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Chapter 2 – Analyzing Transactions
1. Accounts are records of increases and decreases in individual accounting equation elements.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 – Purpose
ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
2. A chart of accounts is a listing of accounts that make up the journal.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 – Purpose
ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
3. The chart of accounts should be the same for each business.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.03 – Business Forms
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
4. Accounts payable are accounts that you expect will be paid to you.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
5. Consuming goods and services in the process of generating revenues results in expenses.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
6. Prepaid expenses are an example of an expense.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
7. The Unearned Revenues account is an example of a liability.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
8. The Dividends account is an expense.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
9. Accounts in the ledger are usually maintained in alphabetical order.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
10. Depending on the account title, the right side of the account is referred to as the credit side.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
11. To determine the balance in an account, always subtract credits from debits.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
12. An account in its simplest form has three parts to it: a title, an increase side, and a decrease side.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
13. The T account got its name because it resembles the letter ―T.‖
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
14. The right hand side of a T account is known as a debit and the left hand side is known as a credit.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
15. Debiting the cash account will increase the account.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
16. A credit to the cash account will increase the account.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
17. The cash account will always be debited.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
18. The recording of cash receipts to the cash account will be done by debiting the account.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
19. The recording of cash payments from the cash account is done by entering the amount as a credit.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
20. The balance of the account can be determined by adding all of the debits, adding all of the credits, and adding the
amounts together.
a. True
b. False
ANSWER: False
DIFFICULTY: Challenging
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
21. Liabilities are debts owed by the business entity.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.03 – Business Forms
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
22. The accounts payable account is listed in the chart of accounts as an asset.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
23. A dividends account represents the amount of earnings paid to the stockholders.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.03 – Business Forms
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
24. Revenues are equal to the difference between cash receipts and cash payments.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
25. Expenses result from selling services or products to customers.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
26. Stockholders’ equity is reduced by the amount in the dividends account.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.03 – Business Forms
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
27. When an owner invests assets in the business, the retained earnings account increases due to revenue being earned.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
28. When an account receivable is collected in cash, the total assets of the business increase.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.15 – Current Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
29. When an account payable is paid with cash, the stockholders’ equity in the business decreases.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-01 – LO: 02-01
FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
30. For a month’s transactions for a typical medium-sized business, the salary expense account is likely to have only credit
entries.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
31. When a business receives a bill from the utility company, no entry should be made until the invoice is paid.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
32. A debit is abbreviated as Db. and a credit is abbreviated as Cr.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.05 – Accounting Cycle
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
33. For a month’s transactions for a typical medium-sized business, the accounts payable account is likely to have only
credit entries.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
34. Dividends decrease stockholders’ equity and are listed on the income statement as a deduction from revenue.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.09 – Financial Statements
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
35. The normal balance of revenue accounts is a credit.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
36. The normal balance of the dividends account is a debit.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
37. The normal balance of an expense account is a credit.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
38. Expense accounts are increased by credits.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
39. Revenue accounts are increased by credits.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
40. Liability accounts are increased by debits.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
41. Journalizing transactions using the double-entry bookkeeping system will eliminate fraud.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
42. Transactions are listed in the journal chronologically.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
43. Journalizing is the process of entering amounts in the ledger.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
44. The process of recording a transaction in the journal is called journalizing.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
45. Transactions are initially entered into a record called a journal.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
46. The double-entry accounting system records each transaction twice.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
47. The increase side of an account is also the side of the normal balance.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
48. Journal entries include both debit and credit accounts for each transaction.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
49. A transaction that is recorded in the journal is called a journal entry.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom’s: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.02-02 – LO: 02-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
