978-0134125053 Chapter 2 Part 1

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Financial Accounting, 4e (Kemp)

Chapter 2 Analyzing and Recording Business Transactions

2.1 Define accounts and understand how they are used in accounting

1) Account titles such as Salaries Expense and Rent Expense would be numbered starting with a

3.

Question Type: Application

2) An account numbered 321 would be considered a Stockholders’ Equity account as it begins

with a 3.

Question Type: Application

3) The Stockholders’ Equity section would include accounts such as Retained Earnings and

Revenues.

Question Type: Concept

4) Items of value that a company owns are called Stockholders‘ Equity.

Question Type: Concept

5) A business generally has fewer liability accounts than asset accounts.

Question Type: Concept

6) A business generally has just one expense account.

Question Type: Concept

7) The Assets section would include prepaid expense accounts.

Question Type: Concept

8) The Liabilities section would include accrued liabilities and prepaid expense accounts.

Question Type: Concept

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9) Accounts Payable represent amounts a business must pay because it signed a written

promissory note.

Question Type: Concept

10) Obligations that are owed to others due to past transactions are categorized as:

A) Stockholders’ Equity.

B) expenses.

C) assets.

D) liabilities.

Question Type: Concept

11) The ___________ account tracks a company’s cumulative earnings less dividends.

A) Retained Earnings

B) Cash

C) Common Stock

D) Revenues

Question Type: Concept

12) Items such as salaries and interest that have been incurred, but not yet paid, are called:

A) accrued assets.

B) accrued liabilities.

C) accrued revenues.

D) accrued notes.

Question Type: Concept

13) The order in which accounts appear in the chart of accounts is:

A) liabilities, assets, revenues, Stockholders‘ Equity, expenses.

B) Stockholders’ Equity, expenses, revenue, liabilities, assets.

C) assets, Stockholders‘ Equity, revenues, expenses, liabilities.

D) Assets, Liabilities, Stockholders’ Equity, revenues, expenses.

Question Type: Concept

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14) An account starting with a number 1 would indicate:

A) an asset.

B) Stockholders’ Equity.

C) a revenue.

D) a liability.

Question Type: Concept

15) All payables are listed as:

A) assets.

B) liabilities.

C) Stockholders‘ Equity.

D) revenue.

Question Type: Concept

16) Accounts that start with the numbers 6–9 would probably be:

A) other revenues and expenses.

B) other assets and liabilities.

C) other Stockholders’ Equity.

D) other assets and revenues.

Question Type: Application

17) A type of asset in which a customer owes the company money would be a:

A) dividend.

B) receivable.

C) payable.

D) sale.

Question Type: Concept

18) Expenses paid in advance such as rent and insurance are classified as prepaid expenses. Into

what category are they placed?

A) Liabilities

B) Revenues

C) Expenses

D) Assets

Question Type: Concept

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19) Dividends are paid with cash to shareholders. Dividends are in what category of the chart of

accounts?

A) Revenue

B) Assets

C) Stockholders’ Equity

D) Liabilities

Question Type: Concept

20) Accounts starting with the number 4 would represent:

A) assets.

B) liabilities.

C) revenues.

D) expenses.

Question Type: Application

21) Marketing expenditures account 511 would belong to what category of accounts?

A) Assets

B) Expenses

C) Revenues

D) Liabilities

Question Type: Application

22) Land, Cash, Office Equipment and Accounts Receivable belong to what category of

accounts?

A) Liabilities

B) Revenues

C) Expenses

D) Assets

Question Type: Concept

23) Dividends, revenues, and Expenses all:

A) start with the same chart of account number.

B) start with different chart of accounts numbers.

C) appear in the chart of accounts under assets.

D) appear in the chart of accounts under liabilities.

Question Type: Concept

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24) Which of the following would start with a 1 in the chart of accounts?

A) Receivables and Equipment

B) Depreciation Expense and Marketing Expense

C) Merchandise Sales and Rent Revenue

D) Common Stock and Dividends

Question Type: Application

25) Which of the following would start with a 2 in the chart of accounts?

A) Accounts Payable and Interest Payable

B) Common Stock and Dividends

C) Cash and Accounts Receivable

D) Sales and Service Revenue

Question Type: Application

26) A promissory note owed to another company would most likely appear in which of the

following accounts?

A) Accounts Receivable

B) Accounts Payable

C) Notes Receivable

D) Notes Payable

Question Type: Concept

27) A chart of accounts does NOT include:

A) Stockholders’ Equity.

B) assets.

C) names of customers.

D) liabilities.

Question Type: Concept

28) Which of the following is an expense account?

A) Prepaid Insurance

B) Advertising

C) Accounts Payable

D) Cash

Question Type: Concept

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29) Which of the following is NOT a revenue account?

A) Salaries

B) Sales

C) Fees Earned

D) Professional Fees

Question Type: Concept

30) The account used to record payment of a telephone bill immediately after receiving it, would

be a(n):

A) asset.

B) liability.

C) revenue.

D) expense.

