Chapter 2 – Analyzing Transactions
76. The increases in stockholders’ equity attributable to selling services or products to customers are called
a.
assets
b.
liabilities
c.
revenues
d.
expenses
77. A chart of accounts is
a.
the same as a balance sheet
b.
usually a listing of accounts in alphabetical order
c.
usually a listing of accounts in financial statement order
d.
used in place of a ledger
78. The debit side of an account
a.
depends on whether the account is an asset, liability, or stockholders’ equity
b.
can be either side of the account depending on how the accountant set up the system
c.
is the right side of the account
d.
is the left side of the account
Chapter 2 – Analyzing Transactions
79. An account is said to have a debit balance if
a.
the amount of the debits exceeds the amount of the credits
b.
there are more entries on the debit side than on the credit side
c.
there are more entries on the credit side than on the debit side
d.
the first entry of the accounting period was posted on the debit side
80. Which side of the account increases the cash account?
a.
credit
b.
neither a debit nor a credit
c.
debit
d.
either a debit or a credit
81. Which statement(s) concerning cash is (are) true?
a.
cash will always have more debits than credits
b.
cash will never have a credit balance
c.
cash is increased by debiting
d.
all are true
Chapter 2 – Analyzing Transactions
82. Which of the following is true about T accounts?
a.
The left side of a T account is called the debit side.
b.
The left side of a T account is called the credit side.
c.
The right side of a T account is called the debit side.
d.
Transactions are first recorded in T accounts and then posted to the journal.
83. A cash payment is recorded in the cash account as
a.
neither a debit nor a credit
b.
a credit
c.
a debit
d.
either a debit or a credit
84. The balance of an account is determined by
a.
adding all of the debits to all of the credits
b.
always subtracting the debits from the credits
c.
always subtracting the credits from the debits
d.
adding all of the debits, adding all of the credits, and then subtracting the smaller sum from the larger sum
Chapter 2 – Analyzing Transactions
85. A list of the accounts used by a business is called the
a.
journal
b.
chart of accounts
c.
T chart
d.
debit listing
86. In the chart of accounts, the balance sheet accounts are normally listed in which order?
a.
liabilities, assets, stockholders’ equity
b.
assets, liabilities, stockholders’ equity
c.
stockholders’ equity, assets, liabilities
d.
assets, stockholders’ equity, liabilities
87. In which order are the accounts listed in the chart of accounts?
a.
assets, expenses, liabilities, stockholders’ equity, revenues
b.
stockholders’ equity, assets, liabilities, revenues, expenses
c.
assets, liabilities, stockholders’ equity, revenues, expenses
d.
assets, liabilities, revenues, expenses, stockholders’ equity
Chapter 2 – Analyzing Transactions
88. Which are the parts of the T account?
a.
title, date, total
b.
date, debit side, credit side
c.
title, debit side, credit side
d.
title, debit side, total
89. The chart of accounts is designed to
a.
alphabetize the accounts to make reading easier for financial statement users
b.
organize accounts in order of dollar amount to simplify the accounting information for users
c.
summarize the transactions and determine ending account balances
d.
meet the information needs of a company’s managers and other users of its financial statements
90. Which group of accounts is composed of only assets?
a.
Cash, Accounts Payable, Buildings
b.
Accounts Receivable, Revenue, Cash
c.
Prepaid Expenses, Buildings, Patents
d.
Unearned Revenues, Prepaid Expenses, Cash
Chapter 2 – Analyzing Transactions
91. Of the following, which is true about assets?
a.
Assets include both physical and intangible items.
b.
Assets include only physical items.
c.
Assets are the personal property of the stockholders of the company.
d.
Assets are the result of selling products or services to customers.
92. Which of the following is not considered to be a liability?
a.
Wages Payable
b.
Accounts Receivable
c.
Unearned Revenues
d.
Accounts Payable
93. Which of the following statements is not true about liabilities?
a.
Liabilities are debts owed to outsiders.
b.
Account titles of liabilities often include the term “payable.”
c.
Cash received before a service is performed creates a liability.
d.
Liabilities do not include wages owed to employees of the company.
Chapter 2 – Analyzing Transactions
94. The stockholders’ equity will be reduced by all of the following except
a.
revenues
b.
expenses
c.
dividends
d.
all of these
95. The accounts in the ledger of Monroe Entertainment Co. are listed below. All accounts have normal balances.
Accounts payable
$1,500
Fees earned
$3,600
Accounts receivable
1,800
Insurance expense
1,300
Prepaid insurance
2,000
Land
3,000
Cash
3,200
Wages expense
1,400
Dividends
1,200
Common stock
8,800
Total assets are
a.
$10,000
b.
$8,000
c.
$9,700
d.
$9,800
96. Expenses can result from
a.
selling stock
b.
consuming services
c.
using up liabilities
d.
paying creditors on account
Chapter 2 – Analyzing Transactions
97. In the chart of accounts, each account number has two digits. The first digit indicates the major account group to
which the account belongs. Which of the following correctly identifies the major account groups typically represented by
the numbers 1 through 5?
a.
