Accounting 1 T and F semester 1 exam

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

False

7. The source document for cash payment transactions is a check.

True

1. All corrections for posting errors should be made in a way that leaves no question as to the correct amount.

true

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

true

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

true

1. For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.

true

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

true

1. The Objective Evidence accounting concept requires that there be proof that a transaction did occur.

true

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

true

10. 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.

true

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

true

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

true

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

true

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

true

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

true

13. A financial ratio is a comparison between two components of financial information.

true

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

true

13. In double-entry accounting, each transaction affects at least two accounts.

true

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

true

13. Separate amounts in general amount columns are posted individually.

true

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

true

14. Cash is always proved at the end of a month.

true

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

true

14. The calculation and interpretation of a financial ratio is called ratio analysis.

true

14. The normal balance side of an Accounts Receivable account is a debit.

true

14. The series of accounting activities included in recording financial information for a fiscal period is called an accounting cycle.

true

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

true

15. A balance sheet reports financial information for a specific date.

true

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

true

16. A group of accounts is called a ledger.

true

16. Utilities Expense is increased with a debit.

true

17. Cash is increased with a debit.

true

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

true

18. Prepaid Insurance is decreased with a credit.

true

18. Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.

true

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

true

19. 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

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

true

2. A check mark in the Post. Ref. column of the journal indicates that the amounts on that line are not posted individually.

true

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

true

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

true

2. Temporary accounts are also called nominal accounts.

true

20. Return on sales (ROS) is the ratio of net income to total sales.

true

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

true

3. Voided checks should be recorded in the journal.

true

4. 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

4. The formula for calculating the net income ratio is net income divided by total sales.

true

4. The journal columns used to record paying cash for supplies are General Debit and Cash Credit.

true

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

true

4. When two asset accounts are changed in a transaction, there must be an increase and a decrease.

true

5. Adjusting entries must be posted to the general ledger accounts.

true

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

true

5. The area of accounting that focuses on reporting information to internal users is called managerial accounting.

true

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

true

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

true

6. Asset accounts decrease on the credit side.

true

6. The drawing account is a temporary account.

true

6. Transactions are recorded in a journal in chronological order.

true

6. 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

7. Each transaction changes the balances in at least two accounts.

true

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

true

7. 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

7. The procedure of arranging accounts in a general ledger, assigning account numbers, and keeping records current is known as file maintenance.

true

7. The two accounts affected by the adjustment for supplies are Supplies and Supplies Expense.

true

8. A complete journal entry consists of the date, the debit amount, the credit amount, and a source document.

true

8. Keeping separate financial records for a business and for its owner's personal belongings is an application of the Business Entity accounting concept.

true

8. Two financial statements are prepared from the information on the work sheet.

true

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

true

9. The Cash account is the first asset account and is numbered 110.

true

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

true

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

false

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

false

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

false

8. If a business has a net loss for the period, expenses should be reported before revenues on the income statement.

false

8. The Income Summary account has a normal credit balance.

false

8. The column total of the General Credit column is posted.

false

9. 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

9. The day of the month is written only once on a journal page.

false

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

false

9. When cash is paid for supplies, the Supplies account is increased by a credit.

false

6. If an amount is written in an incorrect column on a work sheet, a line should be drawn through the incorrect amount and the correct amount should be written in the correct column.

false

1. The accounting equation is most often stated as Assets + Liabilities = Owner's Equity.

false

1. The balances of the asset accounts must be reduced to zero to prepare the accounts for the next period.

false

10. Business ethics are the principles of right and wrong that guide an individual in making decisions.

false

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

false

10. The area of accounting that focuses on reporting information to external users is called managerial accounting.

false

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

false

10. When an entry in an amount column is an even dollar amount, either "00" or "--" can be entered in the cents column.

false

11. If the payment of cash for rent was journalized and posted in error as a debit to Miscellaneous Expense instead of Rent Expense, the correcting entry will include a credit to Cash.

false

11. Payments for advertising, equipment repairs, utilities, and rent are liabilities.

false

11. Temporary accounts include liabilities, expenses, and the owner's drawing account.

false

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

false

12. Every business uses the same journal to record transactions.

false

12. Separate amounts in a journal's special amount columns are posted individually.

false

12. The formula for calculating the total expenses ratio is total expenses divided by net income.

false

15. A withdrawal is an expense.

false

15. Accounts Payable accounts are increased with a debit.

false

16. An income statement reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss.

false

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

false

2. An amount recorded on the right side of a T account is a debit.

false

2. 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

2. The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.

false

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

false

20. Decreases to liability accounts are recorded on the credit side.

false

20. Errors discovered after an entry is posted may be corrected by ruling through the item.

false

3. A negative amount for net worth would reflect more debt than assets, something a creditor would favor.

false

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

false

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

false

3. Each asset account has a normal credit balance.

false

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

false

3. The journal columns used to record receiving cash from the owner as an investment are Cash Debit and Sales Credit.

false

4. Each liability account has a normal debit balance.

false

4. Permanent accounts are used to accumulate information until it is transferred to the owner's capital account.

false

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

false

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

false

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

false

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

false

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

false