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Chapter 2—T Accounts, Debits and Credits, Trial Balance, and Financial Statements
MULTIPLE CHOICE
1. The normal balance of an account is on the
a. plus side.
b. left side.
c. debit side.
d. right side.
e. credit side.
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
2. When a T account has several items on both sides, the balance of the account is written
a. on the side with the greatest number of items.
b. on the side with the least number of items.
c. on the side with the larger total.
d. on the side with the smaller total.
e. in none of these locations.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
3. A debit may signify a decrease in a(n)
a. liability account.
b. asset account.
c. revenue account.
d. liability and a revenue account.
e. asset and a revenue account.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
4. A debit may result in
a. an increase in an expense account.
b. an increase in an asset account.
c. a decrease in a liability account.
d. a decrease in a revenue account.
e. all of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
5. A credit may result in
a. an increase in a liability account.
b. an increase in a revenue account.
c. a decrease in an asset account.
d. an increase in the Capital account.
e. all of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
6. A credit may result in
a. an increase in an asset account.
b. a decrease in the Capital account.
c. an increase in a liability account.
d. a decrease in a liability account.
e. none of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
7. Which of the following classifications of accounts has/have a normal credit balance?
a. Drawing
b. Revenues
c. Liabilities
d. Revenues and liabilities
e. All of these
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
8. Which of the following describes the classification and normal balance of H. Gale, Capital?
a. Asset, debit
b. Revenue, credit
c. Owner’s equity, debit
d. Expense, debit
e. None of these
ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom’s: Knowledge
9. Which of the following describes the classification and normal balance of the Income from Services
account?
a. Capital, debit
b. Revenue, credit
c. Asset, credit
d. Asset, debit
e. Expense, debit
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom’s: Knowledge
10. Which of the following is an asset account?
a. Insurance Expense
b. Advertising Expense
c. Office Equipment
d. Sales
e. None of these
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom’s: Knowledge
11. The second step in the analytical phase of accounting is
a. to determine whether there is an increase or a decrease in the accounts.
b. to determine which accounts are involved.
c. to formulate the entry as a debit to one account and as a credit to another account.
d. to identify the classification of the accounts involved.
e. none of these.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
12. If a $47 cash purchase of supplies is recorded as a $57 debit to Supplies Expense and a $57 credit to
Cash, the result will be that
a. the trial balance will be out of balance.
b. the Supplies Expense account will be understated.
c. the Cash account will be overstated.
d. Supplies Expense will be overstated and Supplies will be understated.
e. none of these will be true.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
13. A purchase of supplies on account should be recorded as
a. a debit to Supplies and a credit to Cash.
b. a debit to Accounts Payable and a credit to Supplies.
c. a debit to Supplies and a credit to Accounts Payable.
d. a debit to Supplies Expense and a credit to Accounts Receivable.
e. none of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
14. A business buys office equipment for cash. What effect will this transaction have on the accounts?
a. Debit an asset account and credit an expense account
b. Debit an asset account and credit an asset account
c. Debit an expense account and credit an asset account
d. Debit a liability account and credit an asset account
e. None of these
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
15. The receipt of cash on account from a customer should be recorded as
a. a debit to Cash and a credit to Accounts Payable.
b. a debit to Cash and a credit to Income from Services.
c. a debit to Cash and a credit to Accounts Receivable.
d. a debit to Cash and a credit to the Capital account.
e. none of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
16. The asset that a business enterprise creates when it maintains accounts for its charge customers is
a. Accounts Payable.
b. Drawing.
c. Accounts Receivable.
d. Capital.
e. none of these.
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom’s: Comprehension
17. Which of the following entries records the withdrawal of cash for personal use by D. Bill, the owner of
a business?
a. Debit Cash and credit D. Bill, Drawing
b. Debit Cash and credit Salary Expense
c. Debit Salary Expense and credit Cash
d. Debit D. Bill, Drawing and credit Cash
e. None of these
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
18. A trial balance is
a. a listing of all the assets, liabilities, and owner’s equity accounts that have balances.
b. a listing of all the accounts that have zero balances.
c. a listing of all the revenue and expense accounts that have balances.
d. all of these.
e. none of these.
