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CHAPTER 2
THE RECORDING PROCESS
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
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True-False Statements
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Multiple Choice Questions
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Brief Exercises
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sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 2
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Exercises
170.
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Completion Statements
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Short-Answer Essay
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Matching: Q204
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Learning Objective 1
1.
TF
4.
TF
40.
MC
43.
MC
170.
Ex
205.
SA
2.
TF
38.
MC
41.
MC
44.
MC
171.
Ex
215.
SA
3.
TF
39.
MC
42.
MC
139.
MC
194.
C
Learning Objective 2
5.
TF
31.
TF
53.
MC
63.
MC
73.
MC
159.
BE
195.
C
6.
TF
32.
TF
54.
MC
64.
MC
74.
MC
160.
BE
196.
C
7.
TF
45.
MC
55.
MC
65.
MC
75.
MC
161.
BE
197.
C
8.
TF
46.
MC
56.
MC
66.
MC
76.
MC
172.
Ex
205.
SA
9.
TF
47.
MC
57.
MC
67.
MC
77.
MC
173.
Ex
206.
SA
10.
TF
48.
MC
58.
MC
68.
MC
78.
MC
174.
Ex
207.
SA
11.
TF
49.
MC
59.
MC
69.
MC
79.
MC
175.
Ex
216.
SA
12.
TF
50.
MC
60.
MC
70.
MC
80.
MC
176.
Ex
13.
TF
51.
MC
61.
MC
71.
MC
140.
MC
177.
Ex
14.
TF
52.
MC
62.
MC
72.
MC
141.
MC
178.
Ex
Learning Objective 3
15.
TF
81.
MC
85.
MC
89.
MC
93.
MC
142.
MC
182.
Ex
16.
TF
82.
MC
86.
MC
90.
MC
94.
MC
143.
MC
198.
C
17.
TF
83.
MC
87.
MC
91.
MC
95.
MC
180.
Ex
209.
SA
18.
TF
84.
MC
88.
MC
92.
MC
96.
MC
181.
Ex
210.
SA
Learning Objective 4
19.
TF
33.
TF
101.
MC
106.
MC
144.
MC
163.
BE
199.
C
20.
TF
97.
MC
102.
MC
107.
MC
145.
MC
164.
BE
200.
C
21.
TF
98.
MC
103.
MC
108.
MC
146.
MC
165.
BE
201.
C
22.
TF
99.
MC
104.
MC
109.
MC
147.
MC
179.
Ex
211.
SA
23.
TF
100.
MC
105.
MC
110.
MC
162.
BE
183.
Ex
214.
SA
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 3
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Learning Objective 5
24.
TF
27.
TF
112.
MC
115.
MC
118.
MC
202.
C
25.
TF
34.
TF
113.
MC
116.
MC
184.
Ex
212.
SA
26.
TF
111.
MC
114.
MC
117.
MC
185.
Ex
214.
SA
Learning Objective 6
28.
TF
120.
MC
124.
MC
128.
MC
148.
MC
186.
Ex
214.
SA
29.
TF
121.
MC
125.
MC
129.
MC
149.
MC
187.
Ex
35.
TF
122.
MC
126.
MC
130.
MC
166.
BE
212.
SA
.
119.
MC
123.
MC
127.
MC
131.
MC
167.
BE
213.
SA
Learning Objective 7
30.
TF
133.
MC
137.
MC
168.
BE
190.
Ex
203.
C
36.
TF
134.
MC
138.
MC
169.
BE
191.
Ex
208.
SA
37.
TF
135.
MC
150.
MC
188.
Ex
192.
Ex
132.
MC
136.
MC
151.
MC
189.
Ex
193.
Ex
Learning Objective 8
152.
MC
153.
MC
154.
MC
155.
MC
156.
MC
157.
MC
158.
MC
Note: TF = True-False BE = Brief Exercise C = Completion
MC = Multiple Choice Ex = Exercise SA = Short-Answer Essay
Matching Question: 204
CHAPTER LEARNING OBJECTIVES
1. Explain what an account is and how it helps in the recording process. An account is a
record of increases and decreases in specific asset, liability, or stockholders’ equity items.
2. Define debits and credits and explain their use in recording business transactions. The
terms debit and credit are synonymous with left and right. Assets, dividends, and expenses
are increased by debits and decreased by credits. Liabilities, common stock, retained
earnings, and revenues are increased by credits and decreased by debits.
3. Identify the basic steps in the recording process. The basic steps in the recording process
are (a) analyze each transaction for its effects on the accounts, (b) enter the transaction
information in a journal, (c) transfer the journal information to the appropriate accounts in the
ledger.
4. Explain what a journal is and how it helps in the recording process. The initial
accounting record of a transaction is entered in a journal before the data are entered in the
accounts. A journal (a) discloses in one place the complete effects of a transaction, (b)
provides a chronological record of transactions, and (c) prevents or locates errors because
the debit and credit amounts for each entry can be easily compared.
5. Explain what a ledger is and how it helps in the recording process. The ledger is the
entire group of accounts maintained by a company. The ledger provides the balance in each
of the accounts as well as keeps track of changes in these balances.
Test Bank for Financial Accounting, Ninth Edition
2 - 4
6. Explain what posting is and how it helps in the recording process. Posting is the transfer
of journal entries to the ledger accounts. This phase of the recording process accumulates the
effects of journalized transactions in the individual accounts.
7. Prepare a trial balance and explain its purposes. A trial balance is a list of accounts and
their balances at a given time. Its primary purpose is to prove the equality of debits and
credits after posting. A trial balance also uncovers errors in journalizing and posting and is
useful in preparing financial statements.
TRUE-FALSE STATEMENTS
1. A new account is opened for each transaction entered into by a business firm.
2. The recording process becomes more efficient and informative if all transactions are
recorded in one account.
3. When the volume of transactions is large, recording them in tabular form is more efficient
than using journals and ledgers.
4. An account is often referred to as a T-account because of the way it is constructed.
5. A debit to an account indicates an increase in that account.
6. If a revenue account is credited, the revenue account is increased.
7. The normal balance of all accounts is a debit.
8. Debit and credit can be interpreted to mean increase and decrease, respectively.
9. The double-entry system of accounting refers to the placement of a double line at the end
of a column of figures.
10. A credit balance in a liability account indicates that an error in recording has occurred.
11. The dividends account is a subdivision of the retained earnings account and appears as
an expense on the income statement.
12. Revenues are a subdivision of retained earnings.
13. Under the double-entry system, revenues must always equal expenses.
The Recording Process
2 - 5
14. Transactions are entered in the ledger first and then they are analyzed in terms of their
effect on the accounts.
15. Business documents can provide evidence that a transaction has occurred.
16. Each transaction must be analyzed in terms of its effect on the accounts before it can be
recorded in a journal.
17. Transactions are entered in the ledger accounts and then transferred to journals.
18. All business transactions must be entered first in the general ledger.
19. A simple journal entry requires only one debit to an account and one credit to an account.
20. A compound journal entry requires several debits to one account and several credits to
one account.
21. Transactions are recorded in alphabetic order in a journal.
22. A journal is also known as a book of original entry.
23. The complete effect of a transaction on the accounts is disclosed in the journal.
24. The account titles used in journalizing transactions need not be identical to the account
titles in the ledger.
25. The chart of accounts is a special ledger used in accounting systems.
26. A general ledger should be arranged in the order in which accounts are presented in the
financial statements, beginning with the balance sheet accounts.
27. The number and types of accounts used by different business enterprises are the same if
generally accepted accounting principles are being followed by the enterprises.
28. Posting is the process of proving the equality of debits and credits in the trial balance.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 6
29. After a transaction has been posted, the reference column in the journal should not be
blank.
30. A trial balance does not prove that all transactions have been recorded or that the ledger
is correct.
31. The double-entry system is a logical method for recording transactions and results in
equal debits and credits for each transaction.
32. The normal balance of an expense is a credit.
33. The journal provides a chronological record of transactions.
34. The ledger is merely a bookkeeping device and therefore does not provide much useful
data for management.
35. The chart of accounts is a listing of the accounts and the account numbers which identify
their location in the ledger.
