ balance.

credit

Shannon Corporation issues common stock for $25,000. Recording this transaction will include a

credit to common stock.

In a double-entry accounting system, a(n) _____ represents the left side of the account

debit

In a double-entry accounting system, the ______ represents the left side of the account.

debit

Roslin Corp. provides services to customers on account for $5,000. Recording this transaction will include a

debit to accounts receivable. credit to revenues

Lassiter Industries purchased equipment for $140,000. Lassiter expects to use the equipment over the next 10 years. Recording this transaction would include a

debit to equipment $140,000

An general ledger account should have an account title, account number, a place for the date of the transaction, and two columns for

debits and credits

A T-account has space at the top for the account title and two sides for recording Blank______ and Blank______ to the account.

debits; credits

Expenses will cause retained earnings to

decrease

What effect will the payment of salaries to employees for the current period have on stockholders' equity?

decrease

What is the effect of dividends on retained earnings?

decrease

What is the effect of expenses on retained earnings?

decrease

What is the effect of expenses on stockholders' equity?

decrease

When a company pays salary expense, the effects are to

decrease assets. decrease stockholders' equity

The effect of expenses on the expanded accounting equation is to

decrease retained earnings

Expenses Blank______ retained earnings; therefore, to increase any expense, one would Blank______ the expense account.

decrease; debit

When a company receives cash in advance from customers for services to be performed in the future, the transaction affects the Blank______ account

deferred revenue

When a company receives cash in advance from customers for services to be performed in the future, the transaction affects the ______ account

deferred revenue

Revenues Blank______ retained earnings; therefore, to increase any revenue, one would Blank______ the revenue account

increase; credit

Net income Blank______ retained earnings.

increases

What effect does revenue have on retained earnings?

increases

A transaction is initially recorded in the journal, and then subsequently posted to the general ______

ledger

Rent paid in advance and classified as an asset is referred to as

prepaid rent

The purpose of a general ledger is to

provide in a single location the list of transactions affecting each account and the account's balance

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer

Which type of account is increased with a credit?

revenue

The two basic components for calculating net income are ___ and ___

revenues and expenses