Accounting Final Chapter 2

(LO 4) The trial balance of Jeong Company had accounts with the following normal balances: Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000, Rent Expense $10,000, Owner's Capital $42,000, Owner's Drawings $15,000, and Equipment $61,000. In preparing a trial balance, the total in the debit column is: (a) $131,000. (b) $216,000. (c) $91,000. (d) $116,000.

(a) $131,000. The total debit column = $5000 (Cash) + $40,000 (Salaries and Wages Expense) + $10,000 (Rent Expense) + $15,000 (Owner's Drawings) + $ 61,000 (Equipment) = $131,000. The normal balance for Assets, Expenses, and Owner's Drawings is a debit. The other choices are incorrect because (b) revenue of $85,000 should not be included in the total of $216,000 and its normal balance is a credit; (c) the total of $91,000 is missing the Salaries and Wages Expense of $40,000, which has a normal balance of a debit; and (d) the total of $116,000 is missing the Owner's Drawings of $15,000, which has a normal balance of a debit.

Which of the following statements about a journal is false? (a) It is not a book of original entry. (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) It is not a book of original entry. The journal is a book of original entry. The other choices are all true statements.

A trial balance: (a) is a list of accounts with their balances at a given time. (b) proves the journalized transactions are correct. (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 trial balance is a list of accounts with their balances at a given time. The other choices are incorrect because (b) the trial balance does not prove that journalized transactions are correct; (c) if a journal entry is posted twice, the trial balance will still balance; and (d) the trial balance does not prove that all transactions have been recorded.

The order of the accounts in the ledger is: (a) assets, revenues, expenses, liabilities, owner's capital, owner's drawings. (b) assets, liabilities, owner's capital, owner's drawings, revenues, expenses. (c) owner's capital, assets, revenues, expenses, liabilities, owner's drawings. (d) revenues, assets, expenses, liabilities, owner's capital, owner's drawings.

(b) assets, liabilities, owner's capital, owner's drawings, revenues, expenses. The correct order of the accounts in the ledger is assets, liabilities, owner's capital, owner's drawing, revenues, expenses. The other choices are incorrect because they do not reflect this order. The order of the accounts in the ledger is (1) balance sheet accounts: assets, liabilities, and owner's equity accounts (owner's capital and owner's drawings); and then (2) income statement accounts: revenues and expenses.

Which of the following statements about an account is true? (a) The right side of an account is the debit or increase side. (b) An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items. (c) There are separate accounts for specific assets and liabilities but only one account for owner's 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 owner's equity items. An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items. The other choices are incorrect because (a) the right side of the account is the credit side, not the debit side, and can be the increase or the decrease side, depending on the specific classification account; (c) there are also separate accounts for different owner's equity items; and (d) the left side of the account is the debit side, not the credit side, and can be either the decrease or the increase side, depending on the specific classification account.

Which of the following is not part of the recording process? (a) Analyzing transactions. (b) Preparing a trial balance. (c) Entering transactions in a journal. (d) Posting transactions.

(b) Preparing a trial balance. Preparing the trial balance is not part of the recording process. Choices (a) analyzing transactions, (b) preparing a trial balance, and (c) entering transactions in a journal are all part of the recording process.

(LO 4) 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 drawing by the owner is debited to Owner's Drawings 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 drawing by the owner is debited to Owner's Drawings for $1,000 and credited to Cash for $100. The trial balance will not balance in this case because the debit of $1,000 to Owner's Drawings is not equal to the credit of $100 to Cash. The other choices are incorrect because (a) if a correct journal entry is posted twice, the trial balance will still balance; (b) if the purchase of supplies on account is debited to Supplies and credited to Cash, Cash and Accounts Payable will be understated but the trial balance will still balance; and (d) since the debit and credit amounts are the same, the trial balance will still balance but both Accounts Payable and Cash will be overstated.

The purchase of supplies on account should result in: (a) a debit to Supplies Expense and a credit to Cash. (b) a debit to Supplies Expense and a credit to Accounts Payable. (c) a debit to Supplies and a credit to Accounts Payable. (d) a debit to Supplies and a credit to Accounts Receivable.

