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Chapter 2—Analyzing Transactions
TRUE/FALSE
1. Accounts are records of increases and decreases in individual financial statement items.
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
2. A chart of accounts is a listing of accounts that make up the journal.
ANS: F PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
3. The chart of accounts should be the same for each business.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
4. Accounts payable are accounts that you expect will be paid to you.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
5. Consuming goods and services in the process of generating revenues results in expenses.
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
6. Prepaid expenses are an example of an expense.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
7. Unearned Revenues account is an example of a liability.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
8. The Drawings account is an example of an expense.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
9. Accounts in the ledger are usually maintained in alphabetical order.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
10. Depending on the account title, the right side of the account is referred to as the credit side.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
11. To determine the balance in an account, always subtract credits from debits.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
12. The double-entry accounting system records each transaction twice.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
13. The increase side of all accounts is the normal balance.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
14. Transactions are initially entered into a record called a journal.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
15. The process of recording a transaction in the journal is called journalizing.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic |AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
16. Journalizing is the process of entering amounts in the ledger.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
17. Transactions are listed in the journal chronologically.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
18. Journalizing transactions using the double-entry bookkeeping system will eliminate fraud.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
19. Liability accounts are increased by debits.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
20. Expense accounts are increased by credits.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
21. Revenue accounts are increased by credits.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
22. The normal balance of a capital account is a debit.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
23. The normal balance of the drawing account is a debit.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
24. The normal balance of an expense account is a credit.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
25. The normal balance of revenue accounts is a credit.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
26. Withdrawals decrease owner’s equity and are listed on the income statement as a deduction from
revenue.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
27. For a month’s transactions for a typical medium-sized business, the salary expense account is likely to
have only credit entries.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
28. For a month’s transactions for a typical medium-sized business, the accounts payable account is likely
to have only credit entries.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
29. When a business receives a bill from the utility company, no entry should be made until the invoice is
paid.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
30. An account has three parts to it; a title, an increase side, and a decrease side.
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
31. The T account got its name because it resembles the letter “T.”
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
32. The right hand side of a T account is known as a debit and the left hand side is known as a credit.
ANS: F PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
33. A debit is abbreviated as Db and a credit is abbreviated as Cr.
ANS: F PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
34. Debiting the cash account will increase the account.
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
35. A credit to the cash account will increase the account.
ANS: F PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
36. The cash account will always be debited.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
37. The recording of cash receipts to the cash account will be done by debiting the account.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
38. The recording of cash payments from the cash account is done by entering the amount as a credit.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
39. The balance of the account can be determined by adding all of the debits, adding all of the credits, and
adding the amounts together.
ANS: F PTS: 1 DIF: Difficult OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
40. When an owner contributes equipment to the business, he or she retains ownership of the property.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
41. Liabilities are debts owed by the business entity.
ANS: T PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
42. The accounts payable account is listed in the chart of accounts as an asset.
ANS: F PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
43. A drawing account represents the amount of withdrawals made by the owner.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
44. Revenues are equal to the difference between cash receipts and cash payments.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
45. Expenses use up assets or consume services in the process of generating revenues.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
46. Owner’s capital will be reduced by the amount in the drawing account.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
47. The journal includes both debit and credit accounts for each transaction.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
48. A transaction that is recorded in the journal is called a journal entry.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
49. Assets are increased with debits and decreased with credits.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
50. Liabilities are increased with debits and decreased with credits.
ANS: F PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
51. Debits will increase Unearned Revenues and Revenues.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
52. All owner’s equity accounts record increases to the accounts with credits.
ANS: F PTS: 1 DIF: Difficult OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
53. Journal entries can have more than two accounts as long as the debits equal the credits.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
54. Normal balances are the side that increase the account balance.
ANS: T PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
55. When an owner invests assets in the business, the capital account increases due to revenue being
earned.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01 | 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
56. When an accounts payable account is paid in cash, the owner’s equity in the business decreases.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01 | 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
57. When an account receivable is collected in cash, the total assets of the business increase.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-01 | 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
58. The process of transferring the data from the journal to the ledger accounts is posting.
ANS: T PTS: 1 DIF: Easy OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-05-Accounting Cycle
59. The post reference notation used in the ledger is the account number.
ANS: F PTS: 1 DIF: Easy OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
60. The post reference notation used in the journal is the page number.
ANS: F PTS: 1 DIF: Easy OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
61. A notation in the post reference column of the general journal indicates that the amount has been
posted to the ledger.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
62. The order of the flow of accounting data is (1) record in the ledger, (2) record in the journal, (3)
prepare the financial statements.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-05-Accounting Cycle
63. The process of transferring the debits and credits from the journal entries to the accounts is known as
“updating the accounts”.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
64. Journalizing eliminates fraud.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
65. Once journal entries are posted to accounts, each account will show a new balance after each entry.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-03
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-05-Accounting Cycle
66. A group of related accounts that make up a complete unit is called a trial balance.
ANS: F PTS: 1 DIF: Easy OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
67. A trial balance determines the accuracy of the numbers.
ANS: F PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
68. Even when a trial balance is in balance, there may be errors in the individual accounts.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
69. The totals at the bottom of the trial balance and the totals at the bottom of the balance sheet both show
equality and balancing, and therefore should be equal.
ANS: F PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
70. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a
balance sheet.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
71. If the trial balance is in balance, it can be assumed that all journal entries were posted correctly and no
errors were made.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
72. Posting a part of a transaction to the wrong account will cause the trial balance totals to be unequal.
ANS: F PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
73. The erroneous arrangement of digits, such as writing $45 as $54, is called a slide.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
74. Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial
balance to be out of balance.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
75. Posting a transaction twice will cause the trial balance totals to be equal.
ANS: T PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
76. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $85
as $850, is called a transposition.
ANS: F PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
MATCHING
Several types of errors can be made during the journalizing and posting process. Match the following
with their best description.
a. Trial balance preparation errors
b. Account balance errors
c. Posting errors
1. Balance incorrectly computed.
2. Debit or credit posting omitted.
3. Wrong amount posted to an account.
4. Column incorrectly added.
5. Balance entered in wrong column of account.
6. Amount incorrectly entered on trial balance.
7. Balance entered in wrong column or omitted.
8. Debit posted as credit, or vice versa.
1. ANS: B PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
2. ANS: C PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
3. ANS: C PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
4. ANS: A PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
5. ANS: B PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
6. ANS: A PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
7. ANS: A PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
8. ANS: C PTS: 1 DIF: Difficult OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
Identify each of the following accounts as either:
a. an Asset account d. a Revenue account
b. a Liability account e. an Expense account
c. an Owners’ Equity account
9. Unearned Rent
10. Prepaid Insurance
11. Fees Earned
12. Patents
13. Drawings
9. ANS: B PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
10. ANS: A PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
11. ANS: D PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
12. ANS: A PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
13. ANS: C PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
For the following accounts, please indicate whether their normal balance is on the credit side or the
debit side of the T-account.
a. Credit side
b. Debit side
14. John Smith, Capital
15. Accounts Receivable
16. Accounts Payable
17. Interest Earned
18. Copyrights
14. ANS: A PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
15. ANS: B PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
16. ANS: A PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
17. ANS: A PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
18. ANS: B PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
MULTIPLE CHOICE
1. Accounts
a. do not reflect money amounts
b. are not used by entities that manufacture products
c. are records of increases and decreases in individual financial statement items
d. are only used by large entities with many transactions
ANS: C PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
2. Accounts are classified in the ledger
a. chronologically
b. alphabetically
c. in accordance with their appearance in the financial statements
d. so that accounts used most often are listed first
ANS: C PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
3. Revenue should be recognized when
a. cash is received
b. the service is performed
c. the customer places an order
d. the customer charges an order
ANS: B PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
4. Which of the following accounts is an owner’s equity account?
a. Cash
b. Accounts Payable
c. Prepaid Insurance
d. Ross Morris, Capital
ANS: D PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
5. The gross increases in owner’s equity attributable to business activities are called
a. assets
b. liabilities
c. revenues
d. net income
ANS: C PTS: 1 DIF: Easy OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
6. A chart of accounts is
a. the same as a balance sheet
b. usually a listing of accounts in alphabetical order
c. usually a listing of accounts in financial statement order
d. used in place of a ledger
ANS: C PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
7. The debit side of an account
a. depends on whether the account is an asset, liability or owner’s equity
b. can be either side of the account depending on how the accountant set up the system
c. is the right side of the account
d. is the left side of the account
ANS: D PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
8. An account is said to have a debit balance if
a. the amount of the debits exceeds the amount of the credits
b. there are more entries on the debit side than on the credit side
c. its normal balance is debit without regard to the amounts or number of entries on the debit
side
d. the first entry of the accounting period was posted on the debit side
ANS: A PTS: 1 DIF: Difficult OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
