Chapter 3 - The Accounting Information Systems

What is the entire group of accounts maintained by a company called? a. general Journal b. trial balance c. chart of accounts d. general ledger

general ledger

Transactions are entered in the journal and then transferred to ledger accounts. trial balance sheets. source documents. a statement of cash flows.

ledger accounts

Which of the following economic events is an accounting transaction? a. creation of prototypes to accompany a bid for work b. the hiring of a new employee c. corporate decisions about new product lines d. the purchase of new computers

purchase of new computers

When an accountant examines a source document as part of the recording process, what is the desired outcome? the transfer of the information to the ledger accounts the verification of evidence of the accounts the identification of the respective business documents the determination of the effects on the accounts

the determination of the effects on the accounts

A journal is used as evidence upon which to determine which financial statement to which a transaction will be transferred. to enter transactions. as evidence to determine a transaction's effects on specific accounts. as proof that the financial statements were properly prepared.

to enter transactions.

Which of the following accounting entries would you MOST expect to accompany a $2,500 increase in cash, and why? a. A $2,500 decrease in unearned service revenue, because unearned service revenue is considered an asset no matter when it is received. b. A $2,500 increase in notes payable, because this increase in stockholders' equity would need to be offset by a corresponding increase in assets. c. A $2,500 increase in unearned service revenue, because unearned service revenue is considered a liability until the service is actually performed. d. A $2,500 decrease in notes payable, because this reduction in liabilities would need to be offset by a corresponding increase in assets.

A $2,500 increase in unearned service revenue, because unearned service revenue is considered a liability until the service is actually performed.

You are the accountant responsible for creating financial documents and recording transactions. In which order will you perform the following actions related to these tasks? I. create financial statements II. record transactions in the ledger III. examine business documents IV. record transactions in the journal

III, IV, II, I

On November 15, Paulson Painting received a $6,000 cash payment from Apex Inc. in exchange for painting services to be provided in December. When posting the journal entries related to this payment, Paulson's accountant debits the Cash account for $6,000 and credits Service Revenue for $6,000. Which of the following statements best describes the results of this posting? In Paulson's general ledger, the ending balance for the Cash account will be too low, the ending balance for the Service Revenue account will be too low, and the ending balance for the Unearned Service Revenue account will be too high. In Paulson's general ledger, the ending balances for both the Cash account and the Service Revenue account will be correct. In Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low. In Paulson's general ledger, the ending balances for the Cash and Service Revenue accounts will be too high. However, the ending balance for the Unearned Service Revenue account will be too low.

In Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low.

On February 2, Miles Inc. pays $800 to purchase a one-year insurance policy that will expire next year on January 31. Miles indicates this transaction in its books by recording an $800 reduction in cash and an $800 increase in expenses. Did Miles make the proper accounting entries? Why or why not? No, Miles did not make the proper accounting entries. Prepaid insurance is a liability, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 decrease in prepaid insurance (a liability account). No, Miles did not make the proper accounting entries. Prepaid insurance is a liability, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (a liability account). No, Miles did not make the proper accounting entries. Prepaid insurance is an asset, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (also an asset account).

No, Miles did not make the proper accounting entries. Prepaid insurance is an asset, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (also an asset account).

Karen Pollard owns an ice cream shop. She is in the middle of her accounting period, and she wants to know the amount of accounts receivable owed to the company. Should she look at the trial balance first? Why or why not? a. No; the trial balance is only up-to-date at the end of the accounting period. b. Yes; the trial balance is kept up-to-date after every transaction. c. No; the trial balance only shows credit accounts, not debit accounts. d. No; the trial balance only gives an estimate of the amount in each account, not a specific value.

No; the trial balance is only up-to-date at the end of the accounting period.

