The Accounting Process - Test Bank | 1st Edition

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Chapter 4

The Accounting Process

Test Bank

True/False Questions

1. In the accounting process, three basic reports are available once journal entries are recorded the: 1) journal, 2) ledger and 3) trial balance.

Page: p187

1. In the accounting process, once accounts are closed then adjusting entries can be recorded.

Page: p186

1. In the accounting process, the financial statements are prepared from the adjusted trial balance.

Page: p186

1. A company purchases supplies on credit. This transaction would be an exchange of goods for a promise.

Page: p188

1. A company lends an employee £10,000. This would be an exchange of services for money.

Page: p188

1. A company purchases plastics for production of eyewear frames using cash. This transaction would be an exchange of goods for money.

Page: p188

1. A home security systems manufacturer pays €5,500 which it owes to a supplier for a past purchase of computer chips to be used in the production. This transaction would be an exchange of goods for cash.

Page: p188

1. A company hires four workers for one month to distribute marketing material in a local shopping mall. The workers will be paid ¥50,000 in total which they will be paid one week after the work is completed. The transaction to record the work provided by the workers would be an exchange of services for money.

Page: p188

1. A company hires four workers for one month to distribute marketing material in a local shopping mall. The workers will be paid ¥50,000 in total which they will be paid one week after the work is completed. The transaction to record the payment for the work provided by the workers would be an exchange of a promise for money.

Page: p188

1. A company purchases supplies on credit which are to be used immediately. This transaction would be recorded as a debit to expense and credit to a liability.

Page: p190

1. A company lends an employee £10,000. This would be recorded as a debit to an asset and a credit to an asset.

Page: p190

1. A company purchases plastics for production of eyewear frames using cash. This transaction would be recorded as an asset and a credit to an asset.

Page: p190

1. A company which manufactures home security systems pays €5,500 which it owes to a supplier for the purchase of computer chips to be used in the production. This transaction would be recorded as a debit to an asset and a credit to an asset.

Page: p190

1. A company hires four workers for one month to distribute marketing material in a local shopping mall. The workers will be paid ¥50,000 in total which they will be paid one week after the work is completed. The transaction to record the work provided by the workers would be recorded as a debit to expense and a credit to an asset.

Page: p190

1. A company hires four workers for one month to distribute marketing material in a local shopping mall. The workers will be paid ¥50,000 in total which they will be paid one week after the work is completed. The transaction to record the payment for the work provided by the workers would be recorded as a debit to a liability and a credit to cash.

Page: p190

1. In a business transaction, debits record what is received by the reporting entity and credits record what has been given.

Page: p192

1. A chart of accounts contains a list of all account titles and the net debit or credit balance for each account.

Page: p197

1. A debit increases a liability.

Page: p219

1. A debit increases an asset.

Page: p219

1. A debit increases equity.

Page: p219

1. A credit increases equity.

Page: p219

1. A credit increases an asset.

Page: p219

1. A credit increases a liability.

Page: p219

1. A debit can increase an asset or decrease an asset depending on the type of transaction that is being recorded.

Page: p219

1. On 30 June 2010, a retail store pays €12,000 for insurance coverage for the last six months of 2010. The journal entry to record this transaction would be a debit to expense and a credit to an asset.

Page: p196

1. On 14 September 2011, a publisher purchases paper stock to print books for $85,000 on credit. On 23 September 2011, the publisher pays the amount owed. The journal entry to record the purchase would be a debit to inventories and a credit to cash.

Page: p196

1. On 14 September 2011, a publisher purchases paper stock to print books for $85,000 on credit. On 23 September 2011, the publisher pays the amount owed. The journal entry to record the payment of the amount owed would be a debit to trade accounts payable and a credit to cash.

Page: p196

1. A consulting firm rents office space. The landlord requires the firm to pay €36,000 for the first three months’ rent in advance. The journal entry to record this transaction would be a debit to pre-paid rent and a credit to cash.

Page: p196

1. A manufacturing company borrows $500,000 from a bank on 23 March 2011 for the purpose of purchasing new robotic equipment. This amount will be repaid to the bank within three months. Since the amount will be repaid within the same reporting period, the journal entry to record this transaction would be a debit to production equipment and a credit to cash.

Page: p196

1. 28.A creative agency rents office space for the coming six months for £60,000. The landlord requires the firm to pay half this amount when the rental agreement is signed. The journal entry to record this transaction would be a debit to pre-paid rent for £30,000, a debit to rent expense for £30,000 and a credit to cash for £60,000.