1-Assets, 2-Liabilities, 3-Stockholders’ Equity, 4-Expenses, 5-Revenues
b.
1-Assets, 2-Liabilities, 3-Stockholders’ Equity, 4-Revenues, 5-Expenses
c.
1-Assets, 2-Stockholders’ Equity, 3-Revenues, 4-Expenses, 5-Dividends
d.
1-Stockholders’ Equity, 2-Dividends, 3-Revenues, 4-Expenses, 5-Common Stock
98. Which of the following balances is always due to an error?
a.
Office Equipment – credit balance of $500
b.
Retained Earnings – debit balance of $1,000
c.
Dividends – debit balance of $2,500
d.
Accounts Payable – debit balance of $600
99. Which of the following entries records the purchase of common stock by stockholders?
a.
debit Common Stock; credit Accounts Receivable
b.
debit Cash; credit Common Stock
c.
debit Dividends; credit Cash
d.
debit Fees Earned; credit Common Stock
Chapter 2 – Analyzing Transactions
100. A debit may signify a(n)
a.
decrease in asset accounts
b.
decrease in liability accounts
c.
increase in the common stock account
d.
decrease in the dividends account
101. Which of the following types of accounts have a normal credit balance?
a.
assets and liabilities
b.
liabilities and expenses
c.
revenues and common stock
d.
common stock and dividends
102. Which of the following groups of accounts have a normal debit balance?
a.
revenues, liabilities, and stockholders’ equity
b.
stockholders’ equity and assets
c.
liabilities and stockholders’ equity
d.
assets and expenses
Chapter 2 – Analyzing Transactions
103. Which one of the statements below is not a purpose for the journal?
a.
to show increases and decreases in accounts
b.
to show chronological order of transactions
c.
to show a complete transaction in one place
d.
to help locate errors
104. A credit may signify a
a.
decrease in assets
b.
decrease in liabilities
c.
decrease in common stock
d.
decrease in revenue
105. A debit signifies a decrease in
a.
assets
b.
expenses
c.
dividends
d.
revenues
Chapter 2 – Analyzing Transactions
106. Which of the following applications of the rules of debit and credit is true?
a.
decrease Prepaid Insurance with a credit and the normal balance is a credit
b.
increase Accounts Payable with a credit and the normal balance is a debit
c.
increase Equipment with a debit and the normal balance is a debit
d.
decrease Cash with a debit and the normal balance is a credit
107. Which of the following describes the classification and normal balance of the fees earned account?
a.
asset, credit
b.
liability, credit
c.
stockholders’ equity, debit
d.
revenue, credit
108. The classification and normal balance of the accounts payable account is
a.
an asset with a credit balance
b.
a liability with a credit balance
c.
stockholders’ equity with a credit balance
d.
revenue with a credit balance
Chapter 2 – Analyzing Transactions
109. The classification and normal balance of the dividends account is
a.
an expense with a credit balance
b.
an expense with a debit balance
c.
a liability with a credit balance
d.
stockholders’ equity with a debit balance
110. Which of the following accounts are debited to record increases?
a.
assets and liabilities
b.
dividends and liabilities
c.
expenses and liabilities
d.
assets and expenses
111. In which of the following types of accounts are increases recorded by credits?
a.
revenues and liabilities
b.
dividends and assets
c.
liabilities and dividends
d.
expenses and liabilities
Chapter 2 – Analyzing Transactions
112. In which of the following types of accounts are decreases recorded by debits?
a.
assets
b.
liabilities
c.
expenses
d.
dividends
113. In which of the following types of accounts are decreases recorded by credits?
a.
liabilities
b.
stockholders’ equity
c.
assets
d.
revenues
114. A credit balance in which of the following accounts would indicate a likely error?
a.
Fees Earned
b.
Salary Expense
c.
Common Stock
d.
Accounts Payable
Chapter 2 – Analyzing Transactions
115. A debit balance in which of the following accounts would indicate a likely error?
a.
Salaries Expense
b.
Notes Payable
c.
Accounts Payable
d.
Supplies
116. Which of the following entries records the payment of an account payable?
a.
debit Cash; credit Accounts Payable
b.
debit Accounts Receivable; credit Cash
c.
debit Cash; credit Supplies Expense
d.
debit Accounts Payable; credit Cash
117. Which of the following entries records the payment of dividends?
a.
debit Common Stock; credit Cash
b.
debit Dividends; credit Cash
c.
debit Salaries Expense; credit Cash
d.
debit Salaries Expense; credit Salaries Payable
Chapter 2 – Analyzing Transactions
118. Office supplies were sold by Janer’s Cleaning Service at cost to another repair shop, with cash received. Which of
the following entries for Janer’s Cleaning Service records this transaction?
a.
Office Supplies, debit; Cash, credit
b.
Office Supplies, debit; Accounts Payable, credit
c.
Cash, debit; Office Supplies, credit
d.
Accounts Payable, debit; Office Supplies, credit
119. Office supplies purchased by Janer’s Cleaning Service on account were returned. The office supplies had not yet
been paid for. Which of the following entries for Janer’s Cleaning Service records this transaction?
a.
Cash, debit; Office Supplies, credit
b.
Office Supplies, debit; Accounts Receivable, credit
c.
Accounts Payable, debit; Office Supplies, credit
d.
Office Supplies, debit; Accounts Payable, credit
120. Cash was paid by Janer’s Cleaning Service to creditors on account. Which of the following entries for Janer’s
Cleaning Service records this transaction?
a.
Cash, debit; Common Stock, credit
b.
Accounts Payable, debit; Cash, credit
c.
Accounts Receivable, debit; Cash, credit
d.
Accounts Payable, debit; Accounts Receivable, credit
Chapter 2 – Analyzing Transactions
121. The process of initially recording a business transaction is called
a.
correcting
b.
posting
c.
journalizing
d.
balancing
122. Which of the following entries records the acquisition of office supplies on account?
a.
Office Supplies, debit; Cash, credit
b.
Cash, debit; Office Supplies, credit
c.
Office Supplies, debit; Accounts Payable, credit
d.
Accounts Receivable, debit; Office Supplies, credit
123. Which of the following entries records the payment of insurance for the current month?
a.
Cash, debit; Insurance Expense, credit
b.
Insurance Expense, debit; Cash, credit
c.
Insurance Expense, debit; Accounts Receivable, credit
d.
Prepaid Insurance, debit; Cash, credit
Chapter 2 – Analyzing Transactions
124. Which of the following entries records the receipt of cash from clients on account?
a.
Accounts Payable, debit; Fees Earned, credit
b.
Accounts Receivable, debit; Fees Earned, credit
c.
Accounts Receivable, debit; Cash, credit
d.
Cash, debit; Accounts Receivable, credit
125. Which of the following entries records the collection of cash from cash customers?
a.
Fees Earned, debit; Cash, credit
b.
Fees Earned, debit; Accounts Receivable, credit
c.
Cash, debit; Fees Earned, credit
d.
Accounts Receivable, debit; Fees Earned, credit
126. Which of the following entries records the receipt of cash for two months’ rent? The cash was received in advance of
providing the service.
a.
Prepaid Rent, debit; Rent Revenue, credit.
b.
Cash, debit; Unearned Rent, credit.
c.
Cash, debit; Prepaid Rent, credit.
d.
Cash, debit; Rent Expense, credit.
Chapter 2 – Analyzing Transactions
127. A client has a massage and asks the company bookkeeper to mail her the bill. The bookkeeper should make which
entry to record the invoice?
a.
No entry until the cash is received
b.
Fees Earned, debit; Accounts Receivable, credit
c.
Cash, debit; Fees Earned, credit
d.
Accounts Receivable, debit; Fees Earned, credit
128. Which of the following abbreviations is correct?
a.
Debit, “Dr”; Credit, “Cd”
b.
Debit, “Db”; Credit, “Cr”
c.
Debit, “Db”; Credit, “Cd”
d.
Debit, “Dr”; Credit, “Cr”
129. Which of the following is not a correct rule of debits and credits?
a.
Assets, expenses, and dividends are increased by debits.
b.
Assets are decreased by credits and have a normal debit balance.
c.
Liabilities, revenues, and stockholders’ equity are increased by credits.
d.
The normal balance for revenues and expenses is a credit.
Chapter 2 – Analyzing Transactions
130. Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid
later. The correct entry would be
a.
Equipment 2,250
Cash 2,250
b.
Cash 2,250
Accounts Payable 6,250
Equipment 8,500
c.
Equipment Expense 8,500
Accounts Payable 2,250
Cash 6,250
d.
Equipment 8,500
Accounts Payable 6,250
Cash 2,250
131. The ____ is where a transaction can first be found in the accounting records.
a.
chart of accounts
b.
income statement
c.
balance sheet
d.
journal
Chapter 2 – Analyzing Transactions
132. The process of recording a transaction in the journal is called
a.
ledgerizing
b.
journalizing
c.
posting
d.
summarizing
133. Joshua Scott invests $40,000 into his new business. How would this transaction be entered in the journal in good
form?
a.
Cash 40,000
Common Stock 40,000
Issued common stock for cash.
b.
Accounts Receivable 40,000
Common Stock 40,000
Issued common stock for cash.
c.
Common Stock 40,000
Cash 40,000
Issued common stock for cash.
d.
Loans Payable 40,000
Cash 40,000
Issued common stock for cash.
134.
May
23
Cash
22,000
Common Stock
22,000
Issued common stock for cash.
This journal entry will
a.
increase Common Stock and decrease Cash
b.
increase Cash and decrease Common Stock
c.
increase Cash and increase Common Stock
d.
decrease Cash and decrease Common Stock