Practice 1
When working with T accounts, an important rule to remember is: the debit side of a T account is on the right−hand side of the T account for assets and expenses. when an account is debited, an amount is entered on the right−hand side on the T account. to credit an account means to enter an amount on the right−hand side of the T account. an increase to accounts payable will be recorded as a debit.
to credit an account means to enter an amount on the right−hand side of the T account
As a practical matter most companies prepare financial statements: after every transaction. only when both the balance sheet and income statement are affected. at the end of the accounting period. at the close of every business day.
at the end of the accounting period
Liabilities are: debts payable to outsiders called creditors a form of paid−in capital future economic benefits to which a company is entitled the outflow of resources that decrease common stock
debts payable to outsiders called creditors
The trial balance is used to prepare the: statement of retained earnings only. income statement only. balance sheet only. all of the above
All of the above
Examples of liabilities include: investments and note payable. accounts payable and dividends. accounts payable and common stock. accounts payable and note payable.
accounts payable and note payable.
Interest payable, income tax payable and salary payable are all examples of: accrued liabilities expenses of future periods. prepaid expenses. retained earnings.
accrued liabilities
When an adjustment is made for prepaid rent: an asset decreases and an expense increases. one asset increases and another decreases. an asset increases and an expense decreases. a liability decreases and an expense decreases
an asset decreases and an expense increases
A company started the year with $300 of supplies. During the year the company purchased additional supplies costing $1800. There were $1000 of supplies on hand at the end of the year. An adjusted trial balance, prepared at the end of the accounting period, will show the following balance in Supplies Expense: (300 + 1800 - 1000) $1800. $1000. $700. $1100
$1100
On December 1 of the current year, Prepaid Rent was debited $10,800 for three months of rent, to cover the period December 1 to February 28. The amount of the adjusting entry on December 31 is: ($10,800 / 3) $0. $7200. $3600. $10,800
$3600
Which of the following is CORRECT regarding liquidity? A balance sheet lists assets and liabilities in the order of relative liquidity. Liquidity measures how quickly revenue can be earned. Accounts receivable is the most liquid asset. Equipment is a highly liquid asset
A balance sheet lists assets and liabilities in the order of relative liquidity
The entry to record the purchase of supplies on account includes a credit to: Cash. Accounts Payable. Supplies Expense. Supplies.
Accounts Payable
Which accounts are increased by debits? Salaries Expense and Common Stock. Accounts Payable and Service Revenue. Accounts Receivable and Utilities Expense. Cash and Accounts Payable
Accounts Receivable and Utilities Expense
Accounting: is often called the language of business. processes data into reports and communicates the data to decision makers. measures business activities. is all of the above.
All of the above
Decision makers who use accounting information include: the Securities and Exchange Commission. creditors. the Internal Revenue Service. all of the above.
All of the above
The accounting equation can be stated as: Assets + Stockholders' Equity = Liabilities. Assets minus−Liabilities = Stockholders' Equity. Assets minus− Stockholders' Equity + Liabilities = Zero. Assets = Liabilities minus− Stockholders' Equity.
Assets - Liabilities = Stockholder's Equity
All of the following accounts are closed EXCEPT for: Utilities Expense. Dividends. Cash. Service Revenue.
Cash
Which of the following accounts are considered permanent accounts? Accounts Payable and Service Revenue Land and Accounts Receivable Common Stock and Salary Expense Inventory and Cost of Goods Sold
Land and Accounts Receivable
On a classified balance sheet: Dividends is a current asset Accounts Receivable is a current liability Notes Payable due in one year is a current liability Salaries Payable is a longminus−term liability
Notes Payable due in one year is a current liability
All of the following accounts would be considered assets EXCEPT for: Retained Earnings. Notes Receivable. Cash. Prepaid Expenses.
Retained Earnings
Which of the following statements, regarding the rules of debits and credits, is CORRECT? An asset is increased by a credit. A liability is increased by a debit. Revenue is increased by a credit. Dividends are decreased by debits
Revenue is increased by a credit
Which accounts are used in the adjusting entry to record salaries owed to employees, but not paid until the next accounting period? Salaries Payable and Deferred Salaries Expense Deferred Salaries Payable and Salaries Receivable Salaries Expense and Salaries Payable Unearned Salaries and Salaries Payable
Salaries Expense and Salaries Payable
The left side of a T− account is always the: increase side. debit side. credit side. decrease side.
debt side
The net income or loss is calculated on which financial statement? balance sheet income statement dividends statement statement of retained earnings
income statement
Every journal entry: must increase at least one account and decrease at least one account. affects both an income statement account and a balance sheet account. must debit at least one account and credit at least one account. is recorded in either the journal or the ledger.