Page: p196

1. An advertising firm is contracted by a oil company to handle its ad campaign for the coming year. The total amount of the contract is $300,000. Half of this amount must be paid when the work contract is signed. The journal entry to record this transaction would include a debit to cash and a credit to unearned service revenue.

Page: p196

1. A journal is a chronological record of all journal entries.

Page: p210

1. Journal entries are posted to the journal.

Page: p212

1. The purpose of the journal is to ensure that the total of all debit balances is equal to the total of all credit balances for all accounts.

Page: p216

1. A ledger summarizes information that has been recorded in the journal by account.

Page: p212

1. The ledger contains all detail that affects each account.

Page: p212

1. Debits and credits from the journal are posted to the ledger.

Page: p212

1. A company has the following debits and credits posted to its cash account for the month of April 2010:

If the beginning balance in the cash account was $45,000, then the ending balance would be a net debit of $4,000.

Page: p216

1. A trial balance is a listing of all accounts in the ledger with the net debit or credit balance for each account.

Page: p216

1. A company purchases supplies for £500 for cash. The accountant recording the journal entry mistakenly records the credit as a debit. The trial balance would help discover this error.

Page: p218

1. A company purchases supplies for £455 for cash. The accountant recording the journal entry mistakenly records the debit as £445. The trial balance would help discover this error.

Page: p218

1. A company purchases supplies for $750 for cash. The accountant fails to record the journal entry. The trial balance would help discover this error.

Page: p218

1. A company purchases supplies for $310 for cash. The accountant mistakenly credits trade accounts payable rather than cash when the journal entry is recorded. The trial balance would help discover this error.

Page: p218

1. The normal balance in asset account is a debit.

Page: p219

1. An overdraft in the cash account would mean that the normal balance of cash is a debit.

Page: p219

1. The normal balance of the capital account is a credit.

Page: p219

1. Retained earnings is increased by debits and decreased by credits.

Page: p219

1. Trade accounts receivable are increased by debits and decreased by credits.

Page: p219

1. Dividends are increased by debits and decreased by credits.

Page: p219

1. Notes payable would be decreased by credits and increased by debits.

Page: p219

Multiple Choice Questions

1. Which is the correct order of the four major steps in the accounting process?
2. Close accounts
3. Adjust accounts
4. Analyze and record transactions
5. Prepare financial statements
   1. 3, 2, 4 and then 1
   2. 2, 3, 4 and then 1
   3. 3, 4, 2 and then 1
   4. 3, 2, 1 and then 4

Page: 186

1. Which of the following reports are available immediately after transactions recorded in the accounting process?
2. Adjusted trial balance
3. Ledger
4. Journal
5. Financial statements
6. Trial balance
7. Post-closing trial balance
   1. 2, 3 and 1 only
   2. 1, 2 and 4 only
   3. 2, 3, and 5 only
   4. 1,2 and 3 only

Page: 187

1. Which of the following reports are available immediately after closing entries are recorded in the accounting process?
2. Adjusted trial balance
3. Ledger
4. Journal
5. Financial statements
6. Trial balance
7. Post-closing trial balance
   1. 2 and 3 only
   2. 6 only
   3. 2, 3, and 6 only
   4. 4 and 6 only

Page: 187

1. Which of the following reports are available immediately after adjusting entries are recorded in the accounting process?
   • 1. Adjusted trial balance
     2. Ledger
     3. Journal
     4. Financial statements
     5. Trial balance
     6. Post-closing trial balance
   1. 1 and 4 only
   2. 1 only
   3. 2, 3, and 5 only
   4. 4 and 6 only

Page: 187

1. On 23 June 2010, an electrical utility purchases three large generators on credit to be used in its new hydroelectric dam currently under construction. On 2 July 2010, the electrical utility pays the amount owed on the generators. The transaction for the purchase is described by which of the following exchanges?
   1. Money received in exchange for a good given
   2. A good received in exchange for money given
   3. A good received in exchange for a promise given
   4. A promise received in exchange for money given

Page: 188

1. On 23 June 2010, an electrical utility purchases three large generators on credit to be used in its new hydroelectric dam currently under construction. On 2 July 2010, the electrical utility pays the amount owed on the generators. The transaction for the payment is described by which of the following exchanges?
   1. Money received in exchange for a good given
   2. A good received in exchange for money given
   3. A good received in exchange for a promise given
   4. A promise received in exchange for money given

