True/False

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Component percentages on an income statement are calculated by dividing sales and total expenses by net income.

False

If the difference between the totals of Debit and Credit columns on a work sheet can be evenly divided by 9, then the error is most likely in addition.

False

Net income on a work sheet is calculated by subtracting the Income Statement Credit column total from the Income Statement Debit column total

False

Separate amounts in general amount columns are not posted individually.

False

Separate amounts in special amount columns are posted individually.

False

The accounting concept Consistent Reporting is being applied when a word processing service business reports revenue per page one year and revenue per hour the next year.

False

The accounting equation is most stated as: Assets + Liabilities = Owner's Equity

False

The balance of the supplies account plus the value of the supplies on hand equals the up-to-date balance of the supplies account.

False

The capital account is the owner's liability account.

False

The cash account is the first asset account and is numbered 100.

False

The column total of the General Debit column is posted.

False

The current capital to be reported on a balance sheet is calculated as: the capital account balance plus net income equals current capital.

False

The only reason for the Post. Ref. columns of the journal and general ledger is to indicate which entries in the journal still need to be posted if posting is interrupted.

False

The petty cash fund is a liability with a normal debit balance.

False

The posting reference should always be recorded in the journal's Post Ref. column before amounts are recorded in the ledger.

False

The procedure of arranging accounts in a general ledger, assigning account numbers, and keeping records currents is posting.

False

The steps for posting are to write the date, journal page number, amount, and balance.

False

The two steps for opening an account are writing the account title and recording the balance.

False

The year and the month is written on each journal page only for the first entry.

False

To correct an error in a journal, simply erase the incorrect term and write the correct item in the same place.

False

If the previous account balance and the current entry posted to an account are both debits, the new account balance is a debit.

True

The source document for an electronic funds transfer is a memorandum.

True

The source document for cash payment transactions is a check.

True

Transactions are recorded in a journal in chronological order.

True

Withdrawals are assets taken out of a business for the owner's personal use.

True

A balance sheet reports financial information over a specific period of time.

False

An amount written in parentheses on a financial statement indicates an estimate.

False

Asset accounts increase on the credit side.

False

Information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a work sheet.

False

The drawing account is a permanent account.

False

The income summary account has a normal debit balance.

False

The left side of an asset account is the credit side because asset accounts are on the left side of the accounting equation.

False

The normal balance side of an accounts receivable is a credit.

False

The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income.

False

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.

False

Journal entries used to prepare temporary accounts for a new fiscal period are closing entries.

True

Preparing a work sheet at the end of each fiscal period to summarize the general ledger information needed to prepare financial statements is an application of the accounting concept Accounting Period Cycle.

True

Temporary accounts must start each fiscal period with a zero balance.

True

The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

True

The balances of the expense accounts must be reduced to zero to prepare the accounts for the next fiscal period.

True

The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period.

True

The formula for calculating net income is total revenue minus total expenses equals net income.

True

The formula for calculating the total expenses component percentage is: total expenses divided by total sales equals total expenses component percentage.

True

The journal columns used to record paying cash for rent are general debit and cash credit.

True

The journal columns used to record receiving cash from sales are cash debit and sales credit.

True

The most common type of withdrawal by an owner from a business is the withdrawal of cash.

True

The net income calculated for the income statement and the net income on the work sheet must be the same.

True

The source document for a debit card purchase is a memorandum.

True

To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance.

True

To summarize withdrawal information separately from the other records, owner withdrawal transactions are recorded in the owner's capital account.

False

Total assets are the amount the owner has invested in the business

False

Each asset account has a normal debit balance

True

When financial records for a business and for it's owner's personal belongings are not mixed, this is an application of the Business Entity accounting concept.

True

With the exception of the totals lines, the Post. Ref. column is completely filled in with either an account number or a check mark.

True

Increases to liability accounts are recorded on the debit side.

False

Journals, ledgers, and work sheets are considered permanent records.

False

On an income statement, double lines are ruled across both amount columns to indicate that debits equal credits.

False

Ownership of a check cannot be transferred.

