Business Transactions Full Test Bank Ch4

Testbank

to accompany

Accounting: business reporting for decision making

7th edition

by

Birt et al.

Not for distribution. Instructors may assign selected questions in their LMS.

© John Wiley & Sons Australia, Ltd 2020

Chapter 4: Business transactions

Learning objectives

1. Describe the characteristics of business transactions

Q1, Q2, Q3, Q4, Q51, Q52, Q53

2. Differentiate between a business transaction, a personal transaction and a business event

Q5, Q6, Q7, Q8, Q54

3. Explain the accounting equation process of the double-entry system of recording

Q9, Q10, Q11, Q12, Q13, Q55, Q56, Q57, Q58, Q59

4. Identify the impact of business transactions on the accounting equation

Q14, Q15, Q16, Q17, Q18, Q19, Q20, Q21, Q22, Q23, Q24

5. Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

Q25, Q26, Q27, Q28, Q29, Q60

6. Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

Q30, Q31, Q32, Q61, Q62, Q63

7. Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

Q33, Q34, Q35, Q36, Q37, Q38, Q39, Q40, Q41, Q64, Q65, Q66

8. Explain the purpose of a trial balance

Q42, Q43, Q67

9. Detect errors in transaction analysis and investigate the origin of the errors

Q44, Q45, Q46, Q47, Q48, Q49, Q50, Q68, Q69, Q70

Multiple-choice questions

1. Which type of evidence listed below would not be helpful in recording a transaction?

a. A sales catalogue

b. A credit card receipt

c. An invoice

d. A purchase order

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. Which of the events listed below is not considered a business transaction?

a. A business owner withdrawing cash from the business bank account for personal use

b. Selling goods to a customer on credit

c. Signing a new employee’s contract

d. The purchase of office equipment for cash

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. Which of the following would be recognised as a transaction on credit?

a. Payment of salaries

b. Depreciation of motor vehicle

c. Owner drawings

d. Purchasing inventory on account

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. The business completes a purchase order for the purchase of more inventory at a cost of $1500. The immediate effect on the accounting equation is to:

a. increase asset inventory by $1500 and decrease the asset cash by $1500.

b. decrease the asset cash by $1500 and increase expenses by $1500.

c. increase liabilities by $1500 and increase asset inventory by $1500.

d. no effect — this is not recognised as a business transaction until the inventory is received.

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. The sale on credit of HDMI cables by Easy Tech is:

a. a personal transaction.

b. a business transaction.

c. a business event.

d. not a business transaction.

Learning objective 4.2 ~ Differentiate between a business transaction, a personal transaction and a business event

1. What type of event or transaction occurs if an owner pays her private motor vehicle insurance from the business bank account?

a. a business transaction.

b. a business event.

c. a personal transaction.

d. none of the above.

Learning objective 4.2 ~ Differentiate between a business transaction, a personal transaction and a business event

1. Which of the following is an example of a personal transaction?

a. The business paying for lunch

b. Buying textbooks for the owner’s children on a company credit card

c. An owner buying lunch with their own money

d. Paying wages to the owner’s personal assistant

Learning objective 4.2 ~ Differentiate between a business transaction, a personal transaction and a business event

1. Which of the following is an example of a business transaction?

a. Hiring a new contractor to perform work for your business next week

b. Negotiating trading terms with a new supplier

c. Buying a new printer

d. Meeting with the bank manager to extend the bank overdraft

Learning objective 4.2 ~ Differentiate between a business transaction, a personal transaction and a business event

1. The concept of duality requires that each transaction must be recorded:

a. in at least two different accounts.

b. on both sides of the accounting equation.

c. in both the statement of profit or loss and the statement of financial position.

d. first as an expense then as equity.