Question Type: Concept

31) Obligations owed by a company to banks, for instance, are called:

A) Notes Receivable.

B) Notes Payable.

C) Accounts Receivable.

D) Accounts Payable.

Question Type: Concept

32) Net income and dividends are part of:

A) Revenues.

B) Stockholders’ Equity.

C) Assets.

D) Liabilities.

Question Type: Concept

33) Which is NOT a part of Stockholders‘ Equity?

A) Revenues

B) Expenses

C) Accounts Receivable

D) Dividends

Question Type: Concept

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34) Collection of money from a cash customer represents a(n):

A) liability.

B) expense.

C) revenue.

D) stock.

Question Type: Concept

35) How does an account receivable differ from a note receivable?

A) A note receivable is an asset while an account receivable is not.

B) An account receivable is a written pledge while a note receivable is not.

C) An account receivable is always an amount due from the company’s customers while a note

receivable is always an amount due from a bank.

D) Notes receivable are written pledges while Accounts Receivable are not.

Question Type: Concept

36) Which of the following is TRUE regarding the accounts supplies payable and supplies

expense?

A) These account titles both mean the same thing and are used interchangeably.

B) Supplies payable represents the cost of supplies bought on account but not yet paid for, while

supplies expense represents the cost of the supplies which have been paid for.

C) Supplies payable represents the cost of supplies bought on account but not yet paid for, while

supplies expense represents the cost of supplies used to deliver goods or services to customers.

D) Supplies expense represents the cost of supplies bought on account but not yet paid for, while

supplies payable represents the cost of supplies used to deliver goods or services to customers.

Question Type: Concept

37) Which of the following is NOT a liability?

A) Accounts Payable

B) Interest Payable

C) Rent Expense

D) All of the above are liabilities.

Question Type: Concept

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38) Which of the following is NOT an asset?

A) Revenues

B) Accounts Receivable

C) Prepaid Rent

D) All of the above are assets.

Question Type: Concept

2.2 Explain debits, credits, and the double-entry system of accounting

1) Double-entry accounting requires that every business transaction impact at least two different

accounts.

Question Type: Concept

2) A T-account is a way to visualize the increases and decreases to the value of an account.

Question Type: Concept

3) The debit (left) side of an account always indicates an increase in the value of the account.

Question Type: Concept

4) The credit (right) side of an account shows an increase or decrease depending upon the type of

account.

Question Type: Concept

5) Accounts that increase on the credit side are Assets, dividends and Expenses (ADE).

Question Type: Concept

6) Accounts that increase on the credit side are Liabilities, Common Stock, Revenues and

Retained Earnings (LCR).

Question Type: Concept

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7) Normal balance refers to the positive increase of an account and identifies the side of the

account (Debit or Credit) to which this positive balance is recorded.

Question Type: Concept

8) Accounts Payable, Taxes Payable, and Notes Payable:

A) increase on the debit side, decrease on the credit side and are assets.

B) decrease on the debit side, increase on the credit side and are liabilities.

C) increase on the debit side, decrease on the credit side and are expenses.

D) decrease on the debit side, increase on the credit side and are revenues.

Question Type: Concept

9) The Stockholders’ Equity accounts Dividends, Revenues and Expenses have normal balances

of:

A) credit, debit, and debit, respectively.

B) debit, credit, and credit, respectively.

C) debit, credit, and debit, respectively.

D) credit, credit, and credit, respectively.

Question Type: Concept

10) Cash, Common Stock, and Advertising Expense have normal balances of:

A) credit, credit, and credit, respectively.

B) debit, credit, and debit, respectively.

C) debit, debit, and credit, respectively.

D) credit, debit, and debit, respectively.

Question Type: Concept

11) Dividends, Accounts Receivable, and Buildings have normal balances of:

A) credit, debit, and debit, respectively.

B) debit, debit, and credit, respectively.

C) credit, credit, and credit, respectively.

D) debit, debit, and debit, respectively.

Question Type: Concept

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12) Revenues, Accounts Receivable, and Common Stock have normal balances of:

A) credit, debit, and credit, respectively.

B) debit, debit, and credit, respectively.

C) credit, credit, and credit, respectively.

D) debit, debit, and debit, respectively.

Question Type: Concept

13) Office Furniture, Wages Payable and Dividends have normal balances of:

A) credit, credit, and credit, respectively.

B) debit, credit, and debit, respectively.

C) debit, debit, and credit, respectively.

D) credit, debit, and debit, respectively.

Question Type: Concept

14) Which of the following is an unofficial tool of accounting?

A) Account

B) T-account

C) Debit

D) Credit

Question Type: Concept

15) The total amount of debits must equal the total amount of credits. This is a rule of:

A) T-accounts.

B) the chart of accounts.

C) double-entry accounting.

D) normal balances.

Question Type: Concept

16) A T-account has a $698 credit balance. This account is most likely NOT:

A) Accounts Payable.

B) Sales Revenue.

C) Accounts Receivable.

D) Common Stock.

Question Type: Application