Ch 2: Accounting for Business Transactions

In defining a reporting period, which of the following statements is (are) correct?

A reporting period can be one month, one quarter or one year. A one-year reporting period is known as the fiscal year. A reporting period is determined by the business.

Which of the following is the best definition of a source document in the accounting process?

A source document identifies and describes transactions and is the basis for entering an event into the accounting system.

Which of the following statements explains what a trial balance is?

A trial balance confirms that the sum of debit account balances equals the sum of credit account balances.

Which of the following accounts would be considered an asset?

Accounts receivable Supplies Building Cash

Which statement best describes a T-account?

A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions.

Which of the following statements is (are) correct regarding a T-account?

A T-account will show the debit and credit effects of transactions. A T-account represents a ledger account. A T-account may be used as a tool to visualize the effects of a transaction.

It is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred

A journal

The correct definition of an "account" includes which of the following?

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

It is a list of each account and its balance at any given time and is used to verify that debits = credits

A trial balance

Which statement is correct regarding entering transactions into the accounting equation?

After recording a transaction, the total of the right side of the accounting equation must equal the total of the left side of the accounting equation.

Given the descriptions below, which is (are) true regarding notes receivable?

Another name for a note receivable is a promissory note. It is the promise of another entity to pay a specific sum of money on a specified future date. Notes receivable is classified as an asset.

Identify which of the following lists include only examples of assets.

Building, Cash, Accounts receivable

Which of the following would be considered a source document in an accounting system?

Checks Sales receipt Payroll records Purchase order

Cash can take many forms. From the lists of items below, choose the one which includes only items that would be defined as cash.

Coins, checks, money orders

J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below.

Debit Cash; credit Common stock

Which set of accounts below would have a normal debit balance?

Expenses; Dividends; Cash

True or false: Assets are claims (by creditors) against the company.

False

Which of the following statements is the best definition of the Chart of Accounts?

It is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account.

When preparing a trial balance, there are certain steps that need to be followed. Place the following steps in the correct order.

List each account title and its amount from ledger. Compute the total of debit balances equal total credit balance. Verify total debit balances equal total credit balances.

Which of the following statements correctly explains how to prepare a trial balance?

List each account title and its amount from the ledger. Verify that the total debit balances equals the total credit balances. If an account has a zero balance, it may be omitted entirely. Compute the total of debit balances and the total of credit balances.

Which of the following items would be considered "cash" and reflected in a company's Cash account?

Money orders Coin Checks

Which of the following financial statements report(s) the financial position of a business over a period of time?

Statement of cash flows Statement of retained earnings Income statement

It is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account

a chart of accounts

Notes receivable is considered a(n) _______

asset

Prepaid accounts are ________ (assets/liabilities) that represent prepayments of future expenses and are increased with a ________ (debit/credit).

assets, debit

L. Lyons started a business and invested $4,000 in exchange for common stock. Illustrate how to record the transaction in the T-accounts by completing the following sentence. The Cash account would be _________ (debited/credited) on the ___________ (left/right) side of the T-account and the Common stock account would be ______________ (debited/credited) on the _________ (left/right) side of the T-account.

debited; left; credited; right

An account is a record of increases and ______ in a specific asset, liability, equity, revenue or expense.

decreases

After entering a transaction into the accounting equation, an increase in total assets can be accompanied by a(n) (increase/decrease) _______ in total liabilities or (equity/assets)

increase; equity

After entering a transaction into the accounting equation, an increase in total assets can be accompanied by a(n) (increase/decrease) __________ in total liabilities or (equity/assets) _________.

increase; equity

The general ledger can be used to determine which of the following...

increases and decreases in all accounts in a business. which accounts are being used by a company and their balances at any given time. common and unique accounts used by a business.

A trial balance is a(n) (list/balance/chart) _________ of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of ________ account balances.

list; credit

Transferring entries from the journal to the ledger is called (posting/preparing/journalizing)

posting

It is a collection of all accounts with their activity and balances that exist in a business.

A general ledger

An annual insurance policy is paid in advance by a company. How will the company treat this initial payment and the subsequent expiration of a portion of the policy over time?

As a portion of the policy expires, the expired portion will be removed and transferred to an expense account. Over time, the expired portion of the policy must be removed from the asset account as it has been used up and is no longer considered an asset. The initial payment will be recorded as an increase to a Prepaid Insurance account.

Which of the following statements is the best definition of an asset?

Assets are resources owned or controlled by a company and that have expected future benefits.

Which of the following is correct regarding posting a transaction?

Posting means to transfer journal information to a ledger.

Which of the following statements is correct about prepaid expenses?

Prepaid expenses are also called prepaid accounts and are considered assets.

Choose the account(s) below, that would have a normal credit balance.

Revenues Unearned Revenues Accounts Payable Common Stock

Which of the following describes a general ledger?

The general ledger is a record containing all accounts used by a company.