Chapter 3 practice questions

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.

An employee is terminated. - 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.

Balance Sheet Only

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.

Decreases assets and decreases liabilities.

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.

It contains only revenue and expense accounts.

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.

Preparing an income statement.

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. is a list of accounts with their balances at a given time.

A ledger: a.contains only asset and liability accounts. b.should show accounts in alphabetical order. c.is a record of all accounts maintained by a company and their amounts. d.provides a chronological record of transactions.

c. is a record of all accounts maintained by a company and their amounts.

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. a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.

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. transfers journal entries to ledger accounts.

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.

increase assets and increase stockholders' equity.

During 2022, 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.

increased $40,000.

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.

is increased by credits. Revenues are increased by credits. - - Revenues have a normal credit balance. The other choices are therefore incorrect.

Which statement about an account is true? a.An account consists of a title, a debit side, and a ledger side. 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.

An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.

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.

Assets, dividends, and expenses.

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.

increase assets and decrease liabilities. - Debits increase assets and decrease liabilities. The other choices are therefore incorrect.