36. The primary purpose of a trial balance is to prove the mathematical equality of the debits
and credits after posting.
37. The trial balance will not balance when incorrect account titles are used in journalizing or
posting.
Answers to True-False Statements
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
The Recording Process
2 - 7
MULTIPLE CHOICE QUESTIONS
38. An account consists of
a. one part.
b. two parts.
c. three parts.
d. four parts.
39. The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.
40. Which one of the following is not a part of an account?
a. Credit side
b. Trial balance
c. Debit side
d. Title
41. An account is a part of the financial information system and is described by all except
which one of the following?
a. An account has a debit and credit side.
b. An account is a source document.
c. An account may be part of a manual or a computerized accounting system.
d. An account has a title.
42. The right side of an account
a. is the correct side.
b. reflects all transactions for the accounting period.
c. shows all the balances of the accounts in the system.
d. is the credit side.
43. An account consists of
a. a title, a debit balance, and a credit balance.
b. a title, a left side, and a debit balance.
c. a title, a debit side, and a credit side.
d. a title, a right side, and a debit balance.
Test Bank for Financial Accounting, Ninth Edition
2 - 8
44. A T-account is
a. a way of depicting the basic form of an account.
b. what the computer uses to organize bytes of information.
c. a special account used instead of a trial balance.
d. used for accounts that have both a debit and credit balance.
45. Credits
a. decrease both assets and liabilities.
b. decrease assets and increase liabilities.
c. increase both assets and liabilities.
d. increase assets and decrease liabilities.
46. A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.
47. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.
48. The double-entry system requires that each transaction must be recorded
a. in at least two different accounts.
b. in two sets of books.
c. in a journal and in a ledger.
d. first as a revenue and then as an expense.
The Recording Process
2 - 9
49. A credit is not the normal balance for which account listed below?
a. Common stock account
b. Revenue account
c. Liability account
d. Dividends account
50. Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Common stock + Retained Earnings + Dividends – Revenues –
Expenses.
b. Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings +
Revenues.
c. Assets – Liabilities – Dividends = Common stock + Retained Earnings + Revenues –
Expenses.
d. Assets = Revenues + Expenses – Liabilities.
51. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Debit
Expenses Credit
b. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Credit
Expenses Credit
c. Assets Credit
Liabilities Debit
Stockholders' Equity Debit
Revenues Credit
Expenses Debit
d. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Credit
Expenses Debit
52. The best interpretation of the word credit is the
a. offset side of an account.
b. increase side of an account.
c. right side of an account.
d. decrease side of an account.
Test Bank for Financial Accounting, Ninth Edition
2 - 10
53. In recording an accounting transaction in a double-entry system
a. the number of debit accounts must equal the number of credit accounts.
b. there must always be entries made on both sides of the accounting equation.
c. the amount of the debits must equal the amount of the credits.
d. there must only be two accounts affected by any transaction.
54. An accounting convention is best described as
a. an absolute truth.
b. an accounting custom.
c. an optional rule.
d. something that cannot be changed.
55. A debit is not the normal balance for which account listed below?
a. Dividends
b. Cash
c. Accounts Receivable
d. Service Revenue
56. An accountant has debited an asset account for $1,200 and credited a liability account for
$500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a Stockholders' equity account for $700.
c. Debit another asset account for $700.
d. Credit a different asset account for $700.
57. An accountant has debited an asset account for $1,300 and credited a liability account for
$500. Which of the following would be an incorrect way to complete the recording of the
transaction?
a. Credit an asset account for $800.
b. Credit another liability account for $800.
c. Credit a Stockholders' account for $800.
d. Debit a Stockholders' account for $800.
58. Which of the following is not true of the terms debit and credit?
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and decrease.
c. They can be used to describe the balance of an account.
d. They can be interpreted to mean left and right.
The Recording Process
2 - 11
59. An account will have a credit balance if the
a. credits exceed the debits.
b. first transaction entered was a credit.
c. debits exceed the credits.
d. last transaction entered was a credit.
60.For the basic accounting equation to stay in balance, each transaction recorded must
a. affect two or less accounts.
b. affect two or more accounts.
c. always affect exactly two accounts.
d. affect the same number of asset and liability accounts.
61. Which of the following statements is true?
a. Debits increase assets and increase liabilities.
b. Credits decrease assets and decrease liabilities.
c. Credits decrease assets and increase liabilities.
d. Debits decrease liabilities and decrease assets.
62. Assets normally show
a. credit balances.
b. debit balances.
c. debit and credit balances.
d. debit or credit balances.
63. An awareness of the normal balances of accounts would help you spot which of the
following as an error in recording?
a. A debit balance in the dividends account
b. A credit balance in an expense account
c. A credit balance in a liabilities account
d. A credit balance in a revenue account
64. If a company has overdrawn its bank balance, then
a. its cash account will show a debit balance.
b. its cash account will show a credit balance.
c. the cash account debits will exceed the cash account credits.
d. it cannot be detected by observing the balance of the cash account.
Test Bank for Financial Accounting, Ninth Edition
2 - 12
65. Which account below is not a subdivision of retained earnings?
a. Dividends
b. Revenues
c. Expenses
d. Common stock
66. When a company pays dividends
a. it doesn't have to be cash, it could be another asset.
b. the dividends account will be increased with a credit.
c. the retained earnings account will be directly increased with a debit.
d. the dividends account will be decreased with a debit.
67. The Dividends account
a. appears on the income statement along with the expenses of the business.
b. must show transactions every accounting period.
c. is increased with debits and decreased with credits.
d. is not a proper subdivision of retained earnings.
68. Which of the following statements is incorrect?
a. Expenses increase stockholders’ equity.
b. Expenses have normal debit balances.
c. Expenses decrease stockholders’ equity.
d. Expenses are a negative factor in the computation of net income.
69. A credit to a liability account
a. indicates an increase in the amount owed to creditors.
b. indicates a decrease in the amount owed to creditors.
c. is an error.
d. must be accompanied by a debit to an asset account.
70. In the first month of operations, the total of the debit entries to the cash account amounted
to $1,200 and the total of the credit entries to the cash account amounted to $800. The
cash account has a(n)
a. $800 credit balance.
b. $1,200 debit balance.
c. $400 debit balance.
d. $400 credit balance.
The Recording Process
2 - 13
71. TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and
signed a note for the balance. TransAm debited the Equipment account, credited Cash
and
a. nothing further must be done.
b. debited the retained earnings account for $2,100.
c. credited another asset account for $400.
d. credited a liability account for $2,100.
72. Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and
agreed to pay the balance in 30 days. The journal entry to record this transaction would
include a debit to an asset account for $1,000, a credit to a liability account for $600.
Which of the following would be the correct way to complete the recording of the
transaction?
a. Credit an asset account for $400.
b. Credit another liability account for $400.
c. Credit the retained earnings account for $400.
d. Debit the retained earnings account for $400.
73. On January 14, Edamame Industries purchased supplies of $700 on account. The entry to
record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies.
74. On June 1, 2015, Portugal Inc. reported a cash balance of $12,000. During June, Portugal
made deposits of $5,000 and made disbursements totalling $14,000. What is the cash
balance at the end of June?
a. $3,000 debit balance
b. $17,000 debit balance
c. $3,000 credit balance
d. $2,000 credit balance
75. At January 1, 2015, Alligator Industries reported retained earnings of $150,000. During
2015, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31,
2015, the amount of retained earnings is
a. $105,000.
b. $120,000.
c. $135,000.
d. $165,000.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 14
76. Mt. Zion Inc. pays its employees twice a month, on the 7th and the 21st. On June 21, Mt.
Zion Inc. paid employee salaries of $5,000. This transaction would
a. increase stockholders’ equity by $5,000.
b. decrease the balance in Salaries and Wages Expense by $5,000.
c. decrease net income for the month by $5,000.
d. be recorded by a $5,000 debit to Salaries and Wages Payable and a $4,000 credit to
Salaries and Wages Expense.
