Chapter 2: Recording Business Transactions

A business borrows cash by signing a note payable. Which of the following accounts will be credited? A) Notes Payable B) Accounts Payable C) Bank D) Cash

Answer: A

A business collects cash from a customer on settlement of accounts receivable. Which of the following accounts will be debited? A) Cash B) Accounts Receivable C) Service Revenue D) Accounts Payable

Answer: A

A business makes a cash payment of $12,000 to a creditor. Which of the following accounts will be credited? A) Cash B) Accounts payable C) Bank D) Accounts receivable

Answer: A

A business makes a cash payment to a supplier on account (for Office Supplies which were purchased earlier.) Which of the following accounts will be credited? A) Cash B) Accounts Payable C) Office Supplies D) Utilities Expense

Answer: A

A business pays $500 cash for office supplies. Which of the following accounts will be credited? A) Cash B) Accounts Payable C) Office Supplies D) Utilities Expense

Answer: A

A business purchases equipment for $8,000 cash. Which of the following accounts will be credited? A) Cash B) Accounts Payable C) Sandra, Capital D) Equipment

Answer: A

A business renders services for $26,000 and collects cash from the customer. Which of the following accounts will be debited? A) Cash B) Accounts Receivable C) Service Revenue D) Bank

Answer: A

A customer's promise to pay in the future for services or goods sold is called a(n): A) Accounts Receivable. B) Accounts Payable. C) Unearned Revenue. D) Notes Payable.

Answer: A

For Owner's Capital, the category of account and its normal balance is: A) equity and a credit balance. B) assets and a debit balance. C) equity and a debit balance. D) assets and a credit balance.

Answer: A

For Revenues, the category of account and its normal balance is: A) owner's equity and a credit balance. B) assets and a debit balance. C) assets and a credit balance. D) owner's equity and a debit balance.

Answer: A

For the Cash account, the category of account and its normal balance is: A) assets and a debit balance. B) liabilities and a credit balance. C) liabilities and a debit balance. D) assets and a credit balance.

Answer: A

The account title used for recording the prepayment of rent for a building in the future is: A) prepaid rent. B) rent payable. C) rent revenue. D) rent expense.

Answer: A

Which of the following accounts decreases with a credit? A) Cash B) Smith, Capital C) Accounts Payable D) Notes Payable

Answer: A

Which of the following accounts increases with a debit? A) Cash B) Interest Payable C) Accounts Payable D) Smith, Capital

Answer: A

Which of the following groups of accounts normally have a debit balance? A) assets and expenses B) revenues and expenses C) liabilities and owner's equity D) assets and liabilities

Answer: A

Which of the following is a liability account? A) Accounts Payable B) Prepaid Expense C) Salaries Expense D) Service Revenue

Answer: A

Which of the following is an asset account? A) Cash B) Notes Payable C) Owner's Withdrawals D) Expenses

Answer: A

An amount owed but not paid is called a(n): A) prepaid expense. B) adjusted liability. C) accrued liability. D) note receivable.

Answer: C

Sandra invests $40,000 in her new business by depositing the cash in the business's bank account. Which of the following accounts will be credited? A) Accounts Receivable B) Cash C) Sandra, Capital D) Accounts Payable

Answer: C

The Accounts Payable account is a(n) ________ account and carries a ________ normal balance. A) liability; debit B) asset; debit C) liability; credit D) asset; credit

Answer: C

The Salaries Payable account is a(n): A) liability account with a normal debit balance. B) asset account with a normal debit balance. C) liability account with a normal credit balance. D) asset account with a normal credit balance.

Answer: C

The owner of a business withdrew cash for personal use. Which of the following accounts will be credited? A) Smith, Capital B) Smith, Withdrawals C) Cash D) Accounts Payable

Answer: C

Which of the following groups of accounts normally have a credit balance? A) assets and liabilities B) capital and assets C) liabilities and owner's equity D) assets and expenses

Answer: C

Which of the following groups of accounts will decrease with a debit? A) assets and expenses B) revenues and expenses C) liabilities and owner's equity D) assets and liabilities

Answer: C

Which of the following is a collection of all the accounts, the changes in those accounts, and their balances? A) source document B) journal C) ledger D) trial balance

Answer: C

Which of the following is the fifth and last step in the journalizing and posting process? A) posting the accounts to the ledger B) identifying each account affected and its type C) determining whether the accounting equation is in balance D) determining whether each account has increased or decreased

Answer: C

Which of the following sequences is the normal sequence of flow of accounting data? A) Ledger → Journal → Source document B) Journal → Source document → Ledger C) Source document → Journal → Ledger D) Source document → Ledger → Journal

Answer: C

A business borrows cash by signing a note payable. Which of the following accounts will be debited? A) Notes Payable B) Accounts Payable C) Bank D) Cash

Answer: D

A business makes a payment in cash for advertising expense. Which of the following accounts will be debited? A) Cash B) Bank C) Accounts Receivable D) Advertising Expense

Answer: D

A business purchases equipment for $8,000 cash. Which of the following accounts will be debited? A) Cash B) Accounts Payable C) Sandra, Capital D) Equipment

Answer: D

A business renders services to a client and issues a sales invoice. The amount will be collected from the customer at a later time. Which of the following would be true at the time the invoice is issued? A) Owner's equity will decrease. B) Total liabilities will increase. C) Total assets will decrease. D) Net income will increase.