(c) a debit to Supplies and a credit to Accounts Payable. The purchase of supplies on account results in a debit to Supplies and a credit to Accounts Payable. The other choices are incorrect because the purchase of supplies on account results in (a) a debit to Supplies, not Supplies Expense, and a credit to Accounts Payable, not Cash; (b) a debit to Supplies, not Supplies Expense; and (d) a credit to Accounts Payable, not Accounts Receivable.

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) is a book of original entry.

(c) is a collection of the entire group of accounts maintained by a company. A ledger is a collection of all the accounts maintained by a company. The other choices are incorrect because a ledger (a) contains all account types—assets, liabilities, owner's equity, revenue, and expense accounts—not just assets and liability accounts; (b) usually shows accounts in account number order, not alphabetical order; and (d) is not a book of original entry because entries made in the ledger come from the journals (the books of original entry).

Before posting a payment of $5,000, the Accounts Payable of Senator Company had a normal balance of $16,000. The balance after posting this transaction was: (a) $21,000. (b) $5,000. (c) $11,000. (d) Cannot be determined.

(c) $11,000. The balance is $11,000 ($16,000 normal balance − $5,000 payment), not (a) $21,000 or (b) $5,000. Choice (d) is incorrect because the balance can be determined.

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. Posting transfers journal entries to ledger accounts. The other choices are incorrect because posting (a) occurs after journalizing, (b) transfers journal transaction data to the ledger; and (c) is not an optional step in the recording process.

Accounts that normally have debit balances are: (a) assets, expenses, and revenues. (b) assets, expenses, and owner's capital. (c) assets, liabilities, and owner's drawings. (d) assets, owner's drawings, and expenses.

(d) assets, owner's drawings, and expenses. Assets, owner's drawings, and expenses all have normal debit balances. The other choices are incorrect because (a) revenues have normal credit balances, (b) owner's capital has a normal credit balance, and (c) liabilities have normal credit balances.

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) is increased by credits. A revenue account is increased by credits. The other choices are incorrect because a revenue account (a) is increased by credits, not debits; (b) is decreased by debits, not credits; and (c) has a normal balance of a credit, not a debit.

Basic steps of the recording process are

1. Analyze each transaction for its affect on the accounts 2. Enter the transaction information in a journal. 3. Transfer the journal information to the appropriate accounts in the ledger.

Analyze transactions and determine their effect on accounts. (LO 1) Presented below is information related to Hammond Real Estate Agency. Oct. 1 Lia Berge begins business as a real estate agent with a cash investment of $30,000 2 Paid rent, $700, on office space. 3 Purchases office equipment for $2,800, on account. 6 Sells a house and lot for Hal Smith; bills Hal Smith $4,400 for realty services performed. 27 Pays $1,100 on the balance related to the transaction of October 3. 30 Receives bill for October utilities, $130 (not paid at this time).

GENERAL JOURNAL Date Account Titles and Explanation Ref. Debit Credit Oct. 1 Cash 30,000 Owner's Capital 30,000 2 Rent Expense 700 Cash 700 3 Equipment 2,800 Accounts Payable 2,800 6 Accounts Receivable 4,400 Service Revenue 4,400 27 Accounts Payable 1,100 Cash 1,100 30 Utilities Expense 130 Accounts Payable 130

If DEBIT amounts are LESS than credit amounts the account will have

a credit balance

If DEBIT amounts are GREATER than credit amounts the account will have

a debit balance

Accounts that normally have CREDIT balances are

assets, owner's drawings 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.

c) increase assets and decrease liabilities. Debits increase assets but they decrease liabilities. The other choices are incorrect because debits (a) decrease, not increase, liabilities; (b) increase, not decrease, assets; and (d) increase, not decrease, assets and decrease, not increase, liabilities

DOUBLE ENTRY SYSTEM

each transaction must affect TWO or MORE accounts to keep the basic accounting equation in balance. Recording is done by debiting one account and crediting another. DEBITS MUST EQUAL CREDITS

DEBITS

increase assets and decrease liabilities