Accounting Chapter 4: True/False
A classified balance sheet typically will show revenues divided into cash and credit categories.
False
A company's current ratio may be too low, but it can never be too high.
False
A debit balance for an asset account is increased by a credit in the Adjustments column.
False
A post-closing trial balance contains revenues and expenses.
False
A separate trial balance should be prepared before beginning the worksheet.
False
Accounting software packages for the personal computer have increased in price because they now perform all of the accounting functions for a small or medium sized business.
False
Accounts payable are generally classified as long-term liabilities because they are not due until after the balance sheet date.
False
Accrued liabilities normally will be reported among the long-term liabilities on the balance sheet
False
Accumulated depreciation would be listed under long-term liabilities on a classified balance sheet.
False
Adjustments are excluded from the worksheet.
False
All the adjusted trial balance amounts are extended to the Income Statement columns.
False
Because land does not depreciate, it is not considered part of plant assets.
False
Bookkeeping machines made computerized accounting systems obsolete.
False
Cash, Accounts Receivable, Prepaid Expenses, and Unearned Revenue would all be classified as current assets.
False
Closing entries do not affect the Retained Earnings account.
False
If a company has a 2:1 ratio, you can be sure of its current debt-paying ability.
False
If a company has a current ratio of less than 1:1, you can be sure that the company is not able to pay its current liabilities.
False
If the income summary account has a debit balance before it is closed, the company has net income for the period.
False
Marketable securities consist of long-term investments made for securing a permanent source of income from another business organization.
False
Mortgage payable and Bonds Payable are classified as long-term liabilities because they are large in amount compared to other liabilities.
False
No stockholders' equity accounts will appear on the post-closing trial balance.
False
Normally, only the beginning balance of the Retained Earnings account is shown on the balance sheet.
False
Once the adjusting entries have been entered on the worksheet, they need not be entered anywhere else.
False
The current ratio indicates the long-term debt-paying ability of a company.
False
The net income or loss of a company cannot be determined if closing entries are not made.
False
The only accounts that are closed are revenue and expense accounts.
False
The post-closing trial balance will show asset, liability, stockholders' equity, revenue, and expense accounts.
False
The primary purpose of adjusting entries is to make the accounting task a little easier to perform.
False
The worksheet is the final step in completing the accounting cycle.
False
The worksheet will indicate automatically which accounts are in need of adjustment.
False
When a worksheet is used, the period-end adjustments need not ever be journalized.
False
A manual system with multiple journals and ledgers often includes a sales journal, purchases journal, cash receipts journal, cash disbursements journal, and a general journal.
True
A post-closing trial balance contains only asset, liability, Capital Stock, and Retained Earnings account balances.
True
A worksheet is likely, at an absolute minimum, to contain at least five pairs of debit and credit columns.
True
Adjustments may be cross-referenced on the worksheet.
True
After closing entries have been posted, balances should appear only in balance sheet accounts.
True
An Interest Revenue account containing a balance of $1,000 is closed by an entry debiting Interest Revenue and crediting Income Summary for $1,000.
True
An adjustment may involve debiting an expense account and crediting the related asset account.
True
Assets are extended into the Balance Sheet columns as debits, liabilities as credits
True
Early applications of the computer in accounting were in the areas of payroll, accounts receivable, accounts payable, and inventory.
True
Examples of current liabilities are 6-month notes payable, salaries payable, and unearned revenue.
True
Expenses are extended into the Income Statement columns as debits, revenues as credits.
True
In a classified balance sheet, current assets usually are listed in order of their liquidity.
True
In actual business situations, adjusting and closing entries would not have to be entered in the journal before financial statements are prepared.
True
Subsidiary ledgers are often created for accounts receivable and accounts payable so that companies will know who owes them money and to whom they owe money.
True
The Income Summary account has a zero balance just prior to preparing closing entries.
True
The accounting cycle consists of the specific steps taken in the operation of an accounting system to accumulate, process, and report useful information.
True
The balance in the Dividends account is closed to the Retained Earnings account by debiting the Retained Earnings account and crediting the Dividends account.
True
The beginning-of-the-year balance of Retained Earnings and the net income for the period are carried to the Statement of Retained Earnings columns as credits, while dividends are entered in the same pair of columns as a debit.
True
The closing process brings nominal (temporary) accounts to a zero balance.
True
The computer automatically performs steps in the accounting cycle such as posting journal entries to the ledger accounts, closing the books, and preparing the financial statements.
True
The current ratio is found by dividing current assets by current liabilities.
True
The functions performed by manual and computerized accounting systems are basically the same.
True
The income statement is normally the first financial statement prepared from the worksheet.
True
The net income figure from the Income Statement debit column is carried over to Statement of Retained Earnings credit column.
True
The statement of retained earnings helps to relate income statement information to the balance sheet information.
True
The two basic components of stockholders' equity are paid-in capital and retained earnings.
True
When the adjusted Trial Balance columns are summed, debits should equal credits.
True
Adjusting entries are necessary to correctly state net income or net loss for a fiscal period.
True
An accounting system is a set of records and the procedures and equipment used to perform the accounting functions.
True
Because it is an internal working paper rather than a published financial statement, the worksheet can vary in format.
True
Closing the revenue and expense accounts reduces them to a zero balance.
True
Dividends payable are generally classified as current liabilities because they will be paid within a short period of time.
True
Mainframe computers first came into use in the 1970s.
True
Net income increases retained earnings.
True
Property, plant, and equipment are also termed plant assets or fixed assets.
True
The ending balance in the Retained Earnings account is carried to the Balance Sheet columns
True
The final figure in the income statement is net income or net loss.
True
The financial statements are prepared before the adjusting and closing entries are journalized.
True
The formal financial statements are prepared from the worksheet.
True
To determine the amount of net income that must be added to balance the columns of the Income Statement, subtract debits from credits and add the excess to the debit column.
True
A classified balance sheet provides useful information for interpretation and analysis by users of financial statements.
True
A classified balance sheet typically will show liabilities divided into into current liabilities and long-term liabilities.
True
A classified balance sheet will typically show, as a minimum, assets classified into current assets and property, plant, and equipment.
True
A manual accounting system is still in use in some small businesses.
True