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. What is the effect of profit on the accounting equation?

a. To decrease liabilities

b. To increase assets

c. To decrease expenses

d. To increase equity

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. What are the following accounts classified as? equipment, accounts payable, sales revenue and inventory are classified as:

a. equipment — asset; accounts payable — liability; sales revenue — income; inventory — asset.

b. equipment — expense; accounts payable — asset; sales revenue — asset; inventory — liability.

c. equipment — asset; accounts payable — asset; sales revenue — income; inventory — expense.

d. equipment — asset; accounts payable — liability; sales revenue — income, inventory — expense.

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. Assets should always be:

a. equal to liabilities.

b. equal to liabilities plus equity.

c. greater than equity.

d. less than liabilities plus equity.

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. The double-entry method of accounting refers to the practice by accountants of:

a. dual recording of every transaction whereby the total debited to one or more accounts in a transaction equals the total credited to one or more accounts for the same transaction.

b. placing a double underline beneath each journal entry.

c. double-counting certain types of transactions.

d. double-checking every journal entry.

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. The receipt of payment for an account receivable:

a. affects only the asset side of the accounting equation.

b. affects assets and equity.

c. affects assets and liabilities.

d. has no effect on the accounting equation.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. A business purchasing inventory on credit creates a liability known as:

a. accounts receivable.

b. inventory.

c. supplies.

d. accounts payable.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. On 13 February, ATD Customs Pty Ltd provides a service to MJ Civil Pty Ltd with payment due within 30 days. On ATD Customs’ statement of financial position, the amount owed by MJ Civil will be recorded as:

a. a prepayment.

b. an account payable.

c. services income.

d. an account receivable.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. If a transaction causes an asset account to decrease, which of the following effects of equal amount may also occur?

a. A decrease in a liability account

b. A decrease in another asset account

c. An increase in an equity account

d. An increase in a liability account

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. Some of Howell Trading’s transactions during the month of January are as follows. Which transaction is recognised as an expense for the month of January?

a. Purchased a motor vehicle for $38 000 cash.

b. Purchased stationery to the value of $88 on credit, to be paid for in February.

c. Paid $8000 off a loan obtained during December.

d. Paid a supplier $550 for goods purchased on credit in November.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. For the accounting equation to balance each transaction must:

a. affect the same number of asset and liability accounts.

b. always affect two accounts.

c. affect two or less accounts.

d. affect two or more accounts.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. Which of the following transactions could explain the reason for a decrease in the cash account and a decrease in profit?

a. Owner withdrawing cash from the business bank account

b. Payment to a supplier for goods purchased on credit

c. Payment of wages

d. Loan repayment

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. MAC pays $120 cash for their internet bill. What effect does this transaction have on the accounting equation?

a. A decrease in the asset cash of $120 and a decrease in the liability accounts payable of $120.

b. A decrease in the asset cash of $120 and a decrease in profit or loss of $120 to record the internet expense.

c. An increase in the asset cash of $120 and a decrease in profit or loss of $120 to record the internet expense.

d. A decrease in the asset cash of $120 and an increase in profit or loss of $120 to record the internet expense.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. What effect does a business borrowing $7000 from the bank have on the accounting equation?

a. An increase in the asset cash of $7000 and a decrease in the liability bank loan of $7000.

b. A decrease in the asset cash of $7000 and a decrease in the liability bank loan of $7000.

c. An increase in the asset cash of $7000 and an increase in the liability bank loan of $7000.

d. A decrease in the asset cash of $7000 and an increase in the liability bank loan of $7000.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. Outback Bull Bars invoices a customer $400 for maintenance services supplied on credit. What is the effect of this transaction on the accounting equation?

a. A decrease in the asset accounts receivable $400 and an increase in profit or loss by $400 to record the services income

b. An increase in the asset accounts receivable $400 and an increase in profit or loss by $400 to record the services income

c. An increase in the asset cash $400 and an increase in profit or loss by $400 to record the services income

d. An increase in the asset accounts receivable of $400 and a decrease in the asset cash $400 to record the amount paid

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. A business purchased a motor vehicle worth $40 000, paying $15 000 cash and borrowing $25 000. The effect of this transaction on the accounting equation is:

a. increase the asset motor vehicles, decrease the asset cash, decrease the liability loan payable.

b. increase the asset motor vehicles, decrease the asset cash, increase the liability loan payable.

c. decrease the asset motor vehicles, increase the asset cash, decrease the liability loan payable.

d. increase the asset motor vehicles, increase the asset cash, decrease the liability loan payable.