77. In the first month of operations for Gallowsbird Industries, the total of the debit entries to
the cash account amounted to $36,000 ($16,000 investment by stockholders and
revenues of $20,000). The total of the credit entries to the cash account amounted to
$22,000 (purchase of equipment $8,000 and payment of expenses $14,000). At the end of
the month, the cash account has a(n)
a. $6,000 credit balance.
b. $6,000 debit balance.
c. $14,000 debit balance.
d. $14,000 credit balance.
78 Chik Chik Company showed the following balances at the end of its first year:
Cash $ 6,000
Prepaid insurance 9,400
Accounts receivable 7,000
Accounts payable 5,600
Notes payable 8,400
Common stock 2,800
Dividends 1,400
Revenues 44,000
Expenses 35,000
What did Chik Chik Company show as total credits on its trial balance?
a. $51,400
b. $60,800
c. $62,200
d. $70,200
The Recording Process
2 - 15
79. Electrelane Company showed the following balances at the end of its first year:
Cash $ 4,000
Prepaid insurance 7,000
Accounts receivable 5,000
Accounts payable 4,000
Notes payable 6,000
Common stock 2,000
Dividends 1,000
Revenues 32,000
Expenses 25,000
What did Electrelene Company show as total credits on its trial balance?
a. $9,000
b. $44,000
c. $45,000
d. $49,000
80. During February 2015 its first month of operations, the stockholders of Ariel Pink
Enterprises invested cash of $50,000. Ariel had cash revenues of $10,000 and paid
expenses of $14,000. Assuming no other transactions impacted the cash account, what is
the balance in Cash at February 28?
a. $4,000 credit
b. $4,000 debit
c. $46,000 debit
d. $54,000 debit
81. At January 31, 2015, the balance in Aislers Inc.’s supplies account was $750. During
February, Aislers purchased supplies of $900 and used supplies of $1,125. At the end of
February, the balance in the supplies account should be
a. $525 debit.
b. $975 debit.
c. $525 credit.
d. $775 debit.
82. At December 1, 2015, Cursive Company’s accounts receivable balance was $1,800.
During December, Cursive had credit revenues of $7,200 and collected accounts
receivable of $6,000. At December 31, 2015, the accounts receivable balance is
a. $600 debit.
b. $3,000 debit.
c. $600 credit.
d. $3,000 credit.
Test Bank for Financial Accounting, Ninth Edition
2 - 16
83. At October 1, 2015, Padilla Industries had an accounts payable balance of $40,000.
During the month, the company made purchases on account of $33,000 and made
payments on account of $48,000. At October 31, 2015, the accounts payable balance is
a. $25,000.
b. $41,000.
c. $55,000.
d. $121,000.
84. During 2015, its first year of operations, Neko’s Bakery had revenues of $60,000 and
expenses of $35,000. The business paid dividends of $20,000. What is the amount of
stockholders’ equity at December 31, 2015?
a. $0
b. $5,000 credit
c. $25,000 credit
d. $20,000 debit
85. On July 7, 2015, Hidden Camera Enterprises performed cash services of $1,700. The
entry to record this transaction would include
a. a debit to Service Revenue of $1,700.
b. a credit to Accounts Receivable of $1,700.
c. a debit to Cash of $1,700.
d. a credit to Accounts Payable of $1,700.
86. At September 1, 2015, Promise Ring Co. reported stockholders’ equity of $156,000.
During the month, Promise Ring generated revenues of $38,000, incurred expenses of
$21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the
amount of stockholders’ equity at September 30, 2015?
a. $166,000
b. $171,000
c. $173,000
d. $176,000
87. The final step in the recording process is to
a. analyze each transaction.
b. enter the transaction in a journal.
c. prepare a trial balance.
d. transfer journal information to ledger accounts.
88. The usual sequence of steps in the transaction recording process is:
a. journal → analyze → ledger.
b. analyze → journal → ledger.
c. journal → ledger → analyze.
d. ledger → journal → analyze.
The Recording Process
2 - 17
89. In recording business transactions, evidence that an accounting transaction has taken
place is obtained from
a. business documents.
b. the Internal Revenue Service.
c. the public relations department.
d. the SEC.
90. After a business transaction has been analyzed and entered in the book of original entry,
the next step in the recording process is to transfer the information to
a. the company's bank.
b. stockholders’ equity.
c. ledger accounts.
d. financial statements.
91. The first step in the recording process is to
a. prepare financial statements.
b. analyze each transaction for its effect on the accounts.
c. post to a journal.
d. prepare a trial balance.
92. Evidence that would not help with determining the effects of a transaction on the accounts
would be a(n)
a. cash register sales tape.
b. bill.
c. advertising brochure.
d. check.
93. After transaction information has been recorded in the journal, it is transferred to the
a. trial balance.
b. income statement.
c. book of original entry.
d. ledger.
94. The usual sequence of steps in the recording process is to analyze each transaction,
enter the transaction in the
a. journal, and transfer the information to the ledger accounts.
b. ledger, and transfer the information to the journal.
c. book of accounts, and transfer the information to the journal.
d. book of original entry, and transfer the information to the journal.
Test Bank for Financial Accounting, Ninth Edition
2 - 18
95. The final step in the recording process is to transfer the journal information to the
a. trial balance.
b. financial statements.
c. ledger.
d. file cabinets.
96. The recording process occurs
a. once a year.
b. once a month.
c. repeatedly during the accounting period.
d. infrequently in a manual accounting system.
97. A compound journal entry involves
a. two accounts.
b. three accounts.
c. three or more accounts.
d. four or more accounts.
98. A journal provides
a. the balances for each account.
b. information about a transaction in several different places.
c. a list of all accounts used in the business.
d. a chronological record of transactions.
99. When three or more accounts are required in one journal entry, the entry is referred to as a
a. compound entry.
b. triple entry.
c. multiple entry.
d. simple entry.
100. When two accounts are required in one journal entry, the entry is referred to as a
a. balanced entry.
b. simple entry.
c. posting.
d. nominal entry.
The Recording Process
2 - 19
101. Another name for journal is
a. listing.
b. book of original entry.
c. book of accounts.
d. book of source documents.
102. The standard format of a journal would not include
a. a reference column.
b. an account title column.
c. a T-account.
d. a date column.
Ans: c LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
103 Transactions in a journal are recorded in
a. account number order.
b. dollar amount order.
c. alphabetical order.
d. chronological order.
104 A journal is not useful for
a. disclosing in one place the complete effect of a transaction.
b. preparing financial statements.
c. providing a record of transactions.
d. locating and preventing errors.
105 A complete journal entry does not show
a. the date of the transaction.
b. the new balance in the accounts affected by the transaction.
c. a brief explanation of the transaction.
d. the accounts and amounts to be debited and credited.
106. The name given to entering transaction data in the journal is
a. chronicling.
b. listing.
c. posting.
d. journalizing.
Test Bank for Financial Accounting, Ninth Edition
2 - 20
107. The standard form of a journal entry has the
a. debit account entered first and indented.
b. credit account entered first and indented.
c. debit account entered first at the extreme left margin.
d. credit account entered first at the extreme left margin.
108. When journalizing, the reference column is
a. left blank.
b. used to reference the source document.
c. used to reference the journal page.
d. used to reference the financial statements.
109. On June 1, 2015 Ted Leo buys a copier machine for his business and finances this
purchase with cash and a note. When journalizing this transaction, he will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this type of transaction.
110. Which of the following journal entries is recorded correctly and in the standard format?
a. Salaries and Wages Expense ............................................ 500
Cash ............................................................................ 1,500
Advertising Expense . ......................................................... 1,000
b. Salaries and Wages Expense . ........................................... 500
Advertising Expense . ......................................................... 1,000
Cash ............................................................................ 1,500
c. Cash .................................................................................. 1,500
Salaries and Wages Expense ...................................... 500
Advertising Expense ..................................................... 1,000
d. Salaries and Wages Expense ............................................ 500
Advertising Expense .......................................................... 1,000
Cash . ........................................................................... 1,500
111. The ledger should be arranged in
a. alphabetical order.
b. chronological order.
c. dollar amount order.
d. financial statement order.
The Recording Process
2 - 21
112. The entire group of accounts maintained by a company is called the
a. chart of accounts.
b. general journal.
c. general ledger.
d. trial balance.
