Accounting Exam 1

The adjusting entry required to record accrued expenses includes:

A credit to a liability.

The adjusting entry required to record deferred revenue includes:

A debit to a liability.

The owner of an office building should report rent collected in advance as a debit to Cash and a credit to:

A. A liability.

Which of the following accounts would normally have a credit balance?

A. Accounts Payable, Service Revenue, Common Stock.

Which of the following accounts would normally have a debit balance and appear in the balance sheet?

A. Accounts Receivable.

For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:

A. Assets = Liabilities + Stockholders' Equity.

Clement Company paid an account payable related to a previous utility bill of $1,000. This transaction should be recorded as follows on the payment date:

A. Debit Accounts Payable $1,000, credit Cash $1,000.

Jerome purchased a building for his business by signing a note to be repaid over the next ten years. Which of the following correctly describes how to record this transaction?

A. Debit assets, credit liabilities.

Dividends normally carry a _______ balance and are shown in the ______________.

A. Debit; Statement of stockholders' equity

Which of the accounts are decreased on the debit side and increased on the credit side?

A. Liabilities, stockholders' equity, and revenues.

Which of the following transactions causes a decrease in stockholders' equity?

A. Pay dividends to stockholders.

The accounting basis that helps to measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners is referred to as:

Accrual-basis.

Providing goods or services to customers on account is an example of a(n):

Accrued Revenue

Allow for the proper recognition of revenue and expenses in accrual-basis accounting

Adjusting entries

Is a list of all accounts and their balances after adjusting entries, incorporate current year deferrals and accruals

An adjusted trial balance

When a payment is made on an account payable:

Assets and liabilities decrease.

Investments by stockholders have what effect on the accounting equation?

Assets increase and stockholders' equity increases.

When a company issues common stock for cash, what is the effect on the accounting equation for the company?

Assets increase and stockholders' equity increases.

When a company provides services on account, the accounting equation would be affected as follows:

Assets increase and stockholders' equity increases.

A(n) _______________ summarizes all transactions related to a particular item over a period of time.

B. Account

The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the: A. Trial balance B. Accounting cycle C. Chart of accounts D. General ledger

B. Accounting cycle

Revenues normally carry a _______ balance and are shown in the ______________.

B. Credit; Income statement

Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as:

B. Debit Cash, credit Service Revenue.

Which of the following is not a possible journal entry? A. Credit assets; Debit expenses. B. Debit assets; Debit stockholders' equity. C. Credit revenues; Debit assets. D. Debit expenses; Credit liabilities.

B. Debit assets; Debit stockholders' equity.

An increase to an expense account is shown with a ______________. An increase to a revenue account is shown with a ______________.

B. Debit; Credit

Expenses normally carry a _______ balance and are shown in the ______________.

B. Debit; Income statement

Which of the following is possible for a particular business transaction?

B. Decrease assets; Increase assets

The following statements pertain to recording transactions. Which of them are true? I. Total debits should equal total credits. II. It is possible to have multiple debits or credits in one journal entry. III. Assets are always listed first in journal entries. IV. Some journal entries will have debits only.

B. I and II.

Which of the following accounts has a credit balance?

B. Income Tax Payable.

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits for the period? A. Use source documents to determine accounts affected by the transaction. B. Prepare a trial balance. C. Analyze the impact of the transaction on the accounting equation. D. Post the transaction to the T-account in the general ledger.

B. Prepare a trial balance.

Which financial statement provides information for a point in time only?

Balance sheet

Tyler Incorporated receives $150,000 from investors in exchange for shares of its common stock. Tyler Incorporated records this transaction with a:

C. Credit to Common Stock.

Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a:

C. Credit to Notes Payable.

Liabilities normally carry a _______ balance and are shown in the ______________.

C. Credit; Balancesheet

On July 7, Saints Inc. received $10,000 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7?

C. Debit Cash $10,000, credit Deferred Revenue $10,000.

When a company pays $2,500 dividends to its stockholders, the transaction should be recorded as:

C. Debit Dividends ; credit Cash.

Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit are:

C. Debit Prepaid Insurance $18,000, credit Cash $18,000.

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:

C. Debit Prepaid Rent, credit Cash.

Daniel Dino Restaurant owes employees' salaries of $15,000. This would be recorded as:

C. Debit Salaries Expense, credit Salaries Payable.

An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________.

C. Debit; Credit

An increase to an asset account is shown with a ______________. A decrease to an asset account is shown with a ______________.

C. Debit;Credit

Incurring an expense for advertising on account would be recorded by:

C. Debiting an expense.

Which of the following is true about a "debit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance. II. It represents an increase to assets. III. It represents a decrease to liabilities. IV. It is on the right side of a T-account.

C. I, II, and III.

A transaction is initially recorded in the general ______, and then subsequently posted to the general ______.

C. Journal; Ledger

Which of the following transactions would cause a decrease in both assets and stockholders' equity?

C. Paying advertising for the current month.

Which of the following transactions would cause an increase in both the assets and liabilities of a company?