9. Which statement(s) concerning cash is (are) true?
a. cash will always have more debits than credits
b. cash will never have a credit balance
c. cash is increased by debiting
d. all of the above
ANS: C PTS: 1 DIF: Moderate OBJ: 02-01
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
10. A debit may signify a(n)
a. decrease in asset accounts
b. decrease in liability accounts
c. increase in the capital account
d. decrease in the drawing account
ANS: B PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
11. Which of the following types of accounts have a normal credit balance?
a. assets and liabilities
b. liabilities and expenses
c. revenues and liabilities
d. capital and drawing
ANS: C PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
12. Which of the following groups of accounts have a normal debit balance?
a. revenues, liabilities, capital
b. capital, assets
c. liabilities, expenses
d. assets, expenses
ANS: D PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
13. Which one of the statements below is not a purpose for the journal?
a. to show increases and decreases in accounts
b. to show a chronological order by date
c. to show a complete transaction in one place
d. to help locate errors
ANS: A PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
14. A credit may signify a
a. decrease in assets
b. decrease in liabilities
c. decrease in capital
d. decrease in revenue
ANS: A PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
15. A debit signifies a decrease in
a. assets
b. expenses
c. drawing
d. revenues
ANS: D PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
16. Which of the following applications of the rules of debit and credit is true?
a. decrease Prepaid Insurance with a credit and the normal balance is a credit
b. increase Accounts Payable with a credit and the normal balance is a debit
c. increase Supplies Expense with a debit and the normal balance is a debit
d. decrease Cash with a debit and the normal balance is a credit
ANS: C PTS: 1 DIF: Difficult OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
17. Which of the following describes the classification and normal balance of the fees earned account?
a. asset, credit
b. liability, credit
c. owner’s equity, debit
d. revenue, credit
ANS: D PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
18. The classification and normal balance of the accounts payable account is
a. an asset with a credit balance
b. a liability with a credit balance
c. owner’s equity with a credit balance
d. revenue with a credit balance
ANS: B PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
19. The classification and normal balance of the drawing account is
a. an expense with a credit balance
b. an expense with a debit balance
c. a liability with a credit balance
d. owner’s equity with a debit balance
ANS: D PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
20. The classification and normal balance of the supplies expense account is a(n)
a. asset with a debit balance
b. asset with a credit balance
c. expense with a debit balance
d. liability with a credit balance
ANS: C PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
21. In which of the following types of accounts are increases recorded by debits?
a. assets, liabilities
b. drawing, liabilities
c. expenses, liabilities
d. assets, expenses
ANS: D PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
22. In which of the following types of accounts are increases recorded by credits?
a. revenues, liabilities
b. drawing, assets
c. liabilities, drawing
d. expenses, liabilities
ANS: A PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
23. In which of the following types of accounts are decreases recorded by debits?
a. assets
b. revenues
c. expenses
d. drawing
ANS: B PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
24. In which of the following types of accounts are decreases recorded by credits?
a. liabilities
b. owner’s capital
c. drawing
d. revenues
ANS: C PTS: 1 DIF: Easy OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
25. A credit balance in which of the following accounts would indicate a likely error?
a. Fees Earned
b. Salary Expense
c. Janet James, Capital
d. Accounts Payable
ANS: B PTS: 1 DIF: Difficult OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
26. A debit balance in which of the following accounts would indicate a likely error?
a. Salaries Expense
b. Notes Payable
c. Edgar Martin, Drawing
d. Supplies
ANS: B PTS: 1 DIF: Difficult OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
27. Randomly listed below are the steps for preparing a trial balance:
(1) Verify that the total of the Debit column equals the total of the Credit column.
(2) List the accounts from the ledger and enter their debit or credit balance in the Debit or
Credit column of the trial balance.
(3) List the name of the company, the title of the trial balance, and the date the trial balance
is prepared.
(4) Total the Debit and Credit columns of the trial balance.
What is the proper order of these steps?
a. (3), (2), (4), (1)
b. (2), (3), (4), (1)
c. (3), (2), (1), (4)
d. (4), (3), (2), (1)
ANS: A PTS: 1 DIF: Moderate OBJ: 02-04
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-02-GAAP
28. Which of the following entries records the payment of an account payable?
a. debit Cash; credit Accounts Payable
b. debit Accounts Receivable; credit Cash
c. debit Cash; credit Supplies Expense
d. debit Accounts Payable; credit Cash
ANS: D PTS: 1 DIF: Difficult OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
29. Which of the following entries records the investment of cash by Ron York, owner of a proprietorship?
a. debit Ron York, Capital; credit Accounts Receivable
b. debit Cash; credit Ron York, Capital
c. debit Ron York, Drawing; credit Cash
d. debit Cash; credit Ron York, Drawing
ANS: B PTS: 1 DIF: Moderate OBJ: 02-02
NAT: AACSB Analytic | AICPA FN-Measurement | ACBSP-APC-06-Recording Transactions
30. Which of the following entries records the receipt of a utility bill from the water company?
a. debit Utilities Expense; credit Accounts Payable
b. debit Utilities Payable; credit Accounts Receivable
c. debit Accounts Payable; credit Cash
