CHAPTER 3 USE

Stockholders' equity is not affected by all a. cash receipts. b. dividends. c. revenues. d. expenses.

A

The accounting equation must remain in balance a. throughout each step in the accounting cycle. b. only when journal entries are recorded. c. only at the time the trial balance is prepared. d. only when formal financial statements are prepared.

A

A journal entry to record the sale of inventory on account will include a a. debit to Inventory. b. debit to Accounts Receivable. c. debit to Sales Revenue. d. credit to Cost of Goods Sold.

B

A journal entry to record a payment on account will include a a. debit to Accounts Receivable. b. credit to Accounts Receivable. c. debit to Accounts Payable. d. credit to Accounts Payable.

C

A trial balance a. proves that debits and credits are equal in the ledger. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. is normally prepared three times in the accounting cycle. d. All of these answer choices are correct.

D

A ledger is where a company first records transactions and other selected events.

F

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.

F

In general, debits refer to increases in account balances, and credits refer to decreases.

F

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

F

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.

F

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.

F

The book value of any depreciable asset is the difference between its cost and its salvage value.

F

The first step in the accounting cycle is the journalizing of transactions and selected other events.

F

The post-closing trial balance consists of asset, liability, owners' equity, revenue and expense accounts.

F

A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries.

A

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

T

Nominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. None of these answer choices are correct.

A

The debit and credit analysis of a transaction normally takes place a. before an entry is recorded in a journal. b. when the entry is posted to the ledger. c. when the trial balance is prepared. d. at the end of the accounting cycle.

A

An adjusting entry should never include a. a debit to an expense account and a credit to a liability account. b. a debit to an expense account and a credit to a revenue account. c. a debit to a liability account and a credit to revenue account. d. a debit to a revenue account and a credit to a liability account.

B

The difference between the accounting process and the accounting cycle is a. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions. b. the accounting cycle represents the steps taken to accomplish the accounting process. c. the accounting process represents the steps taken to accomplish the accounting cycle. d. merely semantic, because both concepts refer to the same thing.

B

Which of the following is a nominal (temporary) account? a. Unearned Service Revenue b. Salaries and Wages Expense c. Inventory d. Retained Earnings

B

Which of the following is an example of an accrued expense? a. Office supplies purchased at the beginning of the year and debited to an expense account. b. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year. c. Depreciation expense d. Rent recognized during the period, to be received at the end of the year

B

The double-entry accounting system means a. Each transaction is recorded with two journal entries. b. Each item is recorded in a journal entry, then in a general ledger account. c. The dual effect of each transaction is recorded with a debit and a credit. d. None of these answer choices are correct.

C

When a corporation pays a note payable and interest, a. the account notes payable will be increased. b. the account interest expense will be decreased. c. they will debit notes payable and interest expense. d. they will debit cash.

C

Which of the following is not an internal event? a. Depreciation b. Using raw materials in the production process c. Dividend declaration and subsequent payment d. All of these are internal transactions.

C

A journal entry to record a receipt of rent in advance will include a a. debit to Rent Revenue. b. credit to Rent Revenue. c. credit to Cash. d. credit to Unearned Revenue.

D

A trial balance may prove that debits and credits are equal, but a. an amount could be entered in the wrong account. b. a transaction could have been entered twice. c. a transaction could have been omitted. d. All of these answer choices are correct.

D

An accounting record into which the essential facts and figures in connection with all transactions are first recorded is called the a. ledger. b. account. c. trial balance. d. None of these answer choices are correct.

D

An optional step in the accounting cycle is the preparation of a. adjusting entries. b. closing entries. c. a statement of cash flows. d. a post-closing trial balance.

D

Debit always means a. the right side of an account. b. an increase. c. a decrease. d. None of these answer choices are correct.

D

External events do not include a. interaction between an entity and its environment. b. a change in the price of a good or service that an entity buys or sells. c. improvement in technology by a competitor. d. using buildings and machinery in operations.

D

Factors that shape an accounting information system include the a. nature of the business. b. size of the firm. c. volume of data to be handled. d. All of these answer choices are correct.

D

The process of transferring figures from the book of original entry to the ledger accounts is called a. adjusting. b. balancing. c. ledgering. d. posting.

D

Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. The event or item is relevant and reliable. c. The event or item is an element. d. All of these must be met.

D

Which of the following errors will cause an imbalance in the trial balance? a. Omission of a transaction in the journal. b. Posting an entire journal entry twice to the ledger. c. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable. d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

D

Which of the following is a real (permanent) account? a. Goodwill b. Service Revenue c. Accounts Receivable d. Both Goodwill and Accounts Receivable

D

Which of the following is a recordable event or item? a. Changes in managerial policy b. The value of human resources c. Changes in personnel d. None of these answer choices are correct.

D

Which of the following is not a principal purpose of an unadjusted trial balance? a. It proves that debits and credits of equal amounts are in the ledger. b. It is the basis for any adjustments to the account balances. c. It supplies a listing of open accounts and their balances. d. It proves that debits and credits were properly entered in the ledger accounts.

D

All liability accounts and stockholders' equity accounts are increased on the credit side and decreased on the debit side.

F

An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries.

F

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed.

F

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

T

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period.

T

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

T

One purpose of a trial balance is to prove that debits and credits are equal in the general ledger.

T

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

T

Total stockholders' equity consists of common stock and the earnings retained in the business.

T

An example of an internal event would be a flood that destroyed a portion of a company's inventory.

F