AC305 Chapter 3 Practice Questions

True

Adjusting entries are required every time a company prepares financial statements. True or False

B. prepayments or accruals.

Adjusting entries can be classified as either: A. accruals or reversals. B. prepayments or accruals. C. real or nominal. D. internal or external.

True

After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements. True Or False

C. Contra asset accounts are not reported in the financial statements.

All of the following statements about contra asset accounts are true except: A. Contra asset accounts have normal credit balances. B. Contra asset accounts are permanent accounts. C. Contra asset accounts are not reported in the financial statements. D. Contra asset accounts are increased with credits.

B. an expense that has been incurred but for which payment has not yet been made.

An accrued expense is A. Entry field with correct answer an expense which is recorded with the passage of time. B. an expense that has been incurred but for which payment has not yet been made. C. an expense for which cash is paid before the expense is incurred. D. initially recorded as an asset.

General Journal

Posting is the process of transferring items entered in a general journal to the

Journalizing a transaction.

hich of the following is typically the first step in the accounting cycle? Posting to the general ledger. Journalizing a transaction. Recording adjustments to the accounts. Preparing reversing entries.

B. expenses paid in cash before they are used or consumed.

Deferrals include A. revenues for services performed but not yet received in cash or recorded. B. expenses paid in cash before they are used or consumed. C. expenses incurred but not yet paid in cash or recorded. D. all of these answer choices are correct.

Journal

The ____________ is the "book of original entry" where the company initially records transactions and other events. Ledger Journal Trial balance Account

B. Posting.

_________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. A. Journalizing. B. Posting. C. Closing. D. Ledgerizing.

C. are made at the end of an accounting period to bring all accounts up to date on an accrual basis.

Adjusting entries A. Entry field with correct answer are external events involving a transfer or exchange between two or more entities. B. reduce the nominal accounts to zero and transfer net income or loss to an owners' equity account. C. are made at the end of an accounting period to bring all accounts up to date on an accrual basis. D. all of these answer choices are correct.

C. First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared.

Once a company has prepared an adjusted trial balance it is ready to prepare financial statements. Which financial statement is prepared first, second, then third? A. First the retained earnings statement is prepared, then the balance sheet is prepared, finally the income statement is prepared. B. First the income statement is prepared, then the balance sheet is prepared, finally the retained earnings statement is prepared. C. First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared. D. First the balance sheet is prepared, then the retained earnings is prepared, finally the income statement is prepared.

True

Transactions are initially recorded in the general journal. True or False

B. Dividends.

Which of the following is a nominal account? A. Interest Payable. B. Dividends. C. Cash. D. Retained earnings.

D. It proves that all transactions have been recorded.

Which of the following statements about a trial balance is incorrect? A. Its primary purpose is to prove the mathematical equality of debits and credits after posting. B. It uncovers errors in journalizing and posting. C. It is useful in the preparation of financial statements. D. It proves that all transactions have been recorded.