CHAPTER 2

THE RECORDING PROCESS

Summary of Questions by Study Objectives
and Bloom’s Taxonomy

Note: K = Knowledge C = Comprehension AP = Application E = Evaluation

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Note: TF = True-False MC = Multiple Choice MA = Matching

Summary of Questions by LEVEL OF DIFFICULTY (loD)

Note: E = Easy M = Medium H=Hard

CHAPTER STUDY OBJECTIVES

1. Define debits and credits and illustrate how they are used to record transactions. Debit means left and credit means right. The normal balance of an asset is a debit because assets are on the left side of the accounting equation. Assets are increased by debits and decreased by credits. The normal balance of liabilities and owner’s capital is a credit because they are on the right side of the accounting equation. Liabilities and owner’s capital are increased by credits and decreased by debits. Revenues increase owner’s equity and therefore are recorded as credits because credits increase owner’s equity. Credits increase revenues and debits decrease revenues. Expenses and drawings decrease owner’s equity and therefore are recorded as debits because debits decrease owner’s equity. Expenses and drawings are increased by debits and decreased by credits.

2. Explain the recording process and analyze, journalize, and post transactions. The steps in the recording process are the first three steps in the accounting cycle. These steps are: (a) analyze each transaction for its effect on the accounts, (b) record the transaction in a journal, and (c) transfer the journal information to the correct accounts in the ledger.

A journal: (a) discloses the complete effect of a transaction in one place, (b) provides a chronological record of transactions, (c) helps to prevent and locate errors because the debit and credit amounts for each entry can be easily compared, and (d) explains the transaction and, if there is one, identifies the source document.

The entire group of accounts maintained by a company is called the ledger. The ledger keeps in one place all the information about changes in each of the specific account balances. Posting is the procedure of transferring journal entries to the ledger accounts. After the journal entries have been posted, the ledger will show all of the increases and decreases that have been made to each account.

3. Explain the purpose of a trial balance, and prepare one. A trial balance is a list of the accounts in the ledger and the account balances at a specific time. Its main purpose is to prove that debits and credits are equal after posting. A trial balance uncovers certain types of errors in journalizing and posting, and is useful in preparing financial statements. Preparing a trial balance is the fourth step in the accounting cycle.

TRUE-FALSE STATEMENTS

1. An account can have debit entries and credit entries.

2. A debit to an asset account indicates an increase in that account.

3. The normal balance of all liability accounts is a debit.

4. An asset is increased by a debit.

5. The double entry system of accounting ensures that all the debits will equal all the credits in an entry.

6. The normal balance in an asset account is a debit.

7. The drawings account is a subdivision of the owner's capital account and appears as an expense on the income statement.

8. The normal balance of a revenue account is a credit.

9. The normal balance for the cash account is a credit.

10. Each time a transaction is recorded; one side of the entry will be to cash.

11. The use of different accounts is necessary to allow users to analyze the information.

12. For transactions to be recorded correctly, debits must always be greater than credits.

13. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

14. Source documents can provide evidence that a transaction has occurred.

15. A transaction must be analyzed to determine which accounts it will effect.

16. Transactions are entered in the trial balance and then transferred to journals.

17. All business transactions must have a corresponding journal entry.

18. The first step in the recording process is to enter the transaction information in a journal.

19. 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.

20. The accounting cycle is a series of steps followed by accountants in preparing financial statements.

21. A simple journal entry requires only one debit to an account and one credit to an account.

22. A compound journal entry may require debits to several accounts and credits to several accounts.

23. Transactions are recorded in alphabetical order in a journal.

24. Posting is the transfer of journal entries to the ledger accounts.

25. The chart of accounts is list of all the accounts in a company.

26. A chart of accounts should be arranged in alphabetical order for easier reference.

27. A ledger is the entire group of accounts maintained by a company.

28. Posting must be completed before a trial balance can be done.

29. For the trial balance to balance, the debits must equal the credits.

30. If the trial balance balances, it proves that all of the entries have been made correctly.

31. If an entry has been posted to the accounts twice, the trial balance will still balance.

32. Preparing the trial balance is the first step in the accounting cycle.

33. A transposition error involves the reversing of numbers in the posting process.

34. After a transaction has been posted, the trial balance will balance.

35. A trial balance does NOT prove that all transactions have been recorded or that the ledger is correct.

36. If a journal entry is posted twice, then this error will be found when the trial balance is produced.

37. If the trial balance is out of balance and the difference between the debits and the credits is divisible evenly by 9 then there is a transposition error.

38. Errors in a trial balance may only be caused by an error in posting the journal entries to the accounts.

39. If a journal entry is NOT posted to an account, then the trial balance will NOT balance.

40. A trial balance that balances proves only that the debit accounts equal the credit accounts.

41. A trial balance may be done at any time during the accounting cycle.

ANSWERS TO TRUE-FALSE STATEMENTS

MULTIPLE CHOICE QUESTIONS

42. The left side of an account is

a. the date.

b. a description of the account.

c. the debit side.

d. the balance of the account.

43. Which one of the following is NOT a part of an account?

a. Credit side

b. Trial balance

c. Date

d. Title

44. An account is used as part of the recording process and is described by all EXCEPT which one of the following?

a. An account can have either a debit or credit balance.

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.

45. The right side of an account

a. is the date.

b. reflects all transactions for the accounting period.

c. is the debit side.

d. is the credit side.

46. 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.

47. A ‘T’ account

a. is a way of depicting the basic form of an account.

b. is listed in alphabetical order.

c. has the debit transactions equal to the credit transactions.

d. is used for accounts that have both a debit and credit balance.

48. Which of the following statements about the tabular summary and account form of the cash account is correct?

a. All negative amounts in a tabular summary are cash payments and are recorded as debits under the account form.

b. All positive amounts in the tabular summary are cash receipts and are recorded as credits under the account form.

c. A positive cash balance in a tabular summary is reflected as a debit balance under the account form.

d. Companies are required to use both a tabular summary and the account form.

49. A debit to an asset account always 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.

50. A debit to a liability account always indicates

a. a liability has been incurred.

b. an expense has been incurred.

c. the liability has been decreased.

d. a liability has been paid.

51. 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.

52. The side of the account where increases are recorded

a. is always the left side.

b. is always the right side.

c. always creates a negative balance.

d. is the same side as the normal balance for that account.

53. The double-entry system requires that each transaction must be recorded

a. in at least two different accounts.

b. twice.

c. in a journal and in a ledger.

d. as an asset and as a liability.

54. A credit is NOT the normal balance for which account listed below?

a. Capital account

b. Revenue account

c. Liability account

d. Drawings account

55. A debit is NOT the normal balance for

a. an expense account.

b. a supplies account.

c. an accounts payable account.

d. a drawings account.

56. Which one of the following is equivalent to the expanded basic accounting equation?

a. Assets = Liabilities + Owner's Capital + Owner's Drawings – Revenues – Expenses.

b. Assets + Owner's Drawings + Expenses = Liabilities + Owner's Capital + Revenues.

c. Assets – Liabilities – Owner's Drawings = Owner's Capital + Revenues – Expenses.

d. Assets = Revenues + Expenses – Liabilities.

57. Which of the following correctly identifies normal balances of accounts?

a. Assets Debit

Liabilities Credit

Owner's Equity Credit

Revenues Debit

Expenses Credit

b. Assets Debit

Liabilities Credit

Owner's Equity Credit

Revenues Credit

Expenses Credit

c. Assets Credit

Liabilities Debit

Owner's Equity Debit

Revenues Credit

Expenses Debit

d. Assets Debit

Liabilities Credit

Owner's Equity Credit

Revenues Credit

Expenses Debit

58. To increase a liability account, the account is

a. debited.

b. credited.

c. posted.

d. journalized.

59. Which of the following is NOT true about an asset?

a. Its normal balance is a debit.

b. To increase an asset a debit entry would be made.

c. To increase it, a credit entry should be made.

d. To decrease it, a credit entry should be made.

60. 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 increase liabilities and increase assets.

61. 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 an asset 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

62. Which account below is NOT a subdivision of owner's equity?

a. Drawings

b. Revenues

c. Expenses

d. Liabilities

63. When an owner makes a withdrawal

a. it doesn't have to be cash, it could be another asset.

b. the drawings account will be increased with a credit.

c. the capital account will be directly increased with a debit.

d. the drawings account will be decreased with a debit.

64. The drawings 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 owner's equity.

65. Which of the following statements is NOT true?

a. Expenses increase owner's equity.

b. Expenses have normal debit balances.

c. Expenses decrease owner's equity.

d. Expenses are a negative factor in the calculation of profit.

66. A credit to the accounts receivable account

a. indicates an increase in the amount owed by customers.

b. indicates a decrease in the amount owed by customers.

c. is an error.

d. must be accompanied by a debit to an liability account.

67. Funds received before the delivery of goods and services would be shown as

a. unearned revenue on the statement of earnings.

b. unearned revenue on the balance sheet.

c. a credit to cash.

d. sales or service revenue on the statement of earnings.

68. Transactions are recorded for all of the following reasons EXCEPT

a. when the transaction causes a change in the financial position of the company.

b. to make all of the accounts balance.

c. when evidence of the transaction is available.

d. when there is a specific effect on the accounting equation.

69. All of the following transactions should be recorded EXCEPT for

a. providing services to customers.

b. purchasing supplies on account.

c. ordering equipment.

d. incurring expenses.

e. all of the above should be recorded.

70. A debit to an expense account

a. decreases the owner’s equity.

b. increases owner’s equity.

c. directly affects the drawings account.

d. has no effect on the balance sheet.

71. Which of the following statements is NOT true? The book of original entry

a. provides a chronological record of transactions.

b. helps prevent and locate errors.

c. is the same as the chart of accounts.

d. helps ensure debits equal credits.

72. 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.

73. The withdrawal of cash for personal use by the owners of a business requires a ________ to the drawings account and a ____________ to the cash account.

a. debit; debit

b. debit; credit

c. credit; credit

d. credit; debit

74. An accountant has debited an asset account for $1,000 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 an owner's equity account for $500.

c. Debit another asset account for $500.

d. Credit a different asset account for $500.

75. An accountant has debited an expense account for $1,000 and credited an asset account for $500. Which of the following would be a correct way to complete the recording of the transaction?

a. Debit an asset account for $500.

b. Credit a liability account for $500.

c. Debit an owner's equity account for $500.

d. Debit a liability account for $500.

76. A company pays $5,000 to its creditor. This would

a. increase both the company’s assets and liabilities.

b. decrease both the company’s assets and liabilities.

c. decrease the company’s liquidity.

d. increase the company’s owner’s equity.

77. 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.

78. A chart of accounts is

a. is only necessary for manual systems.

b. used only in companies with a complex business structure.

c. the first step in designing an accounting system.

d. a relatively simplistic way of classifying accounts.

79. A company receives a year’s worth of rent in advance. Which of the following statements pertaining to this event is NOT correct?

a. The company’s assets will decrease.

b. The company’s assets will increase.

c. The company’s total equity will remain unchanged.

d. The company’s liabilities will increase.

80. The following is a record that contains all of the company’s accounts.

a. journal

b. tabular summary

c. trial balance

d. ledger

81. If a company has received a payment from a customer, then

a. its cash account will be debited.

b. its cash account will be credited.

c. the cash account debits will exceed the cash account credits.

d. accounts receivable would be debited

82. In the first month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $500. The cash account has a

a. $500 credit balance.

b. $900 debit balance.

c. $400 debit balance.

d. $400 credit balance.

83. In the second month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $500. The opening balance of the cash account was $200. The cash account has a

a. $500 credit balance.

b. $900 debit balance.

c. $600 debit balance.

d. $400 credit balance.

84. In the second month of operations, the total of the debit entries to the accounts receivable account amounted to $500 and the total of the credit entries to the accounts receivable account amounted to $300. The opening balance of the accounts receivable account was $200. The accounts receivable account has a

a. $500 debit balance.

b. $300 debit balance.

c. $400 debit balance.

d. $0 balance.

85. 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.

86. In recording business transactions, evidence that an accounting transaction has taken place is obtained from

a. source documents of the business.

b. the Canada Revenue Agency.

c. the marketing department.

d. the trial balance.

87. 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 trial balance.

b. owner's equity.

c. ledger accounts.

d. the journal.

88. The first step in the recording process in a computerized environment is to

a. prepare financial statements.

b. analyze the transaction in terms of its effect on the accounts.

c. post to a journal.

d. prepare a trial balance.

89. Evidence that would NOT help with determining the effects of a transaction on the accounts in a computerized environment would be

a. a invoice from a supplier.

b. an invoice from a customer.

c. an advertising brochure.

d. a cheque.

90. After transaction information has been recorded in the journal, it is transferred to the

a. trial balance.

b. balance sheet.

c. posting journal.

d. ledger.

91. The usual sequence of steps in the recording process is to

a. analyze each transaction, enter the transaction in the journal, and transfer the information to the ledger accounts.

b. analyze each transaction, enter the transaction in the ledger, and transfer the information to the journal.

c. analyze each transaction, enter the transaction in the book of accounts, and transfer the information to the journal.

d. analyze each transaction, enter the transaction in the book of original entry, and transfer the information to the journal.

92. All of the following activities are performed on a daily basis EXCEPT for

a. collecting source documents.

b. determining the impact of a transaction on the company’s financial position.

c. preparing the journal entries.

d. preparing the trial balance.

93. The final step in the recording process is to transfer the journal information to the

a. trial balance.

b. financial statements.

c. ledger.

d. general journal.

94. A chart of accounts does NOT include

a. account balances.

b. account numbers.

c. account titles.

d. list of all accounts.

95. A chart of accounts for a company

a. is a graph of the financial position of the company.

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.

96. 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.

97. Basic transaction analysis is

a. reflected in the accounting records.

b. required before journalizing an entry.

c. eliminates mistakes.

d. all of the above.

98. The first step in designing an accounting system is the creation of the

a. general ledger.

b. general journal.

c. trial balance.

d. chart of accounts.

99. The recording process occurs

a. once a week.

b. once a month.

c. repeatedly during the accounting period.

d. at the end of the accounting period.

100. 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.

101. When three or more accounts are required in one journal entry, the entry is referred to as a

a. compound entry.

b. double entry.

c. multiple entry.

d. simple entry.

102. The journal entry to record the investment of cash by the owners of a business would require a debit to the cash account and a credit to

a. investments.

b. revenue.

c. owner’s capital.

d. accounts receivable.

103. Another name for journal is

a. listing.

b. book of original entry.

c. book of accounts.

d. book of source documents.

104. A journal is useful for

a. disclosing in one place the complete effect of a transaction.

b. locating and preventing errors.

c. providing a record of transactions.

d. all of the above.

105. The name given to entering transaction data in the journal is

a. debiting.

b. listing.

c. posting.

d. journalizing.

106. A journal entry

a. must have the same number of debit entries as credit entries.

b. must have a debit to an asset and a credit to a liability.

c. only affect balance sheet accounts.

d. must have the total of the debit entries equal to the credit entries.

107. Journal entries are prepared

a. only at the end of the month.

b. only when cash is received or disbursed.

c. whenever there is a business transaction which will generate an entry.

d. only when financial statements are prepared.

108. Which of the following journal entries records the cash collection for sales and outstanding accounts receivable?

a. Accounts receivable 1,250

Cash 250

Sales. 1,000

b. Accounts receivable 1,000

Cash 250

Sales 1,250

c. Cash 1,250

Sales 1,000

Accounts receivable 250

d. Sales 1,250

Accounts receivable 1,000

Cash 250

109. On June 1, 2014, Joanne White buys a copier machine for her business and finances this purchase with cash and a note. When journalizing this transaction, she will

a. use two journal entries.

b. make a compound entry.

c. make a simple entry.

d. wait until the end of the month to record the entry.

110. Which of the following journal entries correctly records the cash payment of salaries and advertising expenses?

a. Advertising Expense. 1,500

Wages Expense 550

Cash 950

b. Wages Expense 1,500

Advertising Expense 950

Cash 550

c. Cash 1,500

Wages Expense 550

Advertising Expense 950

d. Wages Expense 550

Advertising Expense 950

Cash 1,500

111. A journal entry will NOT include

a. account names.

b. date of the transaction.

c. the dollar amount of the transaction.

d. account balance.

112. For a sole proprietorship, the usual ordering of accounts in the general ledger is

a. assets, liabilities, owner's capital, drawings, revenues, and expenses.

b. assets, liabilities, drawings, owner's capital, expenses, and revenues.

c. liabilities, assets, owner's capital, revenues, expenses, and drawings.

d. owners' capital, assets, liabilities, drawings, expenses, and revenues.

113. Management could determine the amounts due from customers by examining which ledger account?

a. Service Revenue

b. Accounts Payable

c. Accounts Receivable

d. Cash

114. Management could determine the amounts owing to suppliers by examining which ledger account?

a. Supplies

b. Cash

c. Accounts Payable

d. Supplies expense

115. The ledger accounts should be arranged in

a. chronological order.

b. alphabetical order.

c. statement order.

d. debit accounts first and then credit accounts.

116. 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.

117. The procedure of transferring journal entries to the ledger accounts is called

a. journalizing.

b. analyzing.

c. reporting.

d. posting.

118. Posting

a. is only done in a manual accounting system.

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.

119. After journal entries are posted, the reference column

a. of the general journal will show the account balance.

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.

120. Posting to the general ledger in a manual accounting system is usually performed

a. when the accountant is in the office.

b. when the transaction is recorded.

c. when financial statements are being prepared.

d. when Canada Revenue Agency performs an audit.

121. A trial balance does NOT include

a. account names.

b. account balances.

c. journal entries details.

d. date of trial balance.

122. The following types of error(s) still allow the trial balance debit and credit columns to be equal:

a. missed entries.

b. transposed numbers.

c. addition errors.

d. missed accounts.

123. A listing of the balances of all assets, liabilities, and owner's equity accounts is called a

a. compound entry.

b. general journal.

c. trial balance.

d. chart of accounts.

124. A list of accounts and their balances at a given time is called

a. a journal.

b. a posting.

c. a trial balance.

d. an income statement.

125. 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. all entries have been posted.

d. the mathematical equality of the accounting equation.

126. 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.

127. Customarily, a trial balance in a manual system 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.

128. A trial balance would 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 made in recording the transaction

d. A transposition error when transferring the debit side of a journal entry to the ledger

129. Eloise King is the accountant for King’s Jewellery Store. She has just prepared the company’s trial balance and discovered that the total debits are $9,257 and total credits are $9,230. Lisa has likely made which of the following errors?

a. Posted the journal entries to the wrong accounts.

b. Posted a debit as a credit.

c. Transposed two numbers during posting.

d. Forgotten to make a journal entry.

130. Which of the following statements about errors or irregularities is INCORRECT?

a. Irregularities are unintentional errors.

b. An error is neither ethical nor unethical.

c. An error is the result of an unintentional mistake.

d. Irregularities are the result of an intentional mistake and are generally considered unethical.

131. Marshwinds Wind Farm is producing its first financial statements for its bank. The trial balance does NOT balance. The company should

a. create a new account called “suspense” and use it to balance the trial balance.

b. give the incorrect trial balance to the bank.

c. ask the bank for more time to find the error.

d. increase one of the larger accounts so that the trial balance will balance.

132. Tantramar Geothermal has hired a new accountant. When she reviewed the financial statements for the previous year, she found a significant error which would mean that the statements were wrong. She should NOT

a. create a new account called “suspense” and use it to correct the error.

b. notify the Management of the company immediately of the problem.

c. research the journal entries to try and find the error.

d. review all of the transactions for the past year for reasonableness.

ANSWERS TO MULTIPLE CHOICE QUESTIONS

MATCHING

133. 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. The side which increases an account.

2. An accounting record of increases and decreases in specific assets, liabilities, and owner's equity items.

3. Left side of an account.

4. Has a credit normal balance.

5. A list of all the accounts used by an enterprise.

6. An entry that involves three or more accounts.

7. An entry that involves only two accounts.

8. A book of original entry.

9. Transferring journal entries to ledger accounts.

10. A list of accounts and their balances at a given time.

ANSWERS TO MATCHING

1. B

2. A

3. C

4. D

5. H

6. E

7. J

8. F

9. G

10. I

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