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
19. To locate an error in a trial balance,
a. re-add.
b. look for the correct location of normal balances.
c. verify figures transferred from the account to the trial balance.
d. check footings and balances of the accounts.
e. do all of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
20. The trial balance will not expose which of the following problems?
a. Recording half an entry
b. Leaving out an entire entry
c. Recording both halves of an entry on the same side
d. Recording half an entry and leaving out an entire entry
e. Recording half an entry and recording both halves of an entry on the same side
ANS: B PTS: 1 DIF: Difficulty: Challenging
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
21. The Accounts Receivable T account shows the following
$250, debit
$1,250, debit
$300, credit
$250, credit
What is the balance of the account?
a. $1,500, debit
b. $550, credit
c. $950, debit
d. $950, credit
e. $2,050, debit
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
22. The Accounts Payable T account shows the following
$1,200, debit
$3,500, debit
$8,240, credit
$100, credit
What is the balance of the account?
a. $8,340, credit
b. $8,340, debit
c. $4,700, debit
d. $3,640, debit
e. $3,640, credit
ANS: E PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
23. The ___________ are the totals of each side of a T account that is normally recorded in small, pencilwritten figures.
a. balances
b. footings
c. figures
d. estimates
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
24. Which of the following is correct concerning a T account?
a. The left side is the decrease side for assets.
b. The right side is the decrease side for liabilities.
c. The right side is the increase side for revenue.
d. The left side is the decrease side for expenses.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
25. Which of the following is not true concerning T accounts?
a. The right side of a revenue account is an increase.
b. The left side of an expense account is an increase.
c. The left side of an asset account is an increase.
d. The left side of a liability account is an increase.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
26. Which of the following is correct?
a. Debit is the normal balance of the accounts payable account.
b. Credit is the normal balance of the accounts receivable account.
c. Debit is the normal balance of the Income from Services account.
d. Debit is the normal balance of the Drawing account.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 |LO: 2-2 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
27. Which of the following is true?
a. An asset account would be decreased with a debit.
b. A liability account would be increased with a debit.
c. A revenue account would be increased with a credit.
d. An expense account would be increased with a credit.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
28. Which of the following is not true?
a. The capital account would be increased with a debit.
b. The drawing account would be increased with a debit.
c. An asset account would be decreased with a credit.
d. A liability account would be increased with a credit.
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
29. The last step in analyzing a business transaction is
a. decide which accounts are involved.
b. check to see if the equation is in balance.
c. write the transaction as a debit and credit.
d. classify the accounts involved.
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
30. Ready Company received a bill for advertising. The accountant would record a
a. credit to cash.
b. credit to accounts receivable.
c. credit to accounts payable.
d. credit to advertising expense.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
31. Which of the following is correct, assuming the following transaction:
R. Dirk invested $20,000 cash in the business.
a. Cash is debited.
b. Cash is credited.
c. R. Dirk, Capital is debited.
d. Income from Services is credited.
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
32. Which of the following is correct, assuming the following transaction:
Kennedy Company received and paid the rent for the month.
a. Rent Expense is debited.
b. Cash is debited.
c. Rent Expense is credited.
d. Accounts Payable is debited.
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
33. Which of the following is correct, assuming the following transaction:
Nixon Company sold services on account.
a. Cash is credited.
b. Accounts Receivable is credited.
c. Income from Services is credited.
d. Cash is debited.
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
34. Jackson Company received cash on account from customers, $2,300. The accountant would record a
a. debit to income from services, $2,300.
b. credit to income from services, $2,300.
c. debit to accounts receivable, $2,300.
d. credit to accounts receivable, $2,300.
e. credit to cash, $2,300.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
35. A _______________ is a transaction that requires more than one debit or more than one credit to be
recorded.
a. complex entry
b. double entry
c. deluxe entry
d. compound entry
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
36. Income from Services would be shown on the ______________.
a. debit side of the trial balance
b. credit side of the trial balance
c. not on the trial balance
d. on both the debit and credit side of the trial balance
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
37. Utilities Expense would be shown on the ______________.
a. debit side of the trial balance
b. credit side of the trial balance
c. not on the trial balance
d. debit and credit side of the trial balance
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
38. Accounts Receivable would be shown on the __________________.
a. debit side of the trial balance
b. credit side of the trial balance
c. not on the trial balance
d. debit and credit side of the trial balance
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
39. Accounts Payable would be shown on the ___________________.
a. debit side of the trial balance
b. credit side of the trial balance
c. not on the trial balance
d. debit and credit side of the trial balance
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
40. The heading of all financial statements include
a. name of the company
b. title of the financial statement
c. period of time covered by the financial statement
d. all of the answers listed
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
41. The ____________ shows total revenue minus total expenses.
a. balance sheet
b. income statement
c. statement of owner’s equity
d. cash flow statement
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
42. When total expenses exceeds total revenues, a __________ results.
a. net income
b. net loss
c. break-even
d. profit
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom’s: Comprehension
43. The time period on the ______________ represents only one date.
a. income statement
b. statement of owner’s equity
c. balance sheet
d. none of the answers listed
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
44. Davis Company has the following accounts and balances at the end of the year:
Cash, $1,200
Accounts Receivable, $280
Office Equipment, $3,000
Accounts Payable, $1,400
Income from Services, $3,500
Rent Expense, $670
Salaries Expense, $1,000
R. Davis, Capital at the beginning of the year was $2,050. Rob Davis also withdrew $800 from the
company during the year. What is net income for the year?
a. $1,830
b. $3,500
c. $1,030
d. $5,080
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Application
45. Davis Company has the following accounts and balances at the end of the year:
Cash, $1,200
Accounts Receivable, $280
Office Equipment, $3,000
Accounts Payable, $1,400
Income from Services, $3,500
Rent Expense, $670
Salaries Expense, $1,000
R. Davis, Capital at the beginning of the year was $2,050. Rob Davis also withdrew $800 from the
company during the year. What is R. Davis, Capital, at the end of the year?
a. $1,830
b. $3,080
c. $5,550
d. $3,880
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Application
46. Davis Company has the following accounts and balances at the end of the year:
Cash, $1,200
Accounts Receivable, $280
Office Equipment, $3,000
Accounts Payable, $1,400
Income from Services, $3,500
Rent Expense, $670
Salaries Expense, $1,000
R. Davis, Capital at the beginning of the year was $2,050. Rob Davis also withdrew $800 from the
company during the year. What is the amount of total assets reported on the balance sheet?
a. $1,480
b. $9,800
c. $3,080
d. $4,480
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Application
47. The ________________ shows how and why the owner’s equity account has changed over a stated
period of time.
a. balance sheet
b. income statement
c. statement of owner’s equity
d. statement of change
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
48. The ________________ shows the financial position of a company.
a. income statement
b. balance sheet
c. statement of owner’s equity
d. none of the answers listed
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
49. The _____________ of the balance sheet requires that the assets are placed at the top and liabilities
and owner’s equity are placed below.
a. financial position
b. report form
c. horizontal form
d. vertical form
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
50. Which of the following is correct concerning the time period reported on financial statements?
a. The balance sheet is reported as of a period of time.
b. The income statement is reported as of a specific date.
c. The statement of owner’s equity is reported as of a specific date.
d. The income statement is reported as of a period of time.
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
51. Accounts Payable is reported on which financial statement?
a. balance sheet
b. income statement
c. statement of owner’s equity
d. none of the answers listed
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
52. Income from Services is reported on which financial statement?
a. income statement
b. statement of owner’s equity
c. balance sheet
d. none of the answers listed
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
53. Rent Expense is reported on which financial statement?
a. income statement
b. balance sheet
c. statement of owner’s equity
d. none of the answers listed
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
54. Owner withdrawals are reported on which financial statement?
a. statement of owner’s equity
b. balance sheet
c. income statement
d. none of the answers listed
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Knowledge
55. The order the financial statements are prepared is as follows:
a. statement of owner’s equity, income statement, balance sheet
b. income statement, balance sheet, statement of owner’s equity
c. income statement, statement of owner’s equity, balance sheet
d. balance sheet, income statement, statement of owner’s equity
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
56. The _______________ of a company is the resources owned by the organization at a point in time,
offset by the claims against those resources and owner’s equity.
a. net income
b. financial statement
c. net loss
d. financial position
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
57. A ______________ means that the digits of a number have been switched around.
a. slide
b. matching error
c. transposition
d. none of the answers listed
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
58. The accountant recorded accounts payable as $45,000 when it should have been recorded as $4,500.
This is an example of a ________________.
a. matching error
b. footing
c. slide
d. transposition
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-7 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
59. Errors can occur for which of the following reason(s)?
a. Arithmetic
b. Recording only half an entry
c. Recording two debits and no credits
d. Recording incorrect amounts
e. All of the answers listed
ANS: E PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-7 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
60. The accountant recorded income from services as $4,500 when it should have been recorded as
$4,050. This is an example of a ________________.
a. matching error
b. footing
c. slide
d. transposition
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-7 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
TRUE/FALSE
61. A credit always means an entry on the right side of an account.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
62. An increase in an expense is recorded as a debit.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
63. An account balance is the difference between total debits and total credits in an account.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
64. An entry to Accounts Payable will be on the left side of the account if there is a decrease and on the
right side of the account if there is an increase.
ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
65. A credit signifies increases in liabilities, capital, and revenue, and decreases in assets, drawing, and
expenses.
ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
66. Revenue has the effect of decreasing owner’s equity.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
67. The left side is always the debit side.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
68. Accounts Receivable is an asset account whose normal balance is a credit.
ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
69. In any transaction, the total dollar amount of debits must equal the total dollar amount of credits.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
70. If equipment costing $930 is bought by paying $300 as a down payment and the remaining $630 in 30
days, owner’s equity is increased by $930.
ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
71. A transaction with more than one debit and/or more than one credit is called a compound entry.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
72. Withdrawals of assets from a business by the owners are considered to be expenses.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
73. If equipment is bought by paying $200 as a down payment and the remaining $400 in 30 days, total
liabilities are increased by $200.
ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
74. A verification of the equality of debits and credits in the ledger at the end of a fiscal period is called a
balance sheet.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
75. A trial balance checks the equality of debits and credits.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
76. The connecting link between the statement of owner’s equity and the balance sheet is the owner’s
withdrawals.
ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-6 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
77. Recording $520 as $5.20 is an example of a slide.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
78. Recording $41.25 as $412.50 is an example of a transposition.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: AACSB: Analytic
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Application
MATCHING
Match the terms below with the correct definitions.
a. Trial balance
b. Normal balance
c. Trial balance error
d. Transposition
e. Credit
f. Trial balance account order
g. Footing
h. Debit
i. Compound entry
79. Plus side of any T account
80. Totaling each side of a T account
81. Listing of the ending balances of all ledger accounts that proves the equality of total debits and credits
82. A recording error involving the switching around of the digits of a number
83. The left side of a T account
84. Inequality of the total debits and credits in the trial balance
85. A, L, OE, R, E
86. The right-hand side of a T account
87. Transaction that has two or more debits and/or credits
79. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
80. ANS: G PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
81. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
82. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
83. ANS: H PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
84. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
85. ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
86. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
87. ANS: I PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Knowledge
OTHER
Classification
88. Indicate whether each of the following changes in accounts would be a debit (D) or credit (C) entry.
To decrease Cash
To increase Owner, Capital
To decrease Accounts Payable
To increase Salaries Expense
To decrease Equipment
To increase Revenue
To decrease Accounts Receivable
To increase Owner, Drawing
To increase Prepaid Insurance
To increase Accounts Payable
ANS:
C To decrease Cash
C To increase Owner, Capital
D To decrease Accounts Payable
D To increase Salaries Expense
C To decrease Equipment
C To increase Revenue
C To decrease Accounts Receivable
D To increase Owner, Drawing
D To increase Prepaid Insurance
C To increase Accounts Payable
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Recording Transactions
KEY: Bloom’s: Comprehension
89. Classify each of the following items as to whether they would appear on a balance sheet (BS), income
statement (IS), or neither (N).
Accounts Payable
Accounts Receivable
Advertising Expense
Cash
Equipment
Income from Tours
Increase in Capital
Investment during month
J. Collins, Capital
J. Collins, Drawing
Prepaid Insurance
Wages Expense
ANS:
BS Accounts Payable
BS Accounts Receivable
IS Advertising Expense
BS Cash
BS Equipment
IS Income from Tours
N Increase in Capital
N Investment during month
BS J. Collins, Capital
N J. Collins, Drawing
BS Prepaid Insurance
IS Wages Expense
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-6
NAT: AACSB: Reflective Thinking
STA: AICPA-FN: Measurement|ACBSP: Financial Statements KEY: Bloom’s: Comprehension
SHORT ANSWER
90. What is meant when we say that revenue and expenses fall under the umbrella of owner’s equity? Why
does revenue have the same placement of plus and minus signs as the Capital account, and why do
expenses have the opposite placement of plus and minus signs as does the Capital account?
ANS:
Revenue is said to fall under the umbrella of owner’s equity because revenue represents amounts
earned by the business. Earnings serve to increase the owner’s investment. Consequently, the
placement of the plus and minus signs for revenue should be the same as that for Capital. Expenses are
said to fall under the umbrella of owner’s equity because expenses represent the costs of earning the
revenue or doing business. Consequently, expenses are deductions from revenue and, as such, the
placement of the plus and minus signs is the opposite of that for revenue, which also makes them the
opposite of Capital.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: AACSB: Communication STA: AICPA-FN: Measurement|ACBSP: GAAP
KEY: Bloom’s: Comprehension
91. Explain how the Drawing account differs from an expense account.
