ACCT Chapter 3 Sample Questions

Paulson Oil account balances at January 31st include: Cash $70,000, Accounts Receivable $100,000, Common Stock $120,000 and Accounts Payable $50,000. During the month of February, the company collected $25,000 of its account receivable and paid $10,000 of its accounts payable. What is Paulson's cash balance on their February 28th trial balance? $95,000.00 $65,000 $85,000.00 $60,000.00

$85,000.00 Collecting accounts receivable will increase the January 31st cash balance by $25,000 and paying accounts payable will decrease the January 31st cash balance by $10,000. Therefore the cash balance as of February 28th for Paulson Oil is $85,000 ($70,000 beginning balance + $25,000 collection - $10,000 payment).

On the trial balance in what order do the following appear? 1. Revenues 2. Liabilities 3. Expenses 4. Assets 5. Stockholders' Equity 4, 2, 5, 1, 3 4, 1, 3, 2, 5 4. 5, 1, 2, 3 1, 3, 4, 2, 5

4, 2, 5, 1, 3 Trial balance accounts are listed in the order in which they appear in the ledger. Balance sheet accounts are listed first, followed by income and then expense accounts. Therefore, the correct order is 4. Assets, 2. Liabilities, 5. Stockholders' Equity, 1. Revenues, 3. Expenses. CONTINUE

For September 30th, Cathy's Catering's trial balance has a debit column totaling $110. The credit column totals $128, which of the following would explain this difference? Notes payable balance of $25 listed in the trial balance $52. Cash balance of $51 listed in the trial balance $15. Accounts payable balance of $18 listed in the trial balance as $81. Accounts receivable balance of $75 listed in the trial balance as $57.

Accounts receivable balance of $75 listed in the trial balance as $57. The difference between the total debit and total credit columns is $18. If the correct accounts receivable balance is $75 and it was listed in the trial balance as $57, this would cause the total debit column to be understated by $18. Therefore it is the Accounts Receivable balance that caused this difference.

Some of the balances on Carla's Cookies June 30th trial balance include Cash $100,000, Accounts Receivable $50,000, Equipment $25,000 and Accounts Payable $75,000. During the month of July, the company used cash to purchase $8,000 of equipment. How will this transaction affect the equipment account balance on the July 31st trial balance? A decrease of $8,000. A decrease of $4,000. An increase of $8,000. An increase of $4,000.

An increase of $8,000. The equipment account balance will increase by the dollar amount of the equipment being purchased. In this case equipment account increases $8,000.

Which of the following problems may cause financial statements to be inaccurate? Failing to follow a specific budget. Failing to use specific account titles. Paying more dividends than net income received. Overspending the Cash account.

Failing to use specific account titles. Erroneous account titles can lead to incorrect financial statements because the accounts to which the amounts are posted are the basis of the financial statements. The other answer choices, while they may imply bad business judgment, do not lead to inaccuracies in the financial statements.

On November 15, Paulson Painting received a $6,000 cash payment from Apex Inc. in exchange for painting services to be provided in December. When posting the journal entries related to this payment, Paulson's accountant debits the Cash account for $6,000 and credits Service Revenue for $6,000. Which of the following statements best describes the results of this posting? In Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low. In Paulson's general ledger, the ending balance for the Cash account will be too low, the ending balance for the Service Revenue account will be too low, and the ending balance for the Unearned Service Revenue account will be too high. In Paulson's general ledger, the ending balances for the Cash and Service

In Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low. Paulson's entry for the transaction described should be a debit (increase) to the asset account Cash and a credit (increase) to the liability account Unearned Service Revenue. Paulson correctly recorded the cash side of the transaction. Paulson incorrectly recorded the other side of the transaction. Because the service has not yet been been performed, the revenue is not yet earned which should be reflected as a liability on Paulson's books. Therefore, the credit (increase) to the revenue account caused the balance in the service revenue account to be too high. Likewise the lack of the entry to credit (increase) the liability account Unearned Service Revenue caused this account to be too low.