False

Financial information may be reported any time a business needs it.

True

The objective evidence accounting concept requires that there be proof that a transaction did occur

True

The owner's equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.

True

A balance sheet has three sections: heading, assets, and liabilities.

False

When petty cash is replenished, Petty Cash is debited and Cash is credited.

False

A bank requires that the signature of the person authorized to sign checks be on the signature card.

True

A check mark in parentheses below a General Debit column total indicates that the total is not posted.

True

A check with a blank endorsement can be cashed by anyone who has the check

True

A component percentage is the percentage relationship between one financial statement item and the total that includes that item.

True

A group of accounts is called a ledger.

True

A list of accounts used by a business is a chart of accounts.

True

A receipt is the source document for cash received from transactions other than sales.

True

Increases in expense accounts are recorded as debits because they decrease the owner's capital account.

True

Making adjustments to general ledger accounts is na application of the Matching Expenses with Revenue accounting concept.

True

Only the column totals for special amount columns in a journal are posted.

True

Payments for advertising, equipment repairs, utilities, and rent are expense transactions.

True

Prepaid insurance is decreased with a credit.

True

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.

True

The account number is placed in the Post. Ref. column of the journal as the last step in the posting procedure.

True

The balance of an account increases on the same side as the normal balance side.

True

The financial condition of a business refers to its financial strength.

True

When an owner withdraws cash from the business, the transaction affects both assets and owner's equity

True

When cash is paid for supplies, the supplies account is increased by debit.

True

When items are bought and paid for at a future date another way to state this is to say these items are bought on account.

True

The two accounts affected by the adjustment for insurance are Prepaid Insurance Expense and Insurance.

False

A source document is prepared for adjusting entries.

False

A transaction for the sale of goods or services results in a decrease in owner's equity.

False

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

True

A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted.

True

Account numbers may be assigned by 10s so that new accounts can be added easily.

True

Advertising expense is increased with a debit.

True

After each transaction, the accounting equation must remain in balance.

True

Two financial statement are prepared from the information on the work sheet.

True

Using a memorandum as the source document for a dishonored check is an application of the accounting concept Objective Evidence.

True

Voided checks should be recorded in the journal.

True

When adding a new expense account between accounts numbered 510 and 520, the new account is assigned the account number 515.

True

When two assets are the amount the owner has invested in the business.

True

A withdrawal is an expense.

False

An accounting device used to analyze transactions is a T account.

True

An expense is a decrease in owner's equity resulting from the operation of a business.

True

An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss.

True

The capital account's new balance after all closing entries are posted is verified by checking it with the amount of capital shown on the balance sheet at the end of the fiscal period.

Ture

An outstanding check is one that has been issued but not yet reported on a bank statement by the bank.

True

At the end of a fiscal period, the balances of temporary accounts are summarized and transferred to the owner's capital accounts.

True

Cash is always proved at the end of a month.

True

Detailed information about changes in owner's equity is needed by owners and managers to make sound business decisions.

True

Double lines are ruled across a journal's amount column to indicate that the totals have been verified as correct.

True

Each liability account has a normal credit balance

True

Each transaction changes the balances in at least two accounts.

True

For a service business, the revenue reported on an income statement includes components for total expenses and net income.

True

If a business has only two asset accounts, Cash and Supplies, the two accounts are numbered 110 and 120.

True

If an amount is written in an incorrect column on a work sheet, the error should be erased and the amount should be written in the correct column.

True

If the Trial Balance columns are not equal and the difference is $50.00, the error most likely is a $25.00 amount written in the wrong column.

True

Cash is increased with a credit.

False

Common accounting practice is to record withdrawals as debits directly in the owner's capital account.

False

A complete entry consists of the date, the debut amount, and the credit amount.

False

A drawing account is decreased by debits and increased by credits.

False

A journal page number is written in the Post. Ref. column of an account to show that posting of the entry is completed.

False

A journal shows in one place all the changes in a single account.

False

Accounts payable are increased with a debit.

False

An amount recorded on the left side of a T account is a credit.

False


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