Which of the following events would lead to a decrease in a firm's retained earnings, and why? a. Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered an expense, and an increase in expenses will reduce a firm's retained earnings b. Payment of $10,000 in employee salaries, because salaries are considered a liability, and an increase in liabilities will reduce a firm's retained earnings c. Payment of $10,000 in employee salaries, because salaries are considered an expense, and an increase in expenses will reduce a firm's retained earnings d. Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered a liability, and an increase in liabilities will reduce a firm's retained earnings

Payment of $10,000 in employee salaries, because salaries are considered an expense, and an increase in expenses will reduce a firm's retained earnings

How would the Salaries and Wages Payable account compare with the Salaries and Wages Expense account in terms of classification in the ledger? Both would be found in the liabilities section. Salaries and Wages Payable would be found in the liabilities section while Salaries and Wages Expense would be found in the stockholders'; equity section. Salaries and Wages Payable would be found in the stockholders' equity section while Salaries and Wages Expense would be found in the liabilities section. Both would be found in the stockholders' equity section.

Salaries and Wages Payable would be found in the liabilities section while Salaries and Wages Expense would be found in the stockholders'; equity section.

Which of the following describes the standard form of a journal entry? The credit account is entered first and indented. The debit account is entered first at the extreme left margin. The debit account is entered first and indented. The credit account is entered first at the extreme left margin.

The debit account is entered first at the extreme left margin.

Which of the following is true concerning any account? The debit side indicates an increase. The credit side indicates a decrease. The identification of which side is debit or credit depends upon the type of account. The left side is a debit.

The left side is a debit.

Pickett, Inc. recorded its monthly transactions in the journal but failed to record a transaction involving cash received from customers on January 14. Assuming Pickett performed all subsequent steps in the recording process correctly for the month, what will likely occur? The transaction will be transferred to the ledger, but not to the financial statements. The transaction will be transferred to the financial statements, but not be incorporated to appropriate accounts in the ledger. The transaction will be correctly analyzed, but will not be supported by the appropriate business documents. The transaction will not be transferred to the ledger, nor incorporated in the financial statements.

The transaction will not be transferred to the ledger, nor incorporated in the financial statements.

During October, Blue Sky Inc. correctly enters a $10,000 credit to its Revenues account. What conclusions can be made based on this accounting entry? This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income and ending retained earnings increased while its stockholders' equity decreased. This entry indicates that Blue Sky lost $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all decreased. This entry indicates that Blue Sky lost $10,000 in revenue in October, which likely means that the firm's net income and ending retained earnings decreased while its stockholders' equity increased. This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all increased.

This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all increased.

Which of the following results when a company purchases equipment for $1,800 cash? Both assets and stockholders' equity decrease by $1,800. Assets increase by $1,800. Total assets remain unchanged. Stockholders' equity decreases by $1,800.

Total assets remain unchanged.

When calculating the balance of the Sales Revenue account, you find that the balance is lower than expected. However, according to your Balance Sheet and your analysis of the accounting equation, all of your debits and credits are equal across accounts. What is the most likely explanation for this? You failed to record an entry in the Sales Revenue account even though it was posted to the Cash account. You recorded an entry in the Sales Revenue account as a debit rather than a credit. You made a digit transpose error while recording an entry in the Sales Revenue account. You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents.

You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents.

Which of the following is included in the journal entry for equipment purchased for $20,000 by paying $5,000 cash and signing a note for the remainder? credit to Notes Receivable credit to Equipment debit to Notes Payable credit to Cash

credit to Cash

The normal balances in stockholders' equity accounts are all credits except for expenses that are debits. all credits, like liabilities. credits for Common Stock and Retained Earnings, but debits for all others. credits for Common Stock, Retained Earnings, and revenues, but debits for the others.

credits for Common Stock, Retained Earnings, and revenues, but debits for the others.

Although possible, few businesses a. use the double-entry bookkeeping method. b. prepare financial statements. c. enter transactions directly into the accounts. d. examine source documents.

enter transactions directly into accounts

The first step in transferring journal entry amounts to ledger accounts involves entering in the appropriate ledger account the date and debit amount shown in the journal. writing in the journal the account number to which the credit amount was posted. writing in the journal the account number to which the debit amount was posted. entering in the appropriate ledger account the date, journal page, and credit amount shown in the journal.

entering in the appropriate ledger account the date and debit amount shown in the journal.