Answer: D

A listing of all account titles in numerical order is called a(n): A) ledger. B) journal. C) income statement. D) chart of accounts.

Answer: D

A shortened form of an account in the ledger is called a: A) trial balance. B) balance sheet. C) chart of accounts. D) T-account.

Answer: D

An accounting entry that is characterized by having multiple debits and/or multiple credits is called a ________ entry. A) balanced B) posted C) chart of accounts D) compound journal

Answer: D

For Expenses, the category of account and its normal balance is: A) owner's equity and a credit balance. B) assets and a debit balance. C) assets and a credit balance. D) owner's equity and a debit balance.

Answer: D

Journalizing a transaction involves: A) calculating the balance in an account using journal entries. B) posting the account balances in the chart of accounts. C) preparing a summary of account balances. D) recording the data only in the journal.

Answer: D

Nuptial Inc. paid the rent for the current month in cash. Which of the following account titles will be debited? A) Prepaid rent B) Rent payable C) Rent revenue D) Rent expense

Answer: D

The earnings that result from delivering goods or services to customers are called: A) notes receivable. B) unearned revenues. C) capital. D) revenues.

Answer: D

Which of the following is a liability account? A) Accounts Receivable B) Cash C) Building D) Notes Payable

Answer: D

Which of the following is a liability account? A) Service Revenue B) Building C) Accounts Receivable D) Unearned Revenue

Answer: D

Which of the following is an asset account? A) Salaries Expense B) Accounts Payable C) Service Revenue D) Prepaid Expense

Answer: D

Which of the following is an asset account? A) Wages Payable B) Notes Payable C) Unearned Revenue D) Accounts Receivable

Answer: D

Which of the following statements is true of expenses? A) Expenses increase owner's equity, so an expense account's normal balance is a credit balance. B) Expenses decrease owner's equity, so an expense account's normal balance is a credit balance. C) Expenses increase owner's equity, so an expense account's normal balance is a debit balance. D) Expenses decrease owner's equity, so an expense account's normal balance is a debit balance.

Answer: D

Which of the following statements is true of revenue? A) Revenues decrease owner's equity, so a revenue account's normal balance is a credit balance. B) Revenues decrease owner's equity, so a revenue account's normal balance is a debit balance. C) Revenues increase owner's equity, so a revenue account's normal balance is a debit balance. D) Revenues increase owner's equity, so a revenue account's normal balance is a credit balance.

Answer: D

1) A chart of accounts is a detailed record of the changes in a particular asset, liability, or owner's equity.

Answer: FALSE

A debit always means a decrease and a credit means increase.

Answer: FALSE

A liability account is increased by a debit.

Answer: FALSE

A payable involves a future receipt of cash.

Answer: FALSE

All asset accounts and equity accounts increase with a debit.

Answer: FALSE

An accounts receivable requires the business to pay cash in future.

Answer: FALSE

Debit refers to the right side of the T-account and credit refers to the left side.

Answer: FALSE

Liabilities are economic resources that are expected to benefit the business in the future.

Answer: FALSE

The Owner's Capital account is increased by a debit.

Answer: FALSE

The process of transferring data from the ledger to the journal is called posting.

Answer: FALSE

When a business makes a cash payment, the Cash account is debited.

Answer: FALSE

When a business records an expense incurred, the Expense account is credited.

Answer: FALSE

A chart of accounts is a list of all of a company's accounts with their account numbers.

Answer: TRUE

A journal entry under the double-entry system includes both debit and credit amounts.

Answer: TRUE

A payment of an expense in advance is called a prepaid expense.

Answer: TRUE

An account that normally has a debit balance may occasionally have a credit balance.

Answer: TRUE

An asset account is increased by a debit.

Answer: TRUE

Debits in the journal are always posted as debits in the ledger.

Answer: TRUE

Source documents provide the evidence and data for accounting transactions.

Answer: TRUE

The Owner's Withdrawals account is increased by a debit.

Answer: TRUE

The balances in the accounts of liabilities and revenues are increased with a credit.

Answer: TRUE

The normal balance of an account is the increase side of the account.

Answer: TRUE

The system of accounting in which every transaction affects at least two accounts is called the double-entry system.

Answer: TRUE

Unearned revenue is a liability account.

Answer: TRUE

When a business collects cash, the Cash account is debited.

Answer: TRUE

When a business records revenue earned, the Revenue account is credited.

Answer: TRUE

Accountants first record transactions in a: A) chart of accounts. B) trial balance. C) journal. D) ledger.

