ACCT 200: Chapter 3

which accounts have a normal balance debit?

- assets - expenses - dividends

the journal:

- book of original entry - transactions recorded in chronological order

double entry system:

- each transaction must affect two or more accounts to keep the basic accounting equation in balance - recording done by debiting at least one account and crediting another - debits must equal credits

which accounts have a normal balance credit?

- liabilities - stockholders' equity - revenue

the trial balance may balance evenly when:

1. a transaction is not journalized 2. a correct journal entry is not posted 3. a journal entry is posted twice 4. incorrect amounts are used in journalizing or posting, OR 5. offsetting errors are made in recording the amount of the transaction

what are the steps to follow in the recording process?

1. determine what type of account is involved 2. determine what items increased or decreased and by how much 3. translate the increases and decreases into debits and credits

the journals contributions to the recording process:

1. discloses the complete effects of a transaction 2. provides a chronological record of transactions 3. helps to prevent or locate errors because the debit and credit amounts can be easily compared

The journal makes three significant contributions to the recording process:

1. it discloses in one place the complete effect of a transaction 2. it provides a chronological record of transactions 3. it helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared

Explain the purposes of a trial balance.

A trial balance is a list of accounts and their balances at a given time. The primary purpose of the trial balance is to prove the mathematical equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements.

Which of the following accounts is increased with a debit? A. Dividends B. Service Revenue C. Interest payable D. Common Stock

A. Dividends

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. It contains only revenue and expense accounts.

Which of the following is the correct sequence of events? A. Journalize; post; prepare a trial balance B. Post; journalize; prepare a trial balance C. Prepare a trial balance; post; journalize D. Prepare a trial balance; journalize; post

A. Journalize; post; prepare a trial balance

When a company performs a service but has not yet received payment, it A. debits Accounts Receivable and credits Service Revenue. B. makes no entry until cash is received. C. debits Service Revenue and credits Accounts Receivable. D. debits Service Revenue and credits Accounts Payable.

A. debits Accounts Receivable and credits Service Revenue.

Assets: A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

A. increase debit and decrease credit

Dividends A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

A. increase debit and decrease credit

Expenses A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

A. increase debit and decrease credit

During 2012, 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. increased $40,000.

A credit to a liability account A. indicates an increase in the amount owed to creditors. B. indicates a decrease in the amount owed to creditors. C. is an error. D. must be accompanied by a debit to an asset account.

A. indicates an increase in the amount owed to creditors.

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.

When collection is made on Accounts Receivable, A. total assets will remain the same. B. total assets will decrease. C. stockholders equity will increase. D. total assets will increase.

A. total assets will remain the same.

Explain what an account is and how it helps in the recording process.

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

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.

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. An employee is terminated.

Which 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.

which of the following is the correct sequence of events? A. analyze a transaction; post it to the ledger; record it in the journal B. analyze a transaction; record it in the journal; post it to the edger C. record a transaction in the journal; analyze the transaction; post it to the ledger D. none of the above it the correct sequence

B. analyze a transaction; record it in the journal; post it to the edger

If expenses are paid in cash, then A. stockholders' equity will increase. B. assets will decrease. C. assets will increase. D. liabilities will decrease.

B. assets will decrease.

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. balance sheet only.

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. increase assets and increase stockholders' equity.

On. Jan. 10, Novis Company purchased manufacturing equipment for $80,000 cash. What kind of activity is this? A. Operating activity B. Financing activity C. Investing activity D. Accrual activity

C. Investing activity

Which of the following accounts has a normal credit balance? A. Prepaid Rent B. Notes Receivable C. Rent Revenue D. Rent Expense

C. Rent Revenue

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.

an account is a part of the financial information system and is described by all EXCEPT which one of the following: A. an account has a debt and credit side B. an account consists of three parts C. an account is a source document D. an account has a title

C. an account is a source document

Common Stock A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

C. decrease debit and increase credit

Liabilities A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

C. decrease debit and increase credit

Retained Earnings A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

C. decrease debit and increase credit

Revenues A. increase debit and decrease credit B. increase debit and increase credit C. decrease debit and increase credit D. decrease debit and decrease credit

C. decrease debit and increase credit

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.

the effect on the basic accounting equation of performing services for cash are: A. increase assets and increase liabilities B. increase liabilities and increase stockholder's equity C. increase assets and increase stockholder's equity D. increase assets and decrease stockholder's equity

C. increase assets and increase stockholder's equity

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. is a collection of the entire group of accounts maintained by a company.