Learning objective 4.4 ~ Identify the impact of business transactions on the accounting equation

1. A business owner withdraws $750 from the business bank account for their own personal use. What is the effect of this transaction on the accounting equation?

a. Increase the asset cash; decrease equity

b. Decrease the asset cash; decrease the profit or loss

c. Decrease the asset cash; decrease equity

d. Increase the asset cash; increase equity

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. Accounts for Excavators Ltd are as follows:
   

What is the amount for equity?

a. $57 200

b. $27 000

c. $32 000

d. $25 200

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. Accounts for Total Tech Pty Ltd are as follows:

What is the amount for equity?

a. $54 000

b. $23 800

c. $47 800

d. $77 800

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. What should you do once all entries have been recorded in the worksheet?

a. Use the column totals to prepare a statement of financial position and statement of profit or loss

b. Total all the columns

c. Check the total of the asset accounts equals the total of the liability and equity accounts

d. All of the above

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. Omitting a transaction for a credit sale of $4000 from a worksheet will cause:

a. both sides of the worksheet to balance (i.e. assets will equal liabilities + equity).

b. the assets side of the worksheet to be $8000 more than the liabilities and equity side.

c. the liabilities and equity side of the worksheet to be $8000 more than the assets side.

d. the liabilities and equity side of the worksheet to be $4000 more than the assets side.

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. Which of these is not part of a general journal entry?

a. Classification of account (e.g. income, expense, asset)

b. Debit and credit columns

c. Date

d. Account name

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. Which of the following statements concerning journals and ledger accounts is true?

a. With a manual accounting system a business will normally show all transactions in one journal, the general journal.

b. They are no longer required due to the recording of transactions using electronic accounting packages.

c. In a manual accounting system the ledger is written up before the journal.

d. In a journal entry, the accounts to be debited are recorded before the accounts to be credited.

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. In a manual accounting system, the journal(s) most likely to be used for a business that offers credit to its customers, is/are:

a. the general journal only.

b. the credit sales journal only.

c. special journals (i.e. cash receipts, cash payments, credit purchases, credit sales and the general journal).

d. the cash receipts and credit sales journal.

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. Which of the following rules is correct?

a. Increases in assets are credits.

b. Increases in expenses are credits.

c. Increases in equity are credits.

d. Increases in liabilities are debits.

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. A business paid $1255 for employees’ wages at the end of the week. The debit and credit entries are:

a. debit cash $1255; credit equity $1255.

b. debit wages expense $1255; credit cash $1255.

c. debit wages expense $1255; credit wages payable $1255.

d. debit equity $1255; credit wages expense $1255.

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. An accountant sent an invoice to a customer, Brett McGrath, for $400 for preparing his business activity statement. What are the debit and credit entries?

a. Debit cash $400; credit debtor B. McGrath $400

b. Debit cash $400; credit fees income $400

c. Debit fees income $400; credit fees payable $400

d. Debit debtor B. McGrath $400; credit fees income $400

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. A business paid $4500 cash for the purchase of office furniture. What are the debit and credit entries to record this transaction?

a. Debit office furniture $4500; credit cash $4500

b. Debit office furniture $4500; credit accounts payable $4500

c. Debit office expenses $4500; credit cash $4500

d. Debit cash $4500; credit office furniture $4500

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. WOLES purchased inventory for $15 000, paying $8000 cash and the balance of $7000 due at the end of the following month. What are the debit and credit entries?

a. Debit inventory $15 000; credit cash $8000, credit accounts payable $7000

b. Debit inventory $8000; credit cash $15 000, credit accounts payable $7000

c. Debit cash $8000, debit accounts payable $7000; credit inventory $15 000

d. Debit inventory $8000; credit cash $8000

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. Which of the following statements is incorrect?

a. A debit entry is used to increase expenses.

b. A credit entry is used to increase equity.

c. A credit entry is used to increase assets.

d. A debit entry is used to increase assets.