Page: 188

1. On 23 June 2010, an electrical utility purchases three large generators on credit to be used in its new hydroelectric dam currently under construction. On 2 July 2010, the electrical utility pays the amount owed on the generators. In the transaction for the purchase which financial statement categories are affected?
   1. Expense and liabilities
   2. Assets and expense
   3. Assets and liabilities
   4. Assets only

Page: 190

1. On 23 June 2010, an electrical utility purchases three large generators on credit to be used in its new hydroelectric dam currently under construction. On 2 July 2010, the electrical utility pays the amount owed on the generators. In the transaction for the payment which financial statement categories are affected?
   1. Expense and liabilities
   2. Assets and expense
   3. Assets and liabilities
   4. Assets only

Page: 190

1. A company buys office supplies for $370 for cash which are used immediately. Which financial statement categories would be affected by this transaction?
   1. Expense and liabilities
   2. Assets and expense
   3. Assets and liabilities
   4. Assets only

Page: 190

1. A company buys office supplies for $370 on credit which are used immediately. Which financial statement categories would be affected by this transaction?
   1. Expense and liabilities
   2. Assets and expense
   3. Assets and liabilities
   4. Assets only

Page: 190

1. Which accounting process report lists only account titles?
   1. Ledger
   2. Journal
   3. Chart of accounts
   4. Trial balance

Page: 197

1. Pre-paid rent appears in which of the following financial statement categories?
   1. Assets
   2. Liabilities
   3. Revenues
   4. Expenses

Page: 197

1. Wages payable would appear in which of the following financial statement categories?
   1. Assets
   2. Liabilities
   3. Revenues
   4. Expenses

Page: 197

1. Unearned revenue would appear in which of the following financial statement categories?
   1. Assets
   2. Liabilities
   3. Revenues
   4. Expenses

Page: 197

1. Which accounting process report lists journal entries in chronological order?
   1. Ledger
   2. Journal
   3. Chart of accounts
   4. Trial balance

Page: 210

1. Which accounting process report lists all debit and credit detail that affect each account?
   1. Ledger
   2. Journal
   3. Chart of accounts
   4. Trial balance

Page: 212

1. Which of the following described posting in the accounting process?
   1. Entries are posted from the journal entry to the ledger
   2. Entries are posted from the ledger to the trial balance
   3. Entries are posted from the trial balance to the ledger
   4. Entries are posted from the journal to the ledger

Page: 212

1. Which accounting process report lists all ledger accounts with the net debit or credit balance for each?
   1. Ledger
   2. Journal
   3. Chart of accounts
   4. Trial balance

Page: 216

1. Which of the following errors would the trial balance not identify?
2. The credit in a journal entry was recorded as $1,718 instead of the correct amount for $1,781
3. An accountant failed to make a journal entry
4. The debit in a journal entry for €550 was identified as supplies rather than supplies expense
5. An accountant entered an amount for ¥11,100 twice as a debit instead of entering it as a debit and credit
6. A journal entry was recorded in the incorrect reporting period
   1. 2 and 3 only
   2. 2, 3 and 5 only
   3. 1 and 4 only
   4. 1, 2 and 3 only

Page: 218

1. Which accounts have a normal debit balance?
2. Trade account payable
3. Revenue
4. Dividends
5. Wages expense
6. Contributed capital
7. Retained earnings
8. Equipment
9. Borrowings
   1. 3, 4, 5 and 7 only
   2. 1, 2, 5, 6 and 8 only
   3. 1, 2 and 8 only
   4. 3, 4 and 7 only

Page: 219

1. Which accounts have a normal credit balance?
2. Trade account receivable
3. Revenue
4. Dividends
5. Wages expense
6. Contributed capital
7. Retained earnings
8. Equipment
9. Borrowings
   1. 3, 4, 5 and 7 only
   2. 1, 2, 5, 6 and 8 only
   3. 2, 5, 6 and 8 only
   4. 2 and 8 only

Page: 219

Essay Questions

• • 1. List the four major steps in the accounting process in order and briefly describe what reports are available at each step.
    2. Explain what a source document is providing three examples. How is a source document used in the accounting process?
    3. Explain what each of the following reports from the accounting process contains and what it is used for: journal, ledger, trial balance, adjusted trial balance and post-closing trial balance. Which reports is used to prepare the financial statements?