113. An accounting record of the balances of all assets, liabilities, and stockholders’ equity
accounts is called a
a. compound entry.
b. general journal.
c. general ledger.
d. chart of accounts.
114. The usual order of accounts in the general ledger is
a. assets, liabilities, common stock, retained earnings, dividends, revenues, and
expenses.
b. assets, liabilities, dividends, common stock, retained earnings, expenses, and
revenues.
c. liabilities, assets, common stock, retained earnings, revenues, expenses, and
dividends.
d. common stock, retained earnings, assets, liabilities, dividends, expenses, and
revenues.
115. Management could determine the amounts due from customers by examining which
ledger account?
a. Service Revenue
b. Accounts Payable
c. Accounts Receivable
d. Supplies
116. The ledger accounts should be arranged in
a. chronological order.
b. alphabetical order.
c. financial statement order.
d. order of appearance in the journal.
117. A three column form of account is so named because it has columns for
a. debit, credit, and account name.
b. debit, credit, and reference.
c. debit, credit, and balance.
d. debit, credit, and date.
Test Bank for Financial Accounting, Ninth Edition
2 - 22
118. On August 13, 2015, Swell Maps Enterprises purchased equipment for $1,300 and
supplies of $200 on account. Which of the following journal entries is recorded correctly
and in the standard format?
a. Equipment ........................................................................... 1,300
Account Payable ........................................................... 1,500
Supplies .............................................................................. 200
b. Equipment ........................................................................... 1,300
Supplies .............................................................................. 200
Accounts Payable ......................................................... 1,500
c. Accounts Payable ............................................................... 1,500
Equipment ..................................................................... 1,300
Supplies ........................................................................ 200
d. Equipment ........................................................................... 1,300
Supplies .............................................................................. 200
Accounts Payable. ........................................................ 1,500
119. Delta72 Company received a cash advance of $700 from a customer. As a result of this
event,
a. assets increased by $700.
b. stockholders’ equity increased by $700.
c. liabilities decreased by $700.
d. assets and stockholders’ equity increased by $700.
120. Camper Van Company purchased equipment for $2,600 cash. As a result of this event,
a. stockholders’ equity decreased by $2,600.
b. total assets increased by $2,600.
c. total assets remained unchanged.
d. stockholders’ equity decreased and total assets increased by $2,600.
121. Beethoven Company provided consulting services and billed the client $3,100. As a result
of this event,
a. assets remained unchanged.
b. assets increased by $3,100.
c. stockholders’ equity increased by $3,100.
d. assets and stockholders’ equity both increased by $3,100.
The Recording Process
2 - 23
122. The first step in posting involves
a. entering in the appropriate ledger account the date, journal page, and debit amount
shown in the journal.
b. writing in the journal the account number to which the debit amount was posted.
c. writing in the journal the account number to which the credit amount was posted.
d. entering in the appropriate ledger account the date, journal page, and credit amount
shown in the journal.
123. A chart of accounts usually starts with
a. asset accounts.
b. expense accounts.
c. liability accounts.
d. revenue accounts.
124. The procedure of transferring journal entries to the ledger accounts is called
a. journalizing.
b. analyzing.
c. reporting.
d. posting.
125. A number in the reference column in a general journal indicates
a. that the entry has been posted to a particular account.
b. the page number of the journal.
c. the dollar amount of the transaction.
d. the date of the transaction.
126. A chart of accounts for a business firm
a. is a graph.
b. indicates the amount of profit or loss for the period.
c. lists the accounts and account numbers that identify their location in the ledger.
d. shows the balance of each account in the general ledger.
127. Posting
a. should be performed in account number order.
b. accumulates the effects of journalized transactions in the individual accounts.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. is accomplished by examining ledger accounts and seeing which ones need updating.
Test Bank for Financial Accounting, Ninth Edition
2 - 24
128. After journal entries are posted, the reference column
a. of the general journal will be blank.
b. of the general ledger will show journal page numbers.
c. of the general journal will show "Dr" or "Cr".
d. of the general ledger will show account numbers.
129. The explanation column of the general ledger
a. is completed without exception.
b. is nonexistent.
c. is used infrequently.
d. shows account titles.
130. A numbering system for a chart of accounts
a. is prescribed by GAAP.
b. is uniform for all businesses.
c. usually starts with income statement accounts.
d. usually starts with balance sheet accounts.
131. The first step in designing a computerized accounting system is the creation of the
a. general ledger.
b. general journal.
c. trial balance.
d. chart of accounts.
132. The steps in preparing a trial balance include all of the following except
a. listing the account titles and their balances.
b. totaling the debit and credit columns.
c. proving the equality of the two columns.
d. transferring journal amounts to ledger accounts.
133. A trial balance may balance even when each of the following occurs except when
a. a transaction is not journalized.
b. a journal entry is posted twice.
c. incorrect accounts are used in journalizing.
d. a transposition error is made.
The Recording Process
2 - 25
134. A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement.
135. If the sum of the debit column equals the sum of the credit column in a trial balance, it
indicates
a. no errors have been made.
b. no errors can be discovered.
c. that all accounts reflect correct balances.
d. the mathematical equality of the accounting equation.
136. A trial balance is a listing of
a. transactions in a journal.
b. the chart of accounts.
c. general ledger accounts and balances.
d. the totals from the journal pages.
137. Customarily, a trial balance is prepared
a. at the end of each day.
b. after each journal entry is posted.
c. at the end of an accounting period.
d. only at the inception of the business.
138. A trial balance would only help in detecting which one of the following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors are made in recording the transaction
d. A transposition error when transferring the debit side of journal entry to the ledger
139. An account is an individual accounting record of increases and decreases in specific
a. liabilities.
b. assets.
c. expenses.
d. assets, liabilities, and stockholders’ equity items.
Test Bank for Financial Accounting, Ninth Edition
2 - 26
140. A debit is not the normal balance for which of the following?
a. Asset account
b. Dividends account
c. Expense account
d. Common stock account
141. Which of the following rules is incorrect?
a. Credits decrease the dividends account.
b. Debits increase the common stock account.
c. Credits increase revenue accounts.
d. Debits decrease liability accounts.
142. Which of the following statements is false?
a. Revenues increase stockholders’ equity.
b. Revenues have normal credit balances.
c. Revenues are a positive factor in the computation of net income.
d. Revenues are increased by debits.
143. Which of the following is the correct sequence of steps in the recording process?
a. Posting, journalizing, analyzing
b. Journalizing, analyzing, posting
c. Analyzing, posting, journalizing
d. Analyzing, journalizing, posting
144. Which of the following is false about a journal?
a. It discloses in one place the complete effects of a transaction.
b. It provides a chronological record of transactions.
c. It helps to prevent or locate errors because debit and credit amounts for each entry
can be readily compared.
d. It keeps in one place all the information about changes in specific account balances.
145. Deerhoof Company purchases equipment for $2,700 and supplies for $400 from Milkman
Co. for $3,100 cash. The entry for this transaction will include a
a. debit to Equipment $2,700 and a debit to Supplies Expense $400 for Milkman.
b. credit to Cash for Milkman.
c. credit to Accounts Payable for Deerhoof.
d. debit to Equipment $2,700 and a debit to Supplies $400 for Deerhoof.
The Recording Process
2 - 27
146. Devendra Company pays cash dividends of $600. The entry for this transaction will
include a debit of $600 to
a. Dividends
b. Retained Earnings.
c. Owner's Salaries Expense.
d. Salaries and Wages Expense.
147. On October 3, Karl Schickele, a carpenter, received a cash payment for services
previously billed to a client. Karl paid his telephone bill, and he also bought equipment on
credit. For the three transactions, at least one of the entries will include a
a. credit to Retained Earnings.
b. credit to Notes Payable.
c. debit to Accounts Receivable.
d. credit to Accounts Payable.
148. Posting of journal entries should be done in
a. account number order.
b. alphabetical order.
c. chronological order.
d. dollar amount order.
