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File: Chapter 002 The Accounting Cycle:
During the Period
True/False
[Question]
1. External transactions are transactions
the firm conducts with a separate economic entity, such as selling products to
a customer, purchasing supplies from a vendor, paying salaries to an employee,
and borrowing money from a bank.
Answer: True
Learning Objective: 02-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: External Transactions
[Question]
2. Internal transactions are events that
affect the financial position of the company but do not include an exchange
with a separate economic entity. Examples are using supplies on hand and
earning revenues after having received cash in advance from a customer.
Answer: True
Learning Objective: 02-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Internal Transactions
[Question]
3. A list of all account names used to
record transactions of a company is referred to as a T-account.
Answer: False
Feedback: This is referred to as a chart of
accounts.
Learning Objective: 02-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Chart of Accounts
[Question]
4. After recording each transaction, total
assets must equal total liabilities plus stockholders’ equity.
Answer: True
Learning Objective: 02-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Effect of Transactions on Accounting
Equation
[Question]
5. If a transaction causes total assets of
the company to increase by $2,000, then liabilities plus stockholders’ equity
also increases by $2,000.
Answer: True
Learning Objective: 02-02
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Apply
Topic: Effect of Transactions on Accounting
Equation
[Question]
6. If a transaction causes total assets of
the company to increase by $5,000 and total liabilities to increase by $3,000,
then stockholders’ equity increases by $8,000.
Answer: False
Feedback: Assets ($5,000) = Liabilities
($3,000) + Stockholders’ Equity ($2,000).
Learning Objective: 02-02
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Apply
Topic: Effect of Transactions on Accounting
Equation
[Question]
7. Borrowing cash from the bank causes
assets to increase and liabilities to increase.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
8. Purchasing equipment using cash causes
assets to increase.
Answer: False
Feedback: One asset goes up; another asset
goes down. There is no change to total assets.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
9. Providing services to customers for cash
causes stockholders’ equity to increase.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
10. Incurring employees’ salaries but not
paying them causes no change to stockholders’ equity.
Answer: False
Feedback: Salaries expense would reduce
stockholders’ equity.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
11. Paying dividends to its stockholders
causes a company’s stockholders’ equity to decrease.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
12. Selling common stock for cash causes
assets to increase and stockholders’ equity to decrease.
Answer: False
Feedback: Stockholders’ equity increases.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
13. Purchasing office supplies on account
causes assets to increase and liabilities to increase.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
14. Providing services to customers on
account causes assets to increase and stockholders’ equity to increase.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
15. Receiving cash in advance from a
customer for services to be provided in the future causes assets to increase
and stockholders’ equity to increase.
Answer: False
Feedback: Assets increase and liabilities
increase.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
16. Paying for one year of rent in advance
does not affect the accounting equation.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
17. Purchasing supplies on account
increases the balance of the Accounts Receivable account.
Answer: False
Feedback: The balance of Accounts Payable
increases.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
18. Amounts owed from customers are
recorded in the Accounts Receivable account.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
19. The two components of stockholders’
equity are Debits and Credits.
Answer: False
Feedback: The two components of
stockholders’ equity are Common Stock and Retained Earnings.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Expanded Accounting Equation
[Question]
20. Revenues have the effect of increasing
retained earnings.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Expanded Accounting Equation
[Question]
21. Expenses have the effect of decreasing
retained earnings.
Answer: True
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Expanded Accounting Equation
[Question]
22. Receiving cash in advance from
customers increases the Service Revenue account.
Answer: False
Feedback: Receiving cash in advance from
customers increases the Unearned Revenue account.
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
23. Unearned Revenue is a liability
account.
Answer: True
Learning Objective: 02-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Account Types
[Question]
24. Liability accounts increase with a
debit and decrease with a credit.
Answer: False
Feedback: Liability accounts increase with
a credit and decrease with a debit.
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
25. Liability accounts increase with a
credit and decrease with a debit.
Answer: True
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
26. Common Stock increases with a credit
and decreases with a debit.
Answer: True
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
27. Revenue accounts increase with a debit
and decrease with a credit.
Answer: False
Feedback: Revenue accounts increase with a
credit and decrease with a debit.
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
28. Expense accounts increase with a debit
and decrease with a credit.
Answer: True
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
29. The Dividends account increases with a
credit and decreases with a debit.
Answer: False
Feedback: The Dividends account increases
with a debit and decreases with a credit.
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
30. A debit to an account balance always
results in the balance increasing.
Answer: False
Feedback: A debit increases assets, dividends,
and expenses, but decreases liabilities, stockholders’ equity, and revenues.
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
31. A credit to an account balance always
results in the balance decreasing.
Answer: False
Feedback: A credit decreases assets, dividends,
and expenses, but increases liabilities, stockholders’ equity, and revenues.
Learning Objective: 02-03
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debits and Credits
[Question]
32. A journal provides a chronological
record of all transactions affecting a firm.