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. A business borrowed $250 000 from EZ Loans. What are the debit and credit entries for this transaction?

a. Debit loan from EZ Loans $250 000; credit cash $250 000

b. Debit accounts payable $250 000; credit loan from EZ Loans $250 000

c. Debit loan from EZ Loans $250 000; credit accounts payable $250 000

d. Debit cash $250 000; credit loan from EZ Loans $250 000

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. Michaela Szu purchased a holiday package worth $5000 from LM Travel and paid a cash deposit of $1000. The balance is to be paid in two instalments of $2000 each over the next two months. What are the debit and credit entries for LM Travel?

a. Debit sales $5000; credit accounts receivable $4000, credit cash $1000

b. Debit cash $1000, debit accounts receivable $4000; credit sales $5000

c. Debit cash $4000, debit accounts payable $1000; credit sales $5000

d. Debit cash $5000, debit accounts receivable $1000; credit sales $4000

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. A supplier sold inventory to Mick Smith Pty Ltd valued at $9000. Mick Smith Pty Ltd paid half in cash and received 30 days’ credit for the balance owing. What are the debit and credit entries for Mick Smith Pty Ltd?

a. Debit cash $9000; credit accounts receivable $4500, credit sales $4500

b. Debit cash $4500, debit accounts receivable $4500; credit inventory $9000

c. Debit inventory $9000; credit accounts payable $4500, credit cash $4500

d. Debit accounts payable $4500, debit cash $4500; credit inventory $9000

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. Which of the following statements about a trial balance is not true?

a. It has a debit and a credit column.

b. It is used to check the accuracy of the ledger or journal entries.

c. It is prepared at the end of the accounting period.

d. It will detect all errors in the ledger accounts.

Learning objective 4.8 ~ Explain the purpose of a trial balance

1. Flume Pty Ltd has the following accounts and balances listed in its trial balance. Assuming all transactions have been entered correctly, what do the total debits and credits in the trial balance equal?

a. $31 000

b. $61 000

c. $43 500

d. $46 000

Learning objective 4.8 ~ Explain the purpose of a trial balance

1. The trial balance at the end of the month shows the total debit balance is $1500 greater than the total credit balance. When recording the transaction for payment of wages of $1500, which of the following errors would most likely have occurred?

a. An incorrect entry where both wages expense and cash were credited for $1500.

b. A single-entry error where wages expense was debited for $1500 but the credit to cash for $1500 was not recorded.

c. An incorrect entry where both wages expense and cash were debited for $1500.

d. A transposition error where both the debit to wages expense and the credit to cash were recorded as $5100.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. The numbers below represent the difference between the total debits and credits in a trial balance. Which of these numbers is most likely to be the result of a transposition error?

a. 185

b. 236

c. 252

d. 173

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. Which of the errors below would be detected by a trial balance?

a. A cashier pocketed $20 from a cash sale worth $40 and entered the sales total as $20 on the register.

b. A cash sale was recorded as $463 in the sales account and recorded as $643 in the cash account.

c. Services provided to a customer on credit were recorded as a cash transaction.

d. Electricity expense recorded as advertising expense.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. If total claims equal $950 000 and equity is $460 000, assets must be:

a. $590 000.

b. $490 000.

c. $950 000.

d. $460 000.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. If assets are $225 000, opening equity is $100 000, liabilities are $60 000 and income is $145 000, expenses must be:

a. $120 000.

b. $40 000.

c. $15 000.

d. $80 000.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. When recording a sale of inventory on credit, the office clerk records the debit entry to accounts payable instead of to accounts receivable. This error will result in:

a. an understatement of sales for the period.

b. no effect on profit for the period.

c. an overstatement of liabilities at the end of the period.

d. an understatement of equity at the end of the period.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. If a transaction worth $50 is not recorded, the trial balance will:

a. be out of balance by $50.

b. be out of balance by $100.

c. be out of balance by $200.

d. not be affected.

