ACCT 3001 Chapter 3

Principal purposes of an unadjusted trial balance:

1. It is the basis for any adjustments to the account balances. 2. It proves that debits and credits of equal amounts are in the ledger. 3. It supplies a listing of open accounts and their balances.

Which of the following would not be a correct form for an adjusting entry?

A debit to an asset and a credit to a liability.

If Nation's Best Chocolate recorded journal entries for the declaration of $150,000 of dividends, a $96,000 increase in accounts receivable for services rendered, and the purchase of equipment for $63,000, then the net effect of these entries on stockholders' equity would be:

A decrease of $54,000.

A type of error that a trial balance would help detect is:

A transposition error when transferring the debit side of journal entry to the ledger.

Definition and example of an accrued liability:

Accrued liabilities are liabilities that reflect expenses on the income statement that have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.

Which of the following describes a similarity between an income statement and a statement of cash flows?

Both statements summarize activities that took place during an accounting period.

Which of the following journal entries is appropriate when a company receives payment in advance for goods or services?

Debit cash and credit a liability account or a revenue account.

Which of the following accounts will contain a zero balance after the post-closing trial balance is completed?

Dividends

An accrued expense can best be described as an amount:

Not paid and currently matched with earnings.

A prepaid expense can best be described as an amount:

Paid and not currently matched with earnings.

If expenses are greater than revenues, the Income Summary account will be closed by a debit to:

Retained Earnings and a credit to Income Summary.

The difference between the accounting process and the accounting cycle is:

The accounting process represents the steps taken to accomplish the accounting cycle.

Which of the following items is reflected on the balance sheet but not on the adjusted trial balance?

The allowance for doubtful accounts

A trial balance prepared at year end showed Puccinelli Co.'s debit total exceeding the credit total by $6,300. This discrepancy could have been caused by:

The balance of $700 in the Equipment account being entered as a debit of $7,000.

Ransdell Corporation has determined that it has $15,000 in uncollectible accounts to record during this accounting period. Where will these bad debts be reflected in Ransdell's financial statements?

They will be reflected on Ransdell's income statement.

The accounting equation (A = L + SE) must remain in balance

Throughout each step in the accounting cycle.

Which of the following best describes the difference in the accounting cycle performed by a merchandising company compared to the accounting cycle performed by a service company?

There is no difference in the way the accounting cycle is performed by the merchandising company and the service company.

What is the difference in the accounting cycle performed by a merchandising company compared to the accounting cycle performed by a service company?

There is none.

Which of the following is a characteristic of nominal accounts?

They are periodically closed by companies.

Which of the following statements best describes the purpose of closing entries?

They reduce the balances of revenue and expense accounts to zero so that the accounts can be used to accumulate the revenues and expenses of the next period.

Owens Industries is trying to increase its profile in the community. As part of this effort, Owens sponsors a Little League baseball team. The cost of sponsorship is $850. How should Owens record this transaction in order to maintain a balanced accounting equation (A = L + SE)?

They should credit $850 to assets and debit $850 to stockholders' equity.