If services are rendered on account, then A. liabilities will decrease. B. assets will decrease. C. stockholders' equity will increase. D. liabilities will increase.

C. stockholders' equity will increase.

What does a general ledger of a company contain? A. Revenue and expense accounts B. Asset and liability accounts C. All the asset, liability, and stockholders' equity accounts D. All the asset, liability, stockholders' equity, revenue, and expense accounts

D. All the asset, liability, stockholders' equity, revenue, and expense accounts

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.

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. Decreases assets and decreases liabilities.

Which of these statements about a journal is false? A. It discloses the complete effect of a transaction in one place. 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 contains only revenue and expense accounts.

D. It contains only revenue and expense accounts.

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.

In recording an accounting transaction in a double-entry system A. the number of debit accounts must equal the number of credit accounts. B. there must only be two accounts affected by any transaction. C. there must always be entries made on both sides of the accounting equation. D. the amount of the debits must equal the amount of the credits.

D. the amount of the debits must equal the amount of the credits.

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.

analyze the effect of business transactions on the basic accounting equation

Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding (a) decrease in another asset (b) increase in a specific liability (c) increase in stockholders' equity.

Classify cash activities as operating, investing, or financing.

Operating activities are the types of activities the company uses to generate profits. Investing activities relate to the purchase or sale of long-lived assets used in operating the business, or to the purchase or sale of investment securities (stock and bonds of other companies). Financing activities are borrowing money, issuing shares of stock, and paying dividends.

Explain what posting is and how it helps in the recording process.

Posting is the procedure of transferring journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts.

the basic form of an account

T account

Identify the basic steps in the recording process.

The basic steps in the recording process are: (a) analyze each transaction in terms of its effect on the accounts (b) enter the transaction information in a journal (c) transfer the journal information to the appropriate accounts in the ledger.

Explain what a ledger is and how it helps in the recording process.

The entire group of accounts maintained by a company is referred to collectively as a ledger. The ledger keeps in one place all the information about changes in specific account balances.

Explain what a journal is and how it helps in the recording process.

The initial accounting record of a transaction is entered in a journal before the data are entered in the accounts. A journal (a) discloses in one place the complete effect of a transaction, (b) provides a chronological record of transactions, and (c) prevents or locates errors because the debit and credit amounts for each entry can be readily compared.

Define debits and credits and explain how they are used to record business transactions.

The terms debit and credit are synonymous with left and right. Assets, dividends, and expenses are increased by debits and decreased by credits. Liabilities, common stock, retained earnings, and revenues are increased by credits and decreased by debits.

an individual accounting record of increases and decreases in specific asset, liability, stockholder's equity, revenue or expense items

account

the system of collecting and processing transaction data and communicating financial information to decision makers

accounting information system

events that require recording in the financial statements because they affect assets, liabilities, or stockholder's equity

accounting transactions

the process of identifying the specific effects of economic events on the accounting equation

analyzing transactions

the purpose of earning revenues is to:

benefit the stockholders

a list of a company's accounts

chart of accounts

most businesses use _______________ systems

computerized accounting (EDP) systems

for every debit there must be a _______

credit

if credits are greater than debits, the account will have a _______ balance

credit

right

credit

the right side of an account

credit

Comstock Company provided consulting services and billed the client $2,500. As a result of this event a. assets remained unchanged. b. assets increased by $2,500. c. equity increased by $2,500 d. Both b and c.

d. Both b and c.

if debits are greater than credits, the account will have a ________ balance

debit

left

debit

the left side of an account

debit

expenses ____ stockholders' equity

decrease

_______ & _______ decrease stockholders' equity

dividends & expenses

a system that records the two-sided effect of each transaction in appropriate accounts

double-entry system

issuance of stock is an investing activity. True or False?

false

the most basic form of journal

general journal

a ledger that contains all asset, liability, stockholder's equity, revenue, and expense accounts

general ledger

the normal balance is on the _____ side

increase

an accounting record in which transactions are initially recorded in chronological order

journal

the procedure of entering transaction data in the journal

journalizing

contains the entire group of accounts maintained by a company

ledger

_______ & _______ increase stockholders' equity (credit)

owner's investments & revenues

the procedure of transferring journal entry amounts to the ledger accounts

posting

the effect of debits and credits on revenue accounts is the ________ their effect on stockholders' equity

same as

________, such as a sales slip, a check, a bill, or a cash register tape, provide evidence of the transaction

source documents

the purpose of a trial balance is:

to prove that debits equal credits

______ are economic events that require recording in the financial statements

transactions

a list of accounts and their balances at a given time

trial balance