Financial Accounting, 3e (Kemp/Waybright)
Chapter 2 Analyzing and Recording Business Transactions
2.1 Questions
1) Account titles such as Marketing Expense and Depreciation Expense would be numbered
starting with a 3.
2) A listing of all accounts in numerical order is called a chart of accounts.
3) An account numbered 321 would be considered a Stockholders’ Equity account as it begins
with a 3.
4) The Stockholders’ Equity section would include accounts such as Retained Earnings and
Revenues.
5) Items of value that a company owns are called Stockholders’ Equity.
6) A business generally has fewer liability accounts than asset accounts.
7) A business generally has just one expense account.
8) Obligations that are owed to others due to past transactions are categorized as:
A) Stockholders’ Equity.
B) expenses.
C) assets.
D) liabilities.
9) Monies owed to a company on a written promise to pay a fixed amount of money by a certain
date would be called a(n):
A) note payable.
B) note receivable.
C) account payable.
D) account receivable.
10) 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.
11) 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.
12) An account starting with a number 1 would indicate:
A) an asset.
B) Stockholders’ Equity.
C) a revenue.
D) a liability.
13) All payables are listed as:
A) assets.
B) liabilities.
C) Stockholders’ Equity.
D) revenue.
14) 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.
15) A type of asset in which a customer owes the company money would be a:
A) dividend.
B) receivable.
C) payable.
D) sale.
16) 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
17) 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
18) Accounts starting with the number 4 would represent:
A) assets.
B) liabilities.
C) revenues.
D) expenses.
19) Marketing expenditures account 511 would belong to what category of accounts?
A) Assets
B) Expenses
C) Revenues
D) Liabilities
20) Land, Cash, Office Equipment and Accounts Receivable belong to what category of
accounts?
A) Liabilities
B) Revenues
C) Expenses
D) Assets
21) 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.
22) Which of the following would start with a 1 in the chart of accounts?
A) Land and Buildings
B) Depreciation Expense and Marketing Expense
C) Merchandise Sales and Rent Revenue
D) Common Stock and Dividends
23) Which of the following would start with a 2 in the chart of accounts?
A) Income Taxes Payable and Salaries Payable
B) Common Stock and Dividends
C) Cash and Accounts Receivable
D) Sales and Service Revenue
24) 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
25) A chart of accounts does NOT include:
A) Stockholders’ Equity.
B) assets.
C) names of customers.
D) liabilities.
26) Which of the following is an expense account?
A) Prepaid Insurance
B) Advertising
C) Accounts Payable
D) Cash
27) Which of the following is NOT a revenue account?
A) Salaries
B) Sales
C) Fees Earned
D) Professional Fees
28) 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.
29) Obligations owed by a company to banks, for instance, are called:
A) notes receivable.
B) Notes Payable.
C) Accounts Receivable.
D) Accounts Payable.
30) Net income and dividends are part of:
A) liabilities.
B) Stockholders’ Equity.
C) assets.
D) net income.
31) Which is NOT a part of Stockholders’ Equity?
A) Revenues
B) Expenses
C) Accounts Receivable
D) Dividends
32) Collection of money from a cash customer represents a(n):
A) liability.
B) expense.
C) revenue.
D) stock.
33) 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.
34) 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.
35) Which of the following is NOT a liability?
A) Accounts Payable
B) Interest Payable
C) Rent Expense
D) All of the above are liabilities.
36) Which of the following is NOT an asset?
A) Revenues
B) Accounts Receivable
C) Prepaid Rent
D) All of the above are assets.
2.2 Questions
1) Double-entry accounting requires that every business transaction impact at least two different
accounts.
2) A T-account is a way to visualize the increases and decreases to the value of an account.
3) The debit (left) side of an account always indicates an increase in the value of the account.
4) The credit (right) side of an account shows an increase or decrease depending upon the type of
account.
5) Accounts that increase on the credit side are Assets, dividends and Expenses (ADE).
6) Accounts that increase on the credit side are Liabilities, Common Stock, Revenues and
Retained Earnings (LCR).
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.
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.
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.
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.
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.
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.
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.
14) Which of the following is an unofficial tool of accounting?
A) Account
B) T-account
C) Debit
D) Credit
15) T-accounts aid in separating:
A) increases and decreases in an account.
B) the equality of the credits.
C) the equality of debits and credits in the accounting equation.
D) the balances of all of the accounts.
16) 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.
17) A T-account has a $759 credit balance. This account is most likely NOT:
A) Accounts Payable.
B) Sales Revenue.
C) Accounts Receivable.
D) Common Stock.
18) A T-account has a $509 debit balance. This account is most likely NOT:
A) Common Stock.
B) Land.
C) Advertising Expense.
D) Dividends.
19) A T-account has a $382 debit balance. This account is most likely:
A) Income Taxes Payable.
B) Common Stock.
C) Cash.
D) Magazine Sales.
20) A T-account has a $299 credit balance. This account is most likely NOT:
A) Accounts Receivable.
B) Bicycle Repair Revenue.
C) Wages Payable.
D) Common Stock.
21) A T-account has a $922 credit balance. This account is most likely:
A) Office Equipment.
B) Rent Expense.
C) Dividends.
D) Sales Revenue.
22) A T-account has a $388 credit balance. This account is most likely:
A) an expense.
B) a dividend account.
C) an asset.
D) a stock account.
23) Debit means:
A) decrease.
B) increase.
C) the right side of an account.
D) the left side of an account.
24) Credit means:
A) decrease.
B) increase.
C) the right side of an account.
D) the left side of an account.
25) An example of accounts with normal debit balances would be:
A) liabilities.
B) expenses.
C) revenues.
D) Stockholders’ Equity.
26) An example of accounts with normal credit balances would be:
A) revenues.
B) assets.
C) expenses.
D) dividends.
27) A T-account has which of the following three major parts?
A) A debit side, a credit side, and a balance
B) A debit side, a credit side, and a total column
C) A title, a current date, and a balance
D) A title, a debit side, and a credit side
28) The fact that each transaction has a dual effect on the accounting equation provides the basis
for what is called:
A) single-entry accounting.
B) double-entry accounting.
C) compound-entry accounting.
D) multiple-entry accounting.