On September 1, Pike Products purchases $5,000 of supplies from Indigo Industries, with the understanding that Pike will provide payment within 60 days. When posting the journal entries related to this transaction, Pike's accounting staff debits Supplies for $5,000 and debits Cash for $5,000. Which of the following statements best describes the results of this posting? In Pike's general ledger, the ending balance for the Supplies account will be correct. However, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low. In Pike's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Supplies account will be too low, while the ending balance for the Accounts Payable account will be too high. In Pike's general ledger, the ending balance for the Cash account will be correct. However,

In Pike's general ledger, the ending balance for the Supplies account will be correct. However, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low. The correct journal entry for this transaction includes a debit (increase) to Supplies reflecting the supplies purchased and received. Pike Products correctly recorded the increase to Supplies. The correct journal entry also includes a credit (increase) to Accounts Payable, reflecting the amount owed to Indigo. Since Pike did not credit Accounts Payable, it's current balance is too low. Likewise, as cash was debited (increased) instead, the cash account will be too high. CONTINUE

Which of the following events would lead to a decrease in a firm's retained earnings, and why? Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered a liability, and an increase in liabilities will reduce a firm's retained earnings Payment of $10,000 in employee salaries, because salaries are considered an expense, and an increase in expenses will reduce a firm's retained earnings Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered an expense, and an increase in expenses will reduce a firm's retained earnings Payment of $10,000 in employee salaries, because salaries are considered a liability, and an increase in liabilities will reduce a firm's retained earnings

Payment of $10,000 in employee salaries, because salaries are considered an expense, and an increase in expenses will reduce a firm's retained earnings Retained earnings is affected when a company recognizes revenue, incurs expenses, or pays dividends; it is not affected by changes in a firm's liabilities. Here, payment of employee salaries increases the firm's expenses, while issuance of the note payable increases the firm's liabilities. The salary-related increase in expenses is what causes the decrease in the firm's retained earnings.

Alex's auto factory has decided to buy a new assembly line for their plant. The equipment costs $80,000, and in order to finance it, the company must borrow $80,000. Which of the following would be a correct description of the posting entry for this transaction? The credit posting to Notes Payable would decrease the account by $80,000. The debit posting to Notes Payable would increase the account by $80,000. The debit posting to Notes Payable would decrease the account by $80,000. The credit posting to Notes Payable would increase the account by $80,000.

The credit posting to Notes Payable would increase the account by $80,000. Notes payable is a liability account. Liability accounts are increased by credits to the account. Alex's Auto Factory's liability increases by $80,000 when borrowing the funds to purchase the equipment. Therefore notes payable will increase by $80,000 related to the loan.

What effect may result if specific account titles are not used in journalizing? The contents of the account will differ from the name of the account. The financial statements may be not be accurate. The general ledger will not balance. The journal entry will not balance.

The financial statements may be not be accurate. Erroneous account titles can lead to incorrect financial statements because the accounts to which the amounts are posted are the basis of the financial statement.

Which statement is true concerning any account? The right side is the credit and the left side is the debit. The identification of the debit or credit side as left or right depends upon the type of account. The left side is the credit and the right side is the debit. The debit side indicates an increase and the credit side indicates a decrease.

The right side is the credit and the left side is the debit. All accounts have debits on the left and credits on the right. Whether the debit or credit increases or decreases, the account is dependent on what type of account it is.

What happens when a portion of an account payable is paid? There is no effect on total assets. Net income decreases. There is no effect on stockholders' equity. Liabilities increase.

There is no effect on stockholders' equity. Upon payment of the liability, the balance of the liability account decreases and the asset account 'Cash' decreases proportionally. Therefore, stockholders' equity remains unchanged while assets and liabilities both decrease proportionally.

During the month of May, Apex Industries recorded a $3,000 debit to an expense account. Which of the following explanations of this transaction is the MOST accurate? This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding increase in stockholders' equity. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding decrease in stockholders' equity. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,

This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity. Stockholders' Equity = Common Stock + Revenues - Expenses - Dividends. Therefore, a $3,000 increase in expenses causes a $3,000 decrease in stockholders' equity. To keep the accounting equation (Assets = Liabilities + Stockholders' Equity) in balance, Apex must make an entry to decrease assets, increase liabilities, or increase stockholders' equity by $3,000. Since assets are decreased through credit entries, one of Apex's options is to credit an asset account to offset the corresponding decrease in stockholders' equity.

Cash and Accounts Receivable are two asset accounts. In a service company, under what circumstances will Cash be debited and Accounts Receivable be credited? When cash is received from customers for services provided last month. When cash is received from customers at the time of service. When a customer uses credit to purchase services in order to pay for them later. When the company pays for previously purchased supplies.

When cash is received from customers for services provided last month. For asset accounts, a debit equals an increase to the account, and a credit equals a decrease. When a service provided in the past is paid for presently, accounts receivable decrease, and the account is credited. Upon receipt of cash, the Cash account is debited.