Answer: C

Which of the following is the order of steps to journalize an entry? A) Identify each account affected → Determine increase or decrease in each account → Record the transaction B) Identify each account affected → Record the transaction → Determine increase or decrease in each account C) Record the transaction → Identify each account affected → Determine increase or decrease in each account D) Determine increase or decrease in each account → Identify each account affected → Record the transaction

Answer: A

Which of the following statements is true of the Owner's Capital account? A) It is an equity account that has a normal credit balance. B) It is a liability account that has a normal credit balance. C) It is a liability account that has a normal debit balance. D) It is an equity account that has a normal debit balance.

Answer: A

Which type of account is Owner's Capital? A) equity B) asset C) liability D) revenue

Answer: A

A business buys $500 of Office Supplies on account. Which of the following accounts is credited? A) Cash B) Accounts payable C) Office Supplies D) Service revenue

Answer: B

A business collects cash from a customer on settlement of accounts receivable. Which of the following accounts will be credited? A) Cash B) Accounts Receivable C) Service Revenue D) Accounts Payable

Answer: B

A business makes a cash payment of $12,000 to a supplier. Which of the following accounts will be debited? A) Cash B) Accounts Payable C) Bank D) Accounts Receivable

Answer: B

A business makes a cash payment to a supplier on account (for Office Supplies which were purchased earlier.) Which of the following accounts will be debited? A) Cash B) Accounts Payable C) Office Supplies D) Utilities Expense

Answer: B

A business pays cash back to the owner. Which of the following accounts will be debited? A) Cash B) Smith, Withdrawals C) Accounts Payable D) Smith, Capital

Answer: B

A business renders services to a customer for $26,000 on account. Which of the following accounts will be debited? A) Cash B) Accounts Receivable C) Service Revenue D) Bank

Answer: B

A business repays the amount borrowed on a note payable by cash. Which of the following accounts will be credited? A) Accounts Payable B) Cash C) Notes Payable D) Notes Receivable

Answer: B

A liability created when a business collects cash from customers in advance of providing services or delivering goods is called: A) notes receivable. B) unearned revenues. C) capital. D) revenues.

Answer: B

After initially recording a transaction, the data is then transferred to the: A) chart of accounts. B) ledger. C) trial balance. D) journal.

Answer: B

For Office Supplies, the category of account and its normal balance is: A) liabilities and a debit balance. B) assets and a debit balance. C) liabilities and a credit balance. D) assets and a credit balance.

Answer: B

Posting a transaction means: A) calculating the balance in an account. B) transferring data from the journal to the ledger C) preparing a summary of account balances. D) finding the account number in the chart of accounts.

Answer: B

Sandra invests $40,000 in her new business by depositing the cash in the business's bank account. Which of the following accounts will be debited? A) Accounts Receivable B) Cash C) Sandra, Capital D) Accounts Payable

Answer: B

The Accounts Receivable account is a(n) ________ account and carries a ________ normal balance. A) liability; debit B) asset; debit C) liability; credit D) asset; credit

Answer: B

The accounting process of transferring a transaction from the journal to the ledger is called: A) journalizing. B) posting. C) compounding. D) sourcing.

Answer: B

The first step in the journalizing and posting process is to: A) post the accounts to the ledger. B) identify each account involved and its type. C) determine whether each account is increased or decreased. D) record the transaction in the journal, including a brief explanation.

Answer: B

Which of the following accounts decreases with a debit? A) Accounts Receivable B) Notes Payable C) Cash D) Land

Answer: B

Which of the following accounts increases with a credit? A) Cash B) Smith, Capital C) Accounts Receivable D) Prepaid Expenses

Answer: B

Which of the following details is provided in a typical chart of accounts? A) account balance B) account number C) dates of transactions D) transaction amounts

Answer: B

Which of the following is a source document that provides the evidence and data for accounting transactions? A) Journal B) Sales invoice C) Ledger D) Trial balance

Answer: B

Withdrawals is a(n) ________ account that has a normal ________ balance. A) liability; credit B) equity; debit C) liability; debit D) equity; credit

Answer: B

________ represents a debt owed for renting a building currently. A) Prepaid rent B) Rent payable C) Rent revenue D) Rent expense

Answer: B

A business buys $500 of Office Supplies on account. Which of the following accounts is debited? A) Cash B) Accounts Payable C) Office Supplies D) Utilities Expense

Answer: C

A business makes a payment in cash for advertising expense. Which of the following accounts will be credited? A) Notes Payable B) Accounts receivable C) Cash D) Advertising expense

Answer: C

A business pays $500 cash for office supplies. Which of the following accounts will be debited? A) Cash B) Accounts Payable C) Office Supplies D) Utilities Expense

Answer: C

A business renders services to a customer for $26,000 on account. Which of the following accounts will be credited? A) Cash B) Accounts Receivable C) Service Revenue D) Bank

Answer: C

A business repays the amount borrowed on a note payable by cash. Which of the following accounts will be debited? A) Cash B) Bank C) Notes Payable D) Notes Receivable

Answer: C