C. Purchase of a building by issuing a note payable.

"Record revenue when goods or services are provided to customers" is the definition of which principle in accounting?

C. Revenue recognition.

Posting is the process of:

C. Transferring the debit and credit information from the journal to individual accounts in the general ledger.

External events include all of the following except: A. Payingrent. B. Purchasing equipment. C. Usingofficesupplies. D. Collecting an account receivable.

C. Using office supplies.

Prepayments occur when _____ payment (or an obligation to pay cash) occurs before the expense recognition.

Cash

When cash payments are made to stockholders, what is the effect on the company's accounts?

Cash decreases and dividends increase.

The accounting basis that records revenues when cash is received and expenses when cash is paid is referred to as:

Cash-basis.

A list of all account names used to record transactions of a company is referred to as the:

Chart of Accounts

Shows subtotals for current assets and current liabilities

Classified Balance sheet

A trial balance can best be explained as a list of:

D. All accounts and their balances at a particular date.

Which of the accounts are increased with a debit and decreased with a credit?

D. Assets, dividends, and expenses.

Which of the following accounts would normally have a debit balance?

D. Cash, Delivery expense, Dividends.

Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as:

D. Debit Equipment, credit Notes Payable.

Sooner purchased office supplies on account. The transaction would be recorded as:

D. Debit Supplies, Credit Accounts Payable

Providing services on account would be recorded with a:

D. Debit to Accounts Receivable.

A debit in a journal entry is always posted to the general ledger as a(n):

D. Debit.

Assets normally carry a _______ balance and are shown in the ______________.

D. Debit; Balance sheet

Which of the following is true about a "credit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance. II. It represents a decrease to assets. III. It represents an increase to liabilities. IV. It is on the right side of a T-account.

D. I, II, III, and IV.

The term commonly used in accounting to describe the format for recording a transaction is:

D. Journal entry

On December 1, Bears Inc. signed a contract with a retailer to supply maintenance for the next calendar year. How should this transaction be recorded on December 1?

D. No transaction should be recorded on December 1.

Which of the following accounts has a debit balance?

D. Salaries Expense.

Posting transactions to T-accounts involves:

D. Transferring debit and credit information from the journal to the accounts in the general

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

Decrease assets and decrease stockholders' equity.

An expense has what effect on the accounting equation?

Decrease stockholders' equity.

Customers paying cash in advance of the good or service to be provided.

Deferred Revenue

Receiving cash from customers before services are performed results in (ex: one year subscription)

Deferred Revenues.

The amount earned from customers compared to the cost of doing so.

Income Statement

Which of the following is NOT possible for a business transaction? A. Increase assets and decrease revenue. B. Decrease assets and increase expense. C. Increase liabilities and increase expense. D. Decrease liabilities and increase revenue.

Increase assets and decrease revenue.

Purchasing office supplies on account will:

Increase assets and increase liabilities.

Providing services and receiving cash will:

Increase assets and increase stockholders' equity.

Revenues have what effect on the accounting equation?

Increase stockholders' equity.

Receiving cash from an account receivable:

Increases one asset and decreases another asset.

When the amount of interest receivable decreases during an accounting period Accrual-basis revenues are _____ than cash collections from borrowers.

Less

Which of the following is not possible when recording a transaction?

Liabilities increase and assets decrease.

Purchasing office equipment on account has what impact on the accounting equation?

Liabilities increase and assets increase.

A trial balance represents the:

List of all accounts and their balances at a particular date to ensure that debits equal credits.

Resources owned by the company that will provide a benefit for more than one year are called:

Long term assets

Which of the following is not part of measuring external transactions? A. Using source documents to analyze accounts affected. B. Recording transactions. C. Making payments on all amounts owed. D. Analyzing transactions for their effect on the accounting equation.

Making payments on all amounts owed.

All costs that are used to generate revenue are recorded in the period the revenue is recognized.

Matching

When a company pays cash for equipment, what is the effect on the accounting equation for that company?

No change.

When a company pays employees' salaries for the current period, how will the basic accounting equation be affected?

Stockholders' equity decreases.

Purchasing supplies for cash has what effect on the accounting equation?

No effect.

When a company provides services on account, which of the following would be recorded using cash-basis accounting?

No entry

Long-term productive assets used in the normal course of business are typically classified as:

Property, plant, and equipment.

Which of the following would increase assets and increase liabilities?

Purchase office supplies on account.

If a company provides services on account, which of the following is true?

Stockholders' equity increases.

The _____ of when revenues and expenses are recorded is the primary difference between accrual-basis and cash-basis accounting is:

Timing

Cash payment occurs after the expense is recognized and a liability is recorded.

accrued expense

Revenue being recorded prior to cash collection from the customer.

accrued revenue

Always involve at least one income statement account and one balance sheet account.

adjusting entries

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality

When the balance of the Deferred Revenue account decreases during an accounting period Accrual-basis revenues ______ cash collections from customers.

exceeds

How quickly the asset can be converted to cash.

liquidity

Making insurance payments in advance is an example of a(n):

prepaid expense

Revenue should be recognized in the period goods and services are provided

revenue recognition principle