149. The chart of accounts is a
a. list of accounts and their balances at a given time.
b. device used to prove the mathematical accuracy of the ledger.
c. listing of the accounts and the account numbers which identify their location in the
ledger.
d. required step in the recording process.
150. Which of the following is incorrect regarding a trial balance?
a. It proves that the debits equal the credits after posting.
b. It proves that the company has recorded all transactions.
c. A trial balance uncovers errors in journalizing and posting.
d. A trial balance is useful in the preparation of financial statements.
151. A trial balance will not balance if
a. a journal entry is posted twice.
b. a wrong amount is used in journalizing.
c. incorrect account titles are used in journalizing.
d. a journal entry is only partially posted.
Test Bank for Financial Accounting, Ninth Edition
2 - 28
152. Which of the following are the same under both GAAP and IFRS?
a. The account.
b. Debit and credit rules.
c. Steps in the recording process.
d. All of these answers are correct.
153. Which of the following are the same under both GAAP and IFRS?
a. The journal.
b. The ledger.
c. The chart of accounts.
d. All of these answers are correct.
154. Which of the following is true?
a. Transaction analysis is completely different under IFRS and GAAP.
b. Most transactions are recorded differently under IFRS and GAAP.
c. Transaction analysis is the same under IFRS and GAAP, but some transactions are
recorded differently.
d. All transactions are recorded the same under IFRS and GAAP.
155. European companies rely
a. less on historical cost and more on fair values than U.S. companies.
b. less on fair values and more on historical cost than U.S. companies.
c. completely on fair values for financial reporting.
d. completely on historical cost for financial reporting.
156. The double–entry accounting system is the basis of accounting systems
a. worldwide.
b. worldwide, except for the U.S.
c. in the U.S. only
d. neither internationally nor in the U.S.
157. Under IFRS, the trial balance
a. follows the same format as under GAAP.
b. shows credits on the left and debits on the right.
c. includes less accounts than under GAAP.
d. includes more accounts than under GAAP.
The Recording Process
FOR INSTRUCTOR USE ONLY
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158. In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be
considered is
a. whether IFRS is sufficiently developed and consistent in application.
b. whether the IFRS is established for the benefit of investors.
c. the impact of a switch to IFRS on U.S. laws and regulations.
d. all of these answers are correct.
Answers to Multiple Choice Questions
Test Bank for Financial Accounting, Ninth Edition
2 - 30
BRIEF EXERCISES
BE 159
At June 1, 2015, Coquehcot Industries had an accounts receivable balance of $12,000. During
the month, the company performed credit services of $30,000 and collected accounts receivable
of $22,000. What is the balance in accounts receivable at June 30, 2015?
Solution 159
The balance at the end of the month is $15,000, calculated as follows:
Beginning accounts receivable $12,000
Add: Credit sales 30,000
Less: Collections (22,000)
Ending accounts receivable $20,000
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 31
Solution 160
BE 161
For each of the following accounts indicate the effect of a debit or a credit on the account and the
normal balance. Increase (+), Decrease (–).
Debit_ _Credit_ Normal Balance
1. Salaries and wages expense. _______ ______ _______
2. Accounts receivable. _______ ______ _______
3. Service revenue. _______ ______ _______
4. Common stock. _______ ______ _______
5. Dividends. _______ ______ _______
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 32
Solution 161
BE 162
For each of the following transactions of Neon Garden, identify the account to be debited and the
account to be credited.
1. Purchased 18-month insurance policy for cash.
2. Paid weekly payroll.
3. Purchased supplies on account.
4. Received utility bill to be paid at later date.
Solution 162
BE 163
Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transaction.
1. Andrew Bird invested $35,000 cash in exchange for stock.
2. Hired an employee to be paid $400 per week, starting tomorrow.
3. Paid two years’ rent in advance, $7,440.
4. Paid the worker’s weekly wage.
5. Recorded revenue earned and received for the week, $1,900.
Solution 163
The Recording Process
FOR INSTRUCTOR USE ONLY
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Solution 163 (cont.)
BE 164
Identify the impact on the accounting equation of the following transactions.
1. Purchased 36-month insurance policy for cash.
2. Purchased supplies on account.
3. Received utility bill to be paid at later date.
4. Paid utility bill previously accrued.
Solution 164
BE 165
Journalize the following transactions for Xiu Xiu Company for June 2015, the company’s first
month of operations. You may omit explanations for the transactions.
1. Purchased equipment on account for $9,000.
2. Billed customers $5,000 for services performed.
3. Made payment of $2,300 on account for equipment purchased earlier in month.
4. Collected $2,900 on customer accounts.
Solution 165
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 34
BE 166
The following transactions took place for Xiu Xiu Company:
(a) Purchased equipment on account for $9,000.
(b) Billed customers $5,000 for services performed.
(c) Made payment of $2,300 on account for equipment purchased earlier in month.
(d) Collected $2,900 on customer accounts.
1. What is the balance in Accounts Payable at June 30, 2015?
2. What is the balance in Accounts Receivable at June 30, 2015?
Solution 166
BE 167
The transactions of the Liberty Belle Store are recorded in the general journal below. You are to
post the journal entries to T-accounts.
General Journal
____________________________________________________________________________
Date Account Titles Debit Credit
____________________________________________________________________________
2015
Aug. 5 Accounts Receivable 4,400
Service Revenue 4,400
10 Cash 3,000
Service Revenue 3,000
19 Rent Expense 1,100
Cash 1,100
25 Cash 1,400
Accounts Receivable 1,400
The Recording Process
FOR INSTRUCTOR USE ONLY
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BE 167 (cont.)
General Ledger
Cash Accounts Receivable
Service Revenue Rent Expense
Solution 167
BE 168
Prepare a trial balance from the ledger accounts of Black Diamond Express as of January 31,
2015.
Accounts Payable $1,100 Rent Expense $ 500
Accounts Receivable 1,700 Service Revenue 3,000
Cash 1,400 Supplies 200
Common stock 2,000 Salaries and Wages Expense 1,300
Dividends 1,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 36
Solution 168
BE 169
Prepare a corrected trial balance for Stereolab Company. All accounts should have a normal
balance.
STEROELAB COMPANY
Trial Balance
For the Quarter Ended 3/31/15
Debit Credit
Cash $14,000
Accounts Receivable $ 23,000
Prepaid Insurance 2,500
Equipment 60,000
Accounts Payable 15,000
Unearned Service Revenue 10,000
Notes Payable 25,000
Common stock 38,000
Dividends 1,500
Service Revenue 43,000
Salaries and Wages Expense 15,000
Utilities Expense 5,000
Rent Expense 10,000
$116,500 $145,500
The Recording Process
FOR INSTRUCTOR USE ONLY
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Solution 169
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 38
EXERCISES
Ex. 170
The chart of accounts used by Notwist Copy Company is listed below. You are to indicate the
proper accounts to be debited and credited for the following transactions by writing the account
number(s) in the appropriate boxes.
CHART OF ACCOUNTS
101 Cash 209 Unearned Service Revenue
112 Accounts Receivable 311 Common Stock
125 Supplies 332 Dividends
157 Equipment 400 Service Revenue
200 Notes Payable 610 Advertising Expense
201 Accounts Payable 729 Rent Expense
———————————————————————————————————————————
Number(s) Number(s)
of account(s) of account(s)
debited credited
1. The company issues stock in exchange for
$70,000 cash.
———————————————————————————————————————————
2. Purchased three pieces of equipment for
$160,000, paying $50,000 cash and signing a 5-
year, 10% note for the remainder.
———————————————————————————————————————————
3. Purchased $5,000 supplies on credit.
———————————————————————————————————————————
4. Cash revenue amounted to $7,000.
———————————————————————————————————————————
5. Paid $500 cash for radio advertising.
———————————————————————————————————————————
6. Paid $800 on account for supplies purchased in
transaction 3.
———————————————————————————————————————————
7. The company paid dividends of $2,100.
———————————————————————————————————————————
8. Paid $1,200 cash for rent for the current month.
———————————————————————————————————————————
9. Received $2,000 cash advance from a customer
for future copying.
———————————————————————————————————————————
10. Billed a customer for $575 for photocopy work
done.
