ACCT207 Ch 3

Which of these statements about a journal is false? (a) It contains only revenue and expense accounts. (b) It provides a chronological record of transactions. (c) It helps to locate errors because the debit and credit amounts for each entry can be readily compared. (d) It discloses in one place the complete effect of a transaction.

(a) A journal contains entries affecting all accounts, not just revenue and expense accounts. The other choices are true statements.

A trial balance: (a) is a list of accounts with their balances at a given time. (b) proves that proper account titles were used. (c) will not balance if a correct journal entry is posted twice. (d) proves that all transactions have been recorded.

(a) A trial balance is a list of accounts with their balances at a given time. The other choices are incorrect because (b) it does not confi rm that proper account titles were used; (c) if a journal entry is posted twice, the trial balance will still balance; and (d) a trial balance does not prove that all transactions have been recorded.

During 2017, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity therefore: (a) increased $40,000. (b) decreased $140,000. (c) decreased $40,000. (d) increased $140,000.

(a) Since assets decreased by $50,000 and liabilities decreased by $90,000, stockholders' equity has to increase by $40,000 to keep the accounting equation balanced. The other choices are therefore incorrect.

Which statement about an account is true? (a) In its simplest form, an account consists of two parts. (b) An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. (c) There are separate accounts for specific assets and liabilities but only one account for stockholders' equity items. (d) The left side of an account is the credit, or decrease, side.

(b) An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. The other choices are incorrect because (a) in its simplest form, an account consists of three parts: a title and debit and credit side; (c) there are specific accounts for different types of stockholders' equity, such as Common Stock, Retained Earnings, and Dividends; and (d) the left side of an account is the debit side.

Which is not part of the recording process? (a) Analyzing transactions. (b) Preparing an income statement. (c) Entering transactions in a journal. (d) Posting journal entries.

(b) Preparing an income statement is not part of the recording process. Choices (a) analyzing transactions, (c) entering transactions in a journal, and (d) posting transactions are all steps in the recording process.

Which of the following events is not recorded in the accounting records? (a) Equipment is purchased on account. (b) An employee is terminated. (c) A cash investment is made into the business. (d) Company pays dividend to stockholders

(b) Termination of an employee is not a recordable event in the accounting records. The other choices all represent events that are recorded.

Genesis Company buys a $900 machine on credit. This transaction will affect the: (a) income statement only. (b) balance sheet only. (c) income statement and retained earnings statement only. (d) income statement, retained earnings statement, and balance sheet.

(b) When equipment is purchased on credit, assets are increased and liabilities are increased. These are both balance sheet accounts. The other choices are incorrect because neither the income statement nor the retained earnings statement is affected.

The effects on the basic accounting equation of performing services for cash are to: (a) increase assets and decrease stockholders' equity. (b) increase assets and increase stockholders' equity. (c) increase assets and increase liabilities. (d) increase liabilities and increase stockholders' equity.

(b) When services are performed for cash, assets are increased and stockholders' equity is increased. The other choices are therefore incorrect.

A ledger: (a) contains only asset and liability accounts. (b) should show accounts in alphabetical order. (c) is a collection of the entire group of accounts maintained by a company. (d) provides a chronological record of transactions.

(c) A ledger is a collection of the entire group of accounts maintained by a company. The other choices are therefore incorrect.

Debits: (a) increase both assets and liabilities. (b) decrease both assets and liabilities. (c) increase assets and decrease liabilities. (d) decrease assets and increase liabilities.

(c) Debits increase assets and decrease liabilities. The other choices are therefore incorrect.

A trial balance will not balance if: (a) a correct journal entry is posted twice. (b) the purchase of supplies on account is debited to Supplies and credited to Cash. (c) a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100. (d) a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45

(c) The entry will cause the trial balance to be out of balance. The other choices are incorrect because although these entries are incorrect, they will still allow the trial balance to balance

Which accounts normally have debit balances? (a) Assets, expenses, and revenues. (b) Assets, expenses, and retained earnings. (c) Assets, liabilities, and dividends. (d) Assets, dividends, and expenses

(d) Assets, dividends, and expenses have normal debit balances. The other choices are incorrect because (a) revenues have a normal credit balance, (b) retained earnings has a normal credit balance, and (c) liabilities have a normal credit balance.

Posting: (a) normally occurs before journalizing. (b) transfers ledger transaction data to the journal. (c) is an optional step in the recording process. (d) transfers journal entries to ledger accounts

(d) Posting transfers journal entries to ledger accounts. The other choices are incorrect because posting (a) occurs after journalizing, (b) transfers the information contained in journal entries to the ledger, and (c) is a required step in the recording process. If posting is not done, the ledger accounts will not refl ect changes in the accounts resulting from transactions.

A revenue account: (a) is increased by debits. (b) is decreased by credits. (c) has a normal balance of a debit. (d) is increased by credits.

(d) Revenues are increased by credits. Revenues have a normal credit balance. The other choices are therefore incorrect.

Paying an account payable with cash affects the components of the accounting equation in the following way: (a) Decreases stockholders' equity and decreases liabilities. (b) Increases assets and decreases liabilities. (c) Decreases assets and increases stockholders' equity. (d) Decreases assets and decreases liabilities.

(d) When paying an account payable with cash, the asset cash decreases. Accounts payable, a liability, decreases as well. The other choices are therefore incorrect.