Answer: True
Learning Objective: 02-04
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Recording Transactions
[Question]
33. For each transaction, there must be at
least one debit amount and one credit amount.
Answer: True
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
34. For each transaction, the total debit
amounts must equal the total credit amounts.
Answer: True
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
35. Selling common stock for cash is
recorded with a debit to common stock.
Answer: False
Feedback: Selling common stock for cash is
recorded with a credit to common stock.
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
36. Borrowing cash from the bank is
recorded with a debit to cash.
Answer: True
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
37. Purchasing office supplies is recorded
with a credit to office supplies.
Answer: False
Feedback: Purchasing office supplies is
recorded with a debit to office supplies.
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
38. Paying employees’ salaries for the
current period is recorded with a debit to Salaries Expense.
Answer: True
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
39. Providing services to customers is
recorded with a debit to Service Revenue.
Answer: False
Feedback: Providing services to customers is
recorded with a credit to Service Revenue.
Learning Objective: 02-04
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Recording Transactions
[Question]
40. The general ledger includes all
accounts used to record the company’s transactions.
Answer: True
Learning Objective: 02-05
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Posting Transactions
[Question]
41. The process of transferring the debit
and credit information from the journal to individual accounts in the general
ledger is called journalizing.
Answer: False
Feedback: The process is called posting.
Learning Objective: 02-05
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Posting Transactions
[Question]
42. After posting transactions to the
general ledger accounts, the sum of the accounts with debit balances should
equal the sum of the accounts with credit balances.
Answer: True
Learning Objective: 02-06
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Trial Balance
[Question]
43. A trial balance is a list of all
accounts and their balances at a particular date, showing that assets equal
liabilities.
Answer: False
Feedback: The trial balance shows that
total debits equal total credits.
Learning Objective: 02-06
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Trial Balance
[Question]
44. If total debits equal total credits in
the trial balance, then all balances are correct.
Answer: False
Feedback: A trial balance could contain
offsetting errors where the balance of one account is misstated in one
direction but the balance of another account (with the same type of debit or
credit balance) is misstated in the other direction.
Learning Objective: 02-06
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Trial Balance
Multiple Choice
[Question]
45. Which of the following is not part of
measuring external transactions?
a. Using source documents to analyze
accounts affected.
b. Recording transactions.
c. Making payments on all amounts owed.
d. Analyzing transactions for their effect
on the accounting equation.
Answer: c
Learning Objective: 02-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Measuring External Transactions
[Question]
46. External events include all of the
following except:
a. Paying employees’ salaries.
b. Purchasing equipment.
c. Using office supplies.
d. Collecting an account receivable.
Answer: c
Learning Objective: 02-01
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: External Transactions
[Question]
47. The full set of procedures used to accomplish the FN
Measurement/communication process of financial accounting is referred to as
the:
a. Trial balance
b. Accounting cycle
c. Chart of accounts
d. General ledger
Answer: b
Learning Objective: 02-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Accounting Cycle
[Question]
48. Which step in the
process of measuring external transactions involves assessing the equality of
total debits and total credits?
a. Use source documents to determine
accounts affected by the transaction.
b. Prepare a trial balance.
c. Analyze the impact of the
transaction on the accounting equation.
d. Post the transaction to the
T-account in the general ledger.
Answer: b
Learning Objective: 02-01
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Measuring External Transactions
[Question]
49. For each transaction recorded in an
accounting system, the basic equation that must be maintained at all times is:
a. Assets = Liabilities + Stockholders’
Equity.
b. Cash Increases = Cash Decreases.
c. Revenues = Expenses + Dividends.
d. Assets = Liabilities.
Answer: a
Learning Objective: 02-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Effect of Transactions on Accounting
Equation
[Question]
50. The following amounts are reported in
the ledger of Mariah Company:
|
Assets
|
$80,000
|
|
Liabilities
|
36,000
|
|
Retained Earnings
|
12,000
|
What is the balance in the Common Stock
account?
a. $44,000.
b. $32,000.
c. $48,000.
d. $42,000.
Answer: b
Learning Objective: 02-02
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Accounting Equation
[Question]
51. When a company incurs employee salaries
but does not pay them, how will the basic accounting equation be affected?
a. Stockholders’ equity decreases.
b. Revenues decrease.
c. Expenses decrease.
d. Liabilities decrease.
Answer: a
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
52. When cash payments are made to
stockholders, what is the effect on the company’s accounts?
a. Cash decreases and dividends increase.
b. Cash increases and dividends decrease.
c. Cash decreases and common stock
decreases.
d. Cash increases and common stock
increases.
Answer: a
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
53. Which of the following is not an asset account?
a. Supplies.
b. Accounts Payable.
c. Equipment.
d. Accounts Receivable.
Answer: b
Learning Objective: 02-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Account Types
[Question]
54. An account receivable can best be
defined as:
a. A payment to the owners.
b. A sale of goods and services.
c. A resource owