Recording Transactions | Test Bank – 11th

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Testbank

to accompany

Financial Accounting

11^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2020

Chapter 3: Recording transactions

Multiple-choice questions

1. In accounting, ABN stands for:

a. Automated Business Number

b. Annual Business Number.

c. Australian Bank Number.

d. Australian Business Number.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

2. The transactions below are from the records of Cornerstone Framing. The internal transaction is:

a. paid monthly rent on premises.

b. cash sale.

c. credit sale.

d. recorded depreciation on shop fixtures and fittings.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

3. Which of these events would be recorded by an accountant?

a. An employee resigns.

b. An employee is paid by being given a computer instead of their normal wages.

c. An employee injures themselves at work in the course of their duties.

d. An employee receives a promotion.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

4. Which of the following events would not be recorded by an accountant?

a. Placed an order with a supplier.

b. The owner paid his son's car registration from the business bank account.

c. Credit purchase.

d. Depreciation on equipment calculated at the end of the firm's financial year.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

5. The source document for a cash sale could be a:

a. credit card slip

b. credit note.

c. time sheet

d. purchase order.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

6. Which of the following statements is correct?

a. Journal entries to record GST are regarded as internal transactions.

b. If the GST inclusive price of inventory is $120 the GST component is $12.

c. Income and expenses are recorded net of GST.

d. The account, GST Payable, represents the amount of GST payable to the entity's suppliers

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

7. Why is the placing of an order with a supplier not regarded as a transaction?

a. Because an exchange between the entity and the supplier has not yet occurred.

b. Because the computer software cannot record it.

c. The placing of an order is regarded as a transaction

d. Because the entity may cancel the order.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.
Feedback: The receipt of an order from a customer is not regarded as a transaction because an exchange between the entity and the customer has not yet occurred.

8. In Accounting, GST stands for:

a. General and Sales Transactions.

b. Government Systems Tax.

c. General Service Tax.

d. Goods and Services Tax.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

9. Which of the following transactions relating to the West Cricket Club is regarded as an internal transaction?

a. Payment of wages for admin staff.

b. Collection of players' fees

c. Sale of food and drinks from the canteen.

d. Depreciation charged on the club's mower.

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

10. The source document for a credit sale is a:

a. tax invoice

b. credit note

c. purchase order

d. receipt

General Feedback:

Learning objective 3.1: identify the nature, purpose and evidence for transactions.

11. A two-year insurance policy paid for on l July would initially be recorded in an asset account called:

a. insurance payable.

b. unearned insurance.

c. prepaid insurance.

d. debtors.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger.

12. Financial reports prepared during the financial reporting period are called:

a. interim reports..

b. trial balances.

c. consolidated reports.

d. automated reports

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger.

13. A regular withdrawal of cash by the owner from the business is treated as a reduction in equity and is recorded in an account called:

a. borrowings

b. debtors.

c. petty cash.

d. drawings..

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger.

14. A separate ledger account is maintained for each:

a. day of business.

b. item that appears in the financial reports.

c. journal entry.

d. business transaction.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger.

15. In the expanded version of the accounting equation, income and expenses are sub-groupings of:

a. equity.

b. assets.

c. liabilities.

d. drawings.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger.
Feedback: Income has the effect of increasing equity whereas expenses decrease equity.

16. There are three basic types of statement of financial position accounts. They are:

a. asset, expense and equity

b. bank, debtors and creditors.

c. income, expense and drawings.

d. asset, liability and equity.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

17. A party to whom the entity owes money for the provision of goods or services is called a:

a. client.

b. customer.

c. creditor.

d. debtor.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

18. What are the two basic types of statement of financial performance accounts?

a. Equity and expense

b. Income and expense

c. Asset and profit

d. Income and equity

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

19. A machine purchased by a business for use in generating income can be recorded in an asset account called:

a. plant and equipment.

b. prepayments.

c. production.

d. debtors.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

20. A listing of the complete ledger account titles and their related account numbers is known as the:

a. chart of accounts.

b. computerised accounts.

c. index.

d. general ledger.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

21. GST collected by a business on the sale of its goods and services is stored in a liability account called:

a. GST receivable.

b. GST outlays.

c. GST payable.

d. GST purchases.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

22. A collection of all the individual accounts for a particular business is referred to as:

a. the chart of accounts.

b. the general ledger.

c. the master ledger.

d. the computerised accounts.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

23. Which of the following statements concerning the accounting period is correct?

a. The accounting period originates from the accounting equation.

b. The length of the accounting period depends on which country the business is located in.

c. The accounting period must be at least 3 months long.

d. The length of the accounting period varies with the needs of users.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

24. In order to provide timely information for decision-making the life of the business is divided into arbitrary time periods of equal length called:

a. accounting periods.

b. accounting cycles.

c. business cycles.

d. operating periods.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

25. A deposit received in advance by Broncos Ltd for services not yet supplied can be initially recorded by Broncos Ltd in a liability account called:

a. accrued expenses.

b. sales provision.

c. unearned revenue.

d. accounts payable.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

26. Select the account types for these items:
§ Fixtures and fittings
§ Accounts payable
§ Drawings
§ Sales

a. Asset, liability, equity, expenses

b. Expense, liability, asset, expense

c. Asset, liability, equity, income

d. Expense, asset, equity, income

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

27. A party to whom the entity is owed money for goods or services provided by the entity is called a:

a. creditor.

b. debtor.

c. lender.

d. borrower.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

28. A chronological record of all the transactions of an entity is provided in the:

a. trial balance.

b. chart of accounts.

c. general ledger.

d. journal.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

29. Select the account types for these items:
§ Rent received in advance
§ Mortgage
§ Prepaid expenses
§ Rates

a. Liability, liability, asset, expense

b. Asset, equity, asset, expense

c. Expense, liability, asset, liability

d. Expense, liability, liability, equity

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

30. Which of the following statements relating to a chart of accounts is correct?

a. It is created at the commencement of a business.

b. It is the same for most businesses.

c. It is a list of accounts and their current balances.

d. The accounts are listed in alphabetical order.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

31. GST paid by a business on the purchase of its goods and services, and for which a reduction of GST collected will be claimed from the tax department, is stored in an account called:

a. GST receivable.

b. GST collected.

c. GST expense.

d. GST holdings.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

32. A chart of accounts is a:

a. list of accounts receivable and payable.

b. chart showing the organisational structure of the entity.

c. formal plan developed by management to estimate information flows through the computerised system.

d. listing of the ledger account titles and their account numbers.

General Feedback:

Learning objective 3.2: describe the accounting cycle used to record, classify and summarise transactions, including the use of ledger accounts and the general ledger

33. What is the correct order in which the steps for analysing transactions are carried out?
i Determine which accounts are affected.
ii Determine if the account type is increasing or decreasing.
iii Apply the rules of debit and credit.
iv Determine the account type.

a. i, ii, iv, iii

b. iv, ii, i, iii

c. i, ii, iii, iv

d. i, iv, ii, iii

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

34. The correct accounting entry to record the payment of a liability is

a. DR asset account; CR liability account

b. DR liability account; CR asset account

c. DR equity account; CR liability account.

d. DR liability account; CR equity account

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

35. How many of the following statements about the double-entry system are true?
i. The accounting equation should stay in balance
ii. At least one account should be debited and one account credited
iii. Credits should always be entered into the journal before debits

a. 0

b. 1

c. 2

d. 3

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions

36. What is the correct order of the steps in the accounting cycle?
i. Entries are made in the journal
ii. A business transaction occurs
iii. A trial balance is prepared
iv. Entries are made in the ledger
v. Financial statements are prepared

a. iii, ii, i, iv, v

b. ii, iv, i, v, iii

c. ii, i, iv, iii, v

d. v, ii, iv, iii, i

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions

37. A credit entry will:

a. decrease an asset, decrease a liability, and increase equity.

b. decrease an asset, increase a liability, and decrease equity.

c. increase an asset, decrease a liability, and decrease equity.

d. decrease an expense, increase income, and increase equity

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

38. Which of the following statements is correct?

a. The normal balance for equity is a credit.

b. The normal balance for income is a debit.

c. The normal balance for an asset is a credit.

d. The normal balance for a liability is a debit.

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

39. The system of accounting where each transaction affects two or more accounts and the sum of the debit entries equals the sum of the credit entries is called:

a. two-entry accounting.

b. double-entry accounting

c. single transaction accounting.

d. debit and credit accounting.

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

40. If a transaction causes a liability account to increase, which of these related effects may also occur?

a. An increase of an equal amount in an equity account.

b. An increase of an equal amount in another liability account.

c. A decrease of an equal amount in an asset account.

d. An increase of an equal amount in an asset account.

General Feedback:

Learning objective 3.3: outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions.

41. O'Brien paid $880, including GST, for advertising. The entry to record this transaction is:

a. DR Advertising $880, DR GST receivable $88; CR Cash $792

b. DR Advertising $800, DR GST receivable $80; CR Cash $880

c. DR Advertising $880; CR GST receivable $80, CR Cash $800

d. DR Advertising $880; CR Cash $880

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

42. A __________________ provides a complete record, in one place, of each transaction in date order.

a. ledger

b. trial balance

c. chart of accounts

d. general journal

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

43. A sole proprietor who owns a newsagency takes home stationery and exercise books for
his children to use at school. This would be considered to be:

a. a decrease in assets and a decrease in equity because by taking the stationery items the owner has made a drawing from the business.

b. an increase in assets and an increase in equity.

c. an increase in equity and a decrease in assets because the sole proprietor purchased the inventory.

d. an expense because an asset has been used for personal use.

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

44. Which of the following represents the accounting entry when expenses are incurred on
credit?

a. DR Expense, CR Accounts payable

b. DR Accounts receivable, CR Income

c. DR Accounts payable, CR Income

d. DR Cash, CR Income

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

45. Which statement relating to the general journal is incorrect?

a. It is referred to as a book of original entry.

b. It provides a record of transactions in chronological order.

c. The debit and credit effects of each transaction are recorded together.

d. It is compiled using the information taken from the entity's general ledger.

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

46. Charming Pete requires his customers to pay for their orders two weeks before shipping the goods. Pete will record the cash receipts as:

a. DR Bank, CR expense account

b. DR Bank, CR liability account

c. DR Bank, CR asset account

d. DR Bank, CR income account

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

47. Equipment is purchased on credit for $12 000 plus GST. The general journal entry to record this transaction is which of the following?

a.

b.

c.

d.

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

48. On 23 May Harry Ltd repaired Ron Ltd's computer and charged him $330 cash
including GST. The general journal entry to record the transaction is:

a.

b.

c.

d.

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

49. On 23 August Ostrich Ltd paid $825 cash for an 18-month insurance policy including
10% GST. Which of the following is the general journal entry to record the payment?

a.

b.

c.

d.

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

50. James Wright performed handyman services for $2500. He received cash of $1500 with
the balance to be received within 28 days. Ignoring GST, the transaction is recorded as:

a. DR Cash $1500; DR Equity $1000; CR Services revenue $2500

b. DR Services revenue $2500; CR Cash $1500; CR Accounts payable $1000

c. DR Cash $1500; DR Accounts receivable $1000; CR Services revenue $2500

d. DR Cash $2500; CR Equity $2500

General Feedback:

Learning objective 3.4: explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger.

51. A list of ledger accounts and their balances is called a:

a. general journal

b. trial balance.

c. statement of financial position.

d. chart of accounts.

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

52. A trial balance will disclose which of the following errors?

a. Recording a credit as a debit

b. Failing to record a transaction.

c. Recording the same transaction twice.

d. Recording an amount on the correct side of the wrong account.

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

53. The payroll officer recorded wages for the month as a debit to the Sales account rather
than as a debit to wages expense. This error will result in:

a. overstated expenses at the end of the period.

b. no effect on profit of the period.

c. overstated profit for the period.

d. understated liabilities at the end of the period.

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

54. Ignoring GST, which of the following entries correctly records the purchase of land for $300 000 financed by a $100 000 cash deposit with the balance payable via a 20-year, 6% loan?

a. DR Land $300 000; CR Loan $300 000

b. DR Land $100 000; CR Bank $100 000

c. DR Land $300 000; CR Bank $300 000

d. DR Land $300 000; CR Bank $100 000; CR Loan $200 000

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

55. Jones Cleaning Services purchased 12 months' worth of cleaning supplies from Focus on Cleaning. The purchase is for cash and the invoiced amount is $1200. Ignoring GST, the entry that correctly records this transaction is:

a. DR Cleaning Supplies expense $1200; CR Equity $1200

b. DR Cleaning Supplies asset $1200; CR Bank $1200

c. DR Bank $1200; CR Cleaning Supplies expense $1200

d. DR Bank $1200; CR Cleaning Supplies asset $1200

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

56. Kleen Windows received $770 (including GST) from its customer John Jones for services previously supplied to him on credit. Which of the following entries correctly records this receipt?

a. DR Bank $770; CR Services revenue $700; CR GST payable $70

b. DR Debtors $770; CR Services revenue $700; CR GST payable $70

c. DR Debtors $770; CR Bank $770

d. DR Bank $770; CR Debtors $770

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

57. A trial balance is prepared to:

a. verify the equality of debit and credit postings in the ledger.

b. act as an index to the journal.

c. act as a link between the journal and the ledger.

d. determine profit or loss.

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

58. Johanna's Hair Studio paid $300 cash for advertising during the month. Ignore GST. Which of the following reflects the effect on the accounting equation?

a. Decrease in equity of $300; decrease in assets of $300.

b. Increase in assets of $300; increase in liabilities of $300.

c. Decrease in assets of $300; increase in equity of $300.

d. Decrease in equity of $300; increase in assets of $300

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

59. Which of the following errors would be detected by a trial balance?

a. Supplies purchased on credit were recorded as a debit to the plant and equipment account and a credit to the accounts payable account

b. The cashier pocketed the cash from a cash sale and did not record it on the register.

c. Staff wages were recorded as office expenses.

d. A cash sale was recorded in the sales account as $548 instead of $584 but was correctly recorded in the bank account

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

60. Which statement relating to a trial balance is incorrect?

a. A trial balance reports the financial performance of an entity.

b. The fact that the total of the debit column equals the total of the credit column does not guarantee that the ledger if free from errors.

c. A trial balance is a list of all the accounts in the ledger with their current balances.

d. A trial balance may be prepared at any time to test the equality of debits and credits in the ledger.

General Feedback:

Learning objective 3.5: discuss the purpose of a trial balance and how to prepare one.

61. The GST is a tax that is levied at the rate of ______ on the sale of most goods and services. It was introduced in Australia on July 1 2000.

a. 15%

b. 5%

c. 20%

d. 10%

General Feedback:

Learning objective: Appendix.