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

Fill in the blanks

1. The ________________ ________________ is the accounting principle that requires separation of business transactions from any personal transactions of the owners.

a. entity concept

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. A transaction which is treated with fairness, integrity and legality, where neither party is subject to the other’s control or significant influence, is referred to as an ________________ ________________ transaction.

a. arm’s length

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. Invoices, purchase orders, and credit card slips are examples of _____________ _____________ which provide written evidence to verify a business transaction.

a. source documents

Learning objective 4.1 ~ Describe the characteristics of business transactions

1. Occurrences that have the potential to affect the entity in some way, but that will not be recorded as business transactions until an exchange of goods or services takes place between the entity and an outside party, are known as ______________ ______________.

a. business events

Learning objective 4.2 ~ Differentiate between a business transaction, a personal transaction and a business event

1. _________ is added to opening equity to calculate ending equity.

a. Profit

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. If the value of assets is $165 000 and the value of equity is $100 000, then liabilities must be equal to ________________.

a. $65 000

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. Expenses have a ____________________ (positive/negative) effect on equity.

a. negative

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. Profit (or loss) = ___________________ less expenses

a. income

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. The ___________ ___________ accounting method requires each transaction to have at least two effects on the accounting equation.

a. double entry

Learning objective 4.3 ~ Explain the accounting equation process of the double-entry system of recording

1. A worksheet is a(n) ___________ spreadsheet used by accountants to organise information and assist in the preparation of financial statements.

a. manual

Learning objective 4.5 ~ Prepare an accounting worksheet and a simplified statement of profit or loss and statement of financial position

1. A journal is a record in which each business transaction appears in ___________ order.

a. chronological

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. A listing of ledger accounts, names, and amounts is called a __________ of ___________.

a. chart, accounts

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. A(n) _____________ account is used to summarise transactions that affect a particular item in the accounting reports (e.g. sales).

a. ledger

Learning objective 4.6 ~ Discuss how journals and ledger accounts can help in capturing accounting information efficiently and effectively

1. A cash payment of a telephone account results in a _________ (debit/credit) entry in the telephone expense account.

a. debit

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. Borrowing $10 000 from the bank to purchase new machinery will result in a _________ (debit/credit) entry to the asset machinery account and a _________ (debit/credit) entry to the liability bank loan account.

a. debit, credit

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. Receiving payment from a customer for inventory purchased on credit terms will result in a _________ (debit/credit) entry to the cash account and a _________ (debit/credit) entry to the accounts receivable account.

a. debit, credit

Learning objective 4.7 ~ Apply debit and credit rules, and record simple transactions in the journals and ledgers of the business

1. A list of ledger account balances prepared at the end of an accounting period to assist in the preparation of the financial statements is referred to as a(n) _________ _________.

a. trial balance

Learning objective 4.8 ~ Explain the purpose of a trial balance

1. A worksheet error that is relatively easy to find due to the difference being divisible by nine is known as a(n) ____________________ error.

a. transposition

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. An error that occurs when only one part of a transaction is recorded is known as a(n) __________ - __________ error.

a. single-entry

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors

1. A common error that occurs when a transaction is recorded with two increases (or decreases) to one side of the accounting equation is known as a(n) __________ error.

a. incorrect

Learning objective 4.9 ~ Detect errors in transaction analysis and investigate the origin of the errors