———————————————————————————————————————————
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 39
Solution 170
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 40
Ex. 171
Under a double-entry system, show how the entry in each statement is entered in the ledger by
using debit or credit to indicate the increase or decrease in the affected account.
Debit or Credit
1. An increase in Salaries and Wages Expense. _________________
2. A decrease in Accounts Payable. _________________
3. An increase in Prepaid Insurance. _________________
4. An increase in Common Stock. _________________
5. A decrease in Supplies. _________________
6. An increase in Dividends. _________________
7. An increase in Service Revenue. _________________
8. A decrease in Accounts Receivable. _________________
9. An increase in Rent Expense. _________________
10. A decrease in Equipment. _________________
Solution 171
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 41
Ex. 172
Selected transactions for Good Home, a property management company, in its first month of
business, are as follows:
Jan. 2 Issued stock to investors for $15,000 cash.
3 Purchased used car for $5,200 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $2,100 for services performed.
16 Paid $450 cash for advertising.
20 Received $1,300 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Paid dividends of $2,000.
Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset (A), liability (L), stockholders’ equity
(SE)).
(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).
(c) Whether the specific account is increased (incr.) or decreased (decr).
(d) The normal balance of the specific account.
Use the following format, in which the January 2 transaction is given as an example.
Account Debited Account Credited
(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Date Type Account Effect Balance Type Account Effect Balance
Jan. 2 A Cash Incr. Debit SE Common Incr. Credit
Stock
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 42
Solution 172
Ex. 173
For the accounts listed below, indicate if the normal balance of the account is a debit or credit.
Normal Balance
Accounts Debit or Credit
1. Service Revenue _________________
2. Rent Expense _________________
3. Accounts Receivable _________________
4. Accounts Payable _________________
5. Retained Earnings _________________
6. Supplies _________________
7. Insurance Expense _________________
8. Dividends _________________
9. Buildings _________________
10. Notes Payable _________________
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 43
Solution 173
Ex. 174
For each of the following accounts, indicate the effects of (a) a debit and (b) the normal account
balance.
1. Notes Payable
2. Prepaid Insurance
3. Salaries and Wages Expense
4. Service Revenue
5. Equipment
6. Common Stock
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 44
Ex. 175
During an accounting period, a business has numerous transactions affecting each of the
following accounts. State for each account whether it is likely to have (a) debit entries only, (b)
credit entries only, or (c) both debit and credit entries.
____ (1) Advertising Expense ____ (6) Dividends
____ (2) Service Revenue ____ (7) Cash
____ (3) Accounts Payable ____ (8) Salaries and Wages Expense
____ (4) Accounts Receivable ____ (9) Notes Payable
____ (5) Common Stock ____ (10) Insurance Expense
Ex. 176
Eight transactions are recorded in the following T-accounts:
CASH ACCOUNTS RECEIVABLE
(1) 25,000 (2) 3,500 (5) 27,500 (7) 22,500
(7) 22,500 (3) 1,950
(4) 5,100
(6) 8,000
(8) 3,300
SUPPLIES EQUIPMENT
(3) 1,950 (2) 13,500
COMMON STOCK SERVICE REVENUE
(1) 25,000 (5) 27,500
ACCOUNTS PAYABLE DIVIDENDS
(6) 8,000 (2) 10,000 (8) 3,300
SALARIES AND WAGES EXPENSE
(4) 5,100
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 45
Ex. 176 (cont.)
Indicate for each debit and each credit: (a) whether an asset, liability, stockholders’ equity,
revenue, or expense account was affected and (b) whether the account was increased (+) or (–)
decreased. Answers should be presented in the following chart form:
Account Debited Account Credited
Transaction (a) (b) (a) (b)
No. Type Effect Type Effect
———————————————————————————————————————————
(1) (Example) Asset + Stockholders’
equity +
———————————————————————————————————————————
(2)
———————————————————————————————————————————
(3)
———————————————————————————————————————————
(4)
———————————————————————————————————————————
(5)
———————————————————————————————————————————
(6)
———————————————————————————————————————————
(7)
———————————————————————————————————————————
(8)
———————————————————————————————————————————
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 46
Ex. 177
For each of the following accounts indicate (a) the type of account (Asset, Liability, Stockholders’
Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance.
Example
0. Cash a. Asset account
b. Debit increases, credit decreases
c. Normal balance - debit
Accounts
1. Accounts Payable 5. Service Revenue
2. Accounts Receivable 6. Insurance Expense
3. Common Stock 7. Notes Payable
4. Dividends 8. Equipment
Ex. 178
For each transaction given, enter in the tabulation given below a "D" for debit and a "C" for credit
to reflect the increases and decreases of the assets, liabilities, and stockholders’ equity accounts.
In some cases there may be a "D" and a "C" in the same box.
Transactions:
1. Invests cash in exchange for stock.
2. Pays insurance in advance for six months.
3. Pays secretary's salary.
4. Purchases supplies on account.
5. Pays electricity bill.
6. Borrows money from local bank.
7. Makes payment on account.
8. Receives cash due from customers.
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 47
Ex. 178 (cont.)
9. Provides services on account.
10. The company pays a dividends.
Transaction #
1
2
3
4
5
6
7
8
9
10
Assets
Liabilities
Common stock
Dividends
Revenues
Expenses
Ex. 179
Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transactions.
1. The company issues stock in exchange for $40,000 cash
2. Purchased $400 of supplies on credit.
3. Purchased equipment for $8,000, paying $2,000 in cash and signed a 30-day, $6,000, note
payable.
4. Real estate commissions billed to clients amount to $4,000.
5. Paid $700 in cash for the current month's rent.
6. Paid $200 cash on account for supplies purchased in transaction 2.
7. Received a bill for $600 for advertising for the current month.
8. Paid $2,200 cash for office salaries and wages.
9. The company paid dividends of $1,500.
10. Received a check for $3,000 from a client in payment on account for commissions billed in
transaction 4.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 48
Ex. 180
Identify the accounts to be debited and credited for each of the following transactions.
1. Invested $8,000 cash in the business in exchange for stock.
2. Purchased supplies on account for $1,000.
3. Billed customers $2,000 for services performed.
4. Paid salaries of $1,200.
The Recording Process
FOR INSTRUCTOR USE ONLY
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Ex. 181
Transactions for Tom Petty Company for the month of October are presented below. Journalize
each transaction and identify each transaction by number. You may omit journal explanations.
1. Invested $40,000 cash in the business in exchange for stock.
2. Purchased land costing $28,000 for cash.
3. Purchased equipment costing $15,000 for $3,000 cash and the remainder on credit.
4. Purchased supplies on account for $800.
5. Paid $1,000 for a one-year insurance policy.
6. Received $3,000 cash for services performed.
7. Received $4,000 for services previously performed on account.
8. Paid wages to employees for $2,500.
9. Paid dividends of $2,000.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 50
Ex. 182
Match the basic step in the recording process described by each of the following statements.
A. Analyze each transaction
B. Enter each transaction in a journal
C. Transfer journal information to ledger accounts
____ 1. This step is called posting.
____ 2. Business documents are examined to determine the effects of transactions on the
accounts.
____ 3. This step is called journalizing.
Ex. 183
Prepare journal entries for each of the following transactions.
1. Performed services for customers on account $8,000.
2. Purchased $20,000 of equipment on account.
3. Received $3,000 from customers in transaction 1.
4. The company paid dividends of $2,000.
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 51
Ex. 184
Sigur Ros Company is a newly organized business. The list of accounts to be opened in the
general ledger is as follows:
Accounts Payable Prepaid Insurance
Accounts Receivable Prepaid Rent
Accumulated Depreciation Rent Expense
Cash Salaries and Wages Expense
Common Stock Salaries and Wages Payable
Depreciation Expense Service Revenue
Dividends Supplies
Equipment Utilities Expense
Insurance Expense
Instructions
Organize the accounts into the order in which they should appear in the ledger of Sigur Ros
Company and assign account numbers. Use the following system to assign account numbers.