must debit at least one account and credit at least one account
Closing entries: bring all account balances to zero. prepare the accounts for the next period's transactions. are made at the beginning of each accounting period. are the same as adjusting entries
prepare the accounts for the next period's transactions
Accounts that relate to a limited period of time are called: permanent accounts. asset and liability accounts. temporary accounts. real accounts
temporary accounts
The normal balance of an expense account is a ________ because expenses decrease ________. debit; retained earnings debit; expenses debit; assets credit; retained earnings
debit; retained earnings
The major types of transactions that affect retained earnings are: revenues and liabilities. assets and liabilities. paidminus−in capital and common stock. revenues, expenses, and dividends
revenues, expenses, and dividends
At the end of the current accounting period, account balances were as follows: Cash, $29,000; Accounts Receivable, $44,000; Common Stock, $18,000; Retained Earnings, $12,000. Liabilities for the period were: $43,000 $73,000 $55,000 $61,000
$43,000
The trial balance is used to determine if: total debits of the income statement accounts equal the total credits of the income statement accounts. total assets equal total liabilities. total debits of all the accounts equal total credits of all the accounts. total debits of the balance sheet accounts equal the total credits of the balance sheet accounts
total debits of all the accounts equal total credits of all the accounts
Which of the following lists the accounts in order of liquidity? Cash, Accounts Receivable, Inventory, Furniture Furniture, Cash, Accounts Receivable, Inventory Furniture, Cash, Inventory, Accounts Receivable Cash, Inventory, Accounts Receivable, Furniture
Cash, Accounts Receivable, Inventory, Furniture
Kincaid Company's Retained Earnings balance on January 1 was $7000. During the current year, Kincaid earned $3500 in revenues and incurred $3900 in expenses. Kincaid declared and paid $2500 in dividends, all in cash. After the closing entries are made, Kincaid's Retained Earnings balance on December 31 will be: ($7000 + $3500 - $3900 - $2500) $8000 $6600 $4100 $7000
$4100
On May 10, a business collected $3300 on account. What journal entry is needed on that date? Debit Cash for $3300 and credit Revenue for $3300. Debit Accounts Payable for $3300 and credit Revenue for $3300. Debit Cash for $3300 and credit Accounts Receivable for $3300. Debit Accounts Receivable for $3300 and credit Revenue for $3300
Debit Cash for $3300 and credit Accounts Receivable for $3300.
A business received the current month's utility bill for $1625, and immediately paid it. Which journal entry is prepared? Debit Accounts Payable for $1625 and credit Cash for $1625. Debit Utilities Expense for $1625 and credit Cash for $1625. Debit Utilities Payable for $1625 and credit Cash for $1625. Debit Operating Expense for $1625 and credit Accounts Payable for $1625.
Debit Utilities Expense for $1625 and credit Cash for $1625
The two types of accounting are: financial and management. profit and nonprofit. internal and external. bookkeeping and decisionminus−oriented.
Financial and management
A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual accounting, the doctor recognizes revenue: in March. in July. in either March or July. at a time that cannot be determined from the facts
In March
Posting is: copying the information from the ledger to the financial statements. entering the data into the journal. copying the information from the journal to the ledger. copying the information from the journal to the trial balance.
copying the information from the journal to the ledger
The entry to close expense account(s) includes a: credit to the expense accounts. credit to Retained Earnings. debit to the expense accounts. debit to the revenue accounts
credit to the expense accounts
An important rule of debits and credits is: debits decrease asset accounts. debits increase liability accounts. credits increase expense accounts. credits increase revenue accounts
credits increase revenue accounts
A business paid $1900 on account. The journal entry would: debit Accounts Receivable for $1900 and credit Revenue for $1900. debit Accounts Payable for $1900 and credit Cash for $1900. debit Cash for $1900 and credit Accounts Payable for $1900. debit Cash for $1900 and credit Retained Earnings for $1900
debit Accounts Payable for $1900 and credit Cash for $1900
On December 1, 2015, Carrie's Day Care receives $1500 in advance for an agreement to care for Susan's children for the months of December, January, and February. Carrie's Day Care will make an adjusting entry on December 31, 2015 to: ($1500 / 3) credit Revenue for $1000. debit Unearned Revenue for $500. credit Revenue for $1500. credit Prepaid Revenue for $1000
debit Unearned Revenue for $500
A company started the year with $300 of supplies. During the year, the company purchased an additional $1200 of supplies. There were $500 of supplies on hand at the end of the year. An adjusting entry prepared at the end of the accounting period includes a: (300 + 1200 - 500) debit to Supplies for $900. debit to Supplies for $500. debit to Supplies Expense for $200. debit to Supplies Expense for $1000
debit to Supplies Expense for $1000
If adjusting entries are not prepared, which financial statements are misstated? balance sheet only income statement only income statement, balance sheet and statement of retained earnings statement of retained earnings only
income statement, balance sheet and statement of retained earnings
In what order are the financial statements generally prepared? balance sheet, income statement, and statement of retained earnings income statement, balance sheet, and statement of retained earnings statement of retained earnings, balance sheet, and income statement income statement, statement of retained earnings, and balance sheet
income statement, statement of retained earnings, and balance sheet
The assets of a company: represent economic resources that are expected to produce a future benefit. must equal the liabilities of the company. include property, plant, and equipment and accounts payable. include shortminus−term investments and notes payable.
represent economic resources that are expected to produce a future benefit
The first step in recording a transaction in the journal is: specifying each account affected by the transaction and classifying the account by type. determining whether each account is increased or decreased by the transaction. entering the debit side of the journal entry on the left margin and the credit side, which is indented to the right. copying the information from the journal to the ledger.
specifying each account affected by the transaction and classifying the account by type
After the closing entries are prepared and posted: the Retained Earnings account will have the correct ending balance. all liability accounts will have a zero balance. all asset accounts will have a zero balance. the temporary accounts will have debit balances
the Retained Earnings account will have the correct ending balance
Assume the balance in the Retained Earnings account at January 1, 2017 is zero, and no dividends are declared in 2017. If a debit balance of $6000 exists in Retained Earnings after closing out revenues and expenses at the end of 2017, this indicates: the company had a net loss of $6000. an increase in cash of $6000. a decrease in cash of $6000. that the company had net income of $6000
the company had a net loss of $6000