When calculating the balance of the Sales Revenue account, you find that the balance is lower than expected. However, according to your Balance Sheet and your analysis of the accounting equation, all of your debits and credits are equal across accounts. What is the most likely explanation for this? You made a digit transpose error while recording an entry in the Sales Revenue account. You recorded an entry in the Sales Revenue account as a debit rather than a credit. You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents. You failed to record an entry in the Sales Revenue account even though it was posted to the Cash account.

You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents. If a transaction is not posted in the journal, both debits and credits will be equally affected. Therefore, even though the Balance Sheet is in balance and the accounting equation is equal, the affected accounts and subsequent financial information will be incorrect.

What is the usual order of accounts in the general ledger? assets, liabilities, revenues, and expenses liabilities, assets, revenues, expenses, and dividends common stock, retained earnings, assets, liabilities, dividends, expenses, and revenues assets, liabilities, expenses, and revenues

assets, liabilities, revenues, and expenses The typical order of accounts in the general ledger is first the balance sheet accounts, in the order presented on that statement, and then the income statement accounts, in the order presented on that statement. Following this rule, the order of accounts is first assets, then liabilities, stockholders' equity, revenues, and finally expenses.

The normal balances in stockholders' equity accounts are all credits, like liabilities. all credits except for expenses that are debits. credits for Common Stock and Retained Earnings, but debits for all others. credits for Common Stock, Retained Earnings and revenues, but debits for the others.

credits for Common Stock, Retained Earnings and revenues, but debits for the others. Stockholders' equity is comprised of common stock and retained earnings. Common stock has a normal credit balance. Retained earnings can be further broken down into revenue less expenses less dividends. Both retained earnings and revenues normal balance is a credit. Expenses and dividends normal balance is a debit.

Entering transaction information directly into the accounts is the preferred method of recording transactions occurs after financial statements are prepared is possible, though few businesses do so is not allowed under generally accepted accounting principles.

is possible, though few businesses do so. Although it is possible to enter transaction information directly into the accounts, most businesses choose to journal the transactions first.

Within the past two weeks, Fanny's Flowers has completed each of the activities listed below. Of these activities, which should be recorded in the company's accounting records? purchased a new walk-in cooler hired two part-time employees fired one full-time employe eentered into contract negotiations with a new floral wholesaler

purchased a new walk-in cooler Each activity should be analyzed to determine its effects on the accounts and the accounting equation assets = liabilities + stockholders' equity. If accounts are affected, the activity should be recorded. Assuming a cash purchase, a new walk-in cooler's purchase decreases the asset account cash and increases the asset account equipment. Hiring and/or firing employees does not affect the accounts. Likewise, contract negotiations do not affect the accounts.

The classification and normal balance of the Retained Earnings account is stockholders' equity, credit. asset, debit. revenues, credit. expense, debit.

stockholders' equity, credit. Retained earnings is a balance sheet account, properly recorded in the stockholders' equity section. The common balance for this account is a credit balance representing a positive value for retained earnings.

In the ledger, Accounts Receivable shows a debit balance of $12,500, indicating that $12,500 in services are owed to customers. receipt of $12,500 from customers. that customers owe $12,500 to the company. sales for the period totaled $12,500.

that customers owe $12,500 to the company.

Expenses are debited to increase their balance because they decrease Retained Earnings. they decrease Common Stock. they decrease liabilities. they are assets.

they decrease Retained Earnings. The normal balance for expense accounts is a debit. Expense accounts are one component of Retained Earnings, comprised of Revenue, minus expenses, and minus dividends. Since Retained Earnings normal balance is a credit, an account that decreases Retained Earnings must be a debit.

Identifying the type of account involved and whether to make a debit or a credit to the account is the purpose of posting transactions in the ledger. using transactions to create financial documents. journalizing transactions. transaction analysis.

transaction analysis. Analyzing the transaction is the first step in the recording process. The analysis involves determining the effect of the transaction on the accounts. This includes determining which accounts are affected and if the effect will be a debit or a credit to the account.

European accounting systems use a different basic accounting system than used in the United States. use the same double-entry system used in the United States. do not use an equity section as is used in the United States. always measure amounts in the same way as in the United States.

use the same double-entry system used in the United States. The basic double-entry accounting system is standard worldwide. However, other differences between countries exist. For example, European countries rely more on fair value rather than historical cost as we use in the United States.