1—199 Assets
200—299 Liabilities
300—399 Stockholders’ Equity
400—499 Revenues
500—599 Expenses
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 52
Ex. 185
The transactions of Medina Information Service are recorded in the general journal below. You
are to post the journal entries to the accounts in the general ledger. After all entries have been
posted, you are to prepare a trial balance on the form provided.
General Journal J1
———————————————————————————————————————————
Date Account Titles and Explanation Ref. Debit Credit
———————————————————————————————————————————
2015
Sept. 1 Cash 25,000
Common Stock 25,000
(Issued stock for cash)
4 Equipment 30,000
Cash 10,000
Notes Payable 20,000
(Paid cash and issued 2-year, 9%, note for
equipment)
8 Rent Expense 1,000
Cash 1,000
(Paid September rent)
15 Prepaid Insurance 400
Cash 400
(Paid one-year liability insurance)
18 Cash 2,500
Service Revenue 2,500
(Received cash for delivery services)
20 Salaries and Wages Expense 500
Cash 500
(Paid salaries for current period)
25 Utilities Expense 100
Accounts Payable 100
(Received a bill for September utilities)
30 Dividends 1,500
Cash 1,500
(Paid dividends)
30 Accounts Receivable 4,000
Service Revenue 4,000
(Billed customer for delivery service)
The Recording Process
FOR INSTRUCTOR USE ONLY
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Ex. 185 (cont.)
General Ledger
Cash Account No. 101
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Accounts Receivable Account No. 112
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Prepaid Insurance Account No. 130
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Equipment Account No. 155
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Accounts Payable Account No. 201
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 54
Ex. 185 (cont.)
Notes Payable Account No. 205
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Common Stock Account No. 311
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Dividends Account No. 332
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Service Revenue Account No. 400
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Rent Expense Account No. 719
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 55
Ex. 185 (cont.)
Salaries and Wages Expense Account No. 726
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
Utilities Expense Account No. 735
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————
MEDINA INFORMATION SERVICE
Trial Balance
September 30, 2015
———————————————————————————————————————————
Accounts Debit Credit
———————————————————————————————————————————
———————————————————————————————————————————
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 56
Solution 185
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 57
Solution 185 (cont.)
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 58
Solution 185 (cont.)
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 59
Solution 185 (cont.)
Ex. 186
The bookkeeper for Panda Bear Yard Service made a number of errors in journalizing and
posting as described below:
1. A debit posting to accounts receivable for $500 was omitted.
2. A payment of accounts payable for $600 was credited to cash and debited to accounts
receivable.
3. A credit to accounts receivable for $950 was posted as $95.
4. A cash purchase of equipment for $893 was journalized as a debit to equipment and a credit
to notes payable. The credit posting was made for $839 while the debit posting was made for
$893.
5. A debit posting of $400 for purchase of supplies was credited to supplies.
6. A debit to maintenance and repairs expense for $451 was posted as $415.
7. A debit posting for salaries and wages expense for $900 was made twice.
8. A cash purchase of supplies for $700 was journalized and posted as a debit to supplies for
$70 and a credit to cash for $70.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 60
Ex. 186 (cont.)
Instructions
For each error, indicate (a) whether the trial balance will balance; if the trial balance will not
balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have
the larger total. Consider each error separately. Use the following form, in which error (1) is given
as an example.
(A) (B) (C)
Error In Balance Difference Larger Column
1 No $500 Credit
Ex. 187
Post the following transactions to T-accounts and determine each account's ending balance.
1. Supplies ......................................................................................... 2,800
Accounts Payable .................................................................. 2,800
2. Accounts Receivable ...................................................................... 4,000
Service Revenue ................................................................... 4,000
3. Cash .............................................................................................. 3,000
Accounts Receivable ............................................................. 3,000
4. Accounts Payable ........................................................................... 1,000
Cash ...................................................................................... 1,000
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 61
Ex. 188
The trial balance of Red House Painters shown below does not balance.
RED HOUSE PAINTERS
Trial Balance
June 30, 2015
———————————————————————————————————————————
Debit Credit
Cash .............................................................................................. $ 2,780
Accounts Receivable...................................................................... 7,420
Supplies ......................................................................................... 600
Equipment ...................................................................................... 8,300
Accounts Payable .......................................................................... $ 9,777
Common Stock .............................................................................. 1,952
Dividends ....................................................................................... 1,300
Service Revenue ............................................................................ 15,200
Salaries and Wages Expense ........................................................ 3,800
Maintenance and Repairs Expense ................................................ 1,600
Totals .................................................................................... $25,800 $26,929
An examination of the ledger and journal reveals the following errors:
1. Each of the above listed accounts has a normal balance per the general ledger.
2. Cash of $270 received from a customer on account was debited to Cash $720 and credited to
Accounts Receivable $720.
3. A dividend of $400 was posted as a credit to Dividends $400 and credit to Cash $400.
4. A debit of $300 was not posted to Salaries and Wages Expense.
5. The purchase of equipment on account for $700 was recorded as a debit to Maintenance and
Repairs Expense and a credit to Accounts Payable for $700.
6. Services were performed on account for a customer, $510, for which Accounts Receivable
was debited $510 and Service Revenue was credited $51.
7. A payment on account for $235 was credited to Cash for $235 and credited to Accounts
Payable for $253.
Instructions
Prepare a correct trial balance.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 62
Ex. 189
Some of the following errors would cause the debit and credit columns of the trial balance to have
unequal totals. For each of the four cases, state whether the error would cause unequal totals in
the trial balance. If the error causes unequal totals, indicate the amount of difference between the
columns and state whether the debit or credit is larger. Each case is to be considered
independently of the others.
1. A payment of $500 to a creditor was recorded by a debit to Accounts Payable of $50 and a
credit to Cash of $500.
2. A $480 payment for a printer was recorded by a debit to Equipment of $48 and a credit to
Cash for $48.
3. An account receivable in the amount of $2,500 was collected in full. The collection was
recorded by a debit to Cash for $2,500 and a debit to Accounts Payable for $2,500.
4. An account payable was paid by issuing a check for $800. The payment was recorded by
debiting Accounts Payable $800 and crediting Accounts Receivable $800.
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 63
Ex. 190
L. Phair and Associates is a financial planning service. The account balances at December 31,
2015 are shown by the following alphabetical list:
Accounts Payable $ 5,000
Accounts Receivable 19,000
Buildings 140,000
Cash 11,700
Common Stock 143,400
Equipment 15,400
Land 42,000
Notes Payable 95,000
Notes Receivable 8,100
Prepaid Insurance 6,400
Supplies 800
Instructions
Prepare a trial balance with the accounts arranged in financial statement order.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 64
Ex. 191
The ledger accounts of the Fabulous Muscles Gym at June 30, 2015 are shown below:
Accounts Payable $ 9,100
Accounts Receivable 1,050
Buildings 43,000
Cash 14,100
Common Stock 62,800
Dividends 10,500
Equipment 42,900
Notes Payable 40,000
Supplies 350
Instructions
Prepare a trial balance with the ledger accounts arranged in the proper financial statement order.
Include the appropriate heading.
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 65
Ex. 192
The ledger account balances for Galaxie 500 Company are listed below.
Accounts Payable $ 6,000
Accounts Receivable 7,000
Cash 5,200
Common Stock 11,000
Dividends 4,000
Salaries and Wages Expense 20,800
Service Revenue 30,000
Unearned Service Revenue 2,000
Utilities Expense 12,000
Instructions
Prepare a trial balance in proper form for Galaxie at December 31, 2015.
Ex 193
The bookkeeper for Antony Johnson Auto Repair made a number of errors in journalizing
and posting, as described below.
1. A credit posting of $500 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3. A collection from a customer of $100 in payment of its account owed was journalized and
posted as a debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $350 to Interest Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25
and a credit to Cash $25.
6. A debit of $685 to Advertising Expense was posted as $658.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 66
Ex. 193 (cont.)
Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.
Consider each error separately. Use the following form, in which error (1) is given as an example.
(a) (b) (c)
Error In Balance Difference Larger Column
(1) No $500 debit
The Recording Process
FOR INSTRUCTOR USE ONLY
2 - 67
COMPLETION STATEMENTS
194. An _______________ is a record of increases and decreases in specific assets, liabilities,
and stockholders’ items.
195. The process of entering an amount on the left side of an account is called ____________
the account, and making an entry on the right side is called _________________ the
account.
196. ______________, _______________, and _______________ have debit normal account
balances whereas _______________, ________________, and ________________
have credit normal account balances.
197. The four subdivisions of stockholders’ equity are: ________________,
________________, ________________, and ________________.
198. The basic steps in the recording process are: _______________ each transaction, enter
the transaction in a ________________, and transfer the _______________ information
to appropriate accounts in the ________________.
199. A sales slip, a check, and a cash register tape are examples of ________________ used
as evidence that a transaction has taken place.
200. An accounting record where transactions are initially recorded in chronological order is
called a ________________.
201. When three or more accounts are required in one journal entry, the entry is referred to as
a ________________ entry.
202. The entire group of accounts and their balances maintained by a company is called the
________________.
203. A two column list of all accounts and their balances at a given time is a ______________.
Answers to Completion Statements
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 68
MATCHING
204. Match the items below by entering the appropriate code letter in the space provided.
A. Account F. Journal
B. Normal account balance G. Posting
C. Debit H. Chart of accounts
D. Revenue account I. Trial balance
E. Compound entry J. Simple entry
____ 1. An entry that involves three or more accounts.
____ 2. Transferring journal entries to ledger accounts.
____ 3. The side which increases an account.
____ 4. A list of all the accounts used by an enterprise.
____ 5. A record of increases and decreases in specific assets, liabilities, and stockholdersl
items.
____ 6. Left side of an account.
____ 7. An entry that involves only two accounts.
____ 8. A book of original entry.
____ 9. A list of accounts and their balances at a given time.
____ 10. Has a credit normal balance
Answers to Matching
The Recording Process
FOR INSTRUCTOR USE ONLY
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SHORT-ANSWER ESSAY QUESTIONS
S-A E 205
An account is an important accounting record where financial information is stored until needed.
Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the
manner in which an account is increased and decreased and its normal balance.
S-A E 206
Your roommate, a marketing major, thinks that debit means decrease and credit means increase.
And, that every account can be debited and credited and as result, every account can have both
a debit and a credit balance. Explain to your roommate (1) the meaning of debit and credit; (2)
which accounts can only be debited, which can only be credited, and which can be both debited
and credited; and (3) which accounts normally have debit balances and which credit balances.
S-A E 207
A fellow classmate is confused about how debits and credits relate to the basic accounting
equation. State the basic accounting equation, convert it into the expanded accounting equation,
and then explain how it ties into the rules for debits and credits.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 70
S-A E 208
Describe the process of preparing a trial balance. What is the purpose of preparing a trial
balance? If a trial balance does not balance, identify what might be the reasons why it does not
balance. If the trial balance does balance, does that insure that the ledger accounts are correct?
Explain.
The Recording Process
FOR INSTRUCTOR USE ONLY
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S-A E 209
A classmate who is a computer science major thinks that accountants are obsolete. She states
that computers can do the entire process without any human assistance.
Discuss the steps in the recording process and indicate what role the computer plays in that
process.
S-A E 210
Amy Pond, a fellow employee, wants to understand the basic steps in the recording process.
Identify and briefly explain the steps in the order in which they occur.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 72
S-A E 211
All recordable transactions are initially recorded in the journal. Discuss the contributions that the
journal makes to the recording process.
S-A E 212
A bookkeeping student has come to you for tutoring on the recording process. She is confused
about the relationship between the chart of accounts and the ledger. Explain the purpose of the
chart of accounts and the general ledger. In your explanation indicate the relationship between
these two items as well.
S-A E 213
The process of transferring the information in the journal to the general ledger is called posting.
Explain the posting process, including the importance of the journal page number and the
account numbers.
The Recording Process
FOR INSTRUCTOR USE ONLY
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S-A E 214
During a study session, a classmate states that it is not necessary to make journal entries and
then post them to the ledger. She states that it is sufficient to analyze the transaction and simply
record the information in T-accounts.
What is your response to this statement? Be brief, yet concise.
S-A E 215 (Ethics)
Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company
that manages residential rental properties. Linda Grider is the accountant. She prepared a chart
of accounts based on an analysis of the expenditures of the company. Two of the largest
expense categories are Travel and Entertainment. Mr. Coleman believes that it is important to
maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim
Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son's
management skills before allowing him to manage the more lucrative commercial property
business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the
company. He allowed his son, however, to hire his own employees.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
2 - 74
S-A E 215 (cont.)
Mr. Coleman has asked Ms. Grider to change the names of the Travel and Entertainment
Expense accounts to Property Development. He hopes to deflect his father's attention away from
the amount he has spent on travel and entertainment until he has proven that his methods work.
When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded
her that she had been enthusiastic about his business plans when she was hired.
Required:
1. Who are the stakeholders in this situation?
2. Should Ms. Grider agree to the change in the Travel Expense and Entertainment Expense
accounts to Property Development? Explain.
S-A E 216 (Communication)
A classmate is considering dropping his accounting class because he cannot understand the
rules of debits and credits.
a. Can the student be successful in the course without an understanding of the rules of debits
and credits?
b. Explain the rules of debits and credits in a way that will help him understand them.
The Recording Process
FOR INSTRUCTOR USE ONLY
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Test Bank for Financial Accounting, Ninth Edition
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CHALLENGE EXERCISES
CE 1
Presented below is information related to Pickett Real Estate Agency.
Oct. 1 Jeff Pickett begins business as a real estate agent with a cash investment of $30,000 in
exchange for common stock.
2 Hires an administrative assistant.
3 Purchases office equipment for $3,500, by paying $500 cash with the balance on account.
6 Sells a house and lot for N. Foster, earning a fee of $6,900 with $900 collected in cash
and the balance billed to N. Foster.
27 Pays $1,000 on the balance related to the transaction of October 3.
30 Pays the administrative assistant $2,300 in salary for October.
31 Collects $1,500 of the balance owed by N. Foster.
Instructions
1. Journalize the transactions. (You may omit explanations.)
2. What balance would Pickett Real Estate Agency report for Accounts Payable in its October 31
financial statements? In which category of which financial statements would it be found?
3. What balance would Pickett Real Estate Agency report for Accounts Receivable in its October
31 financial statements? In which category of which financial statements would it be found?
The Recording Process
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CE 2
Selected transactions for Garver Company during its first month in business are presented below.
Sept. 1 Invested $25,000 cash in the business in exchange for common stock.
5 Purchased equipment for $27,000 paying $6,000 in cash and the balance on account.
11 Performed $3,900 of services for clients, collecting $1,000 cash and billing them for the
remainder.
25 Paid $7,000 cash on balance owed for equipment.
30 Declared and paid a $600 cash dividend.
30 Collected $1,200 from the clients from the September 11 transactions.
The Chart of accounts shows: No. 101 Cash, No. 112 Accounts Receivable, No. 157 Equipment,
No. 201 Accounts Payable, No. 311 Common Stock, No. 332 Dividends, and No. 400 Service
Revenue.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
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Instructions
(a) Journalize the transactions on page 1 of the journal (Omit explanations).
(b) Post the transactions using the standard account form.
(c) Based only on these transactions, what amount would Garver Company report as total assets
in the October 31 balance sheet?
(d) Based only on these transactions, what amount would Garver Company report as total
liabilities in the October 31 balance sheet.
The Recording Process
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Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
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CE 3
The accounts in the ledger of Ace Delivery Service contain ithe following balances on July 31,
2015.
Accounts Receivable $10,000
Accounts Payable 7,900
Cash ?
Common Stock 35,000
Equipment 45,000
Dividends 900
Gasoline Expense 800
Utilities Expense 600
Maintenance and Repair Expense 1,100
Retained Earnings 5,000
Service Revenue 13,000
Salaries and Wages Expense ?
Salaries and Wages Payable 1,000
Supplies 3,000
Unearned Service Revenue 2,500
Notes Payable 22,000
Prepaid Insurance 2,000
Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the
missing amounts for Cash and Salaries and Wages Expense. Assume net income for the period
is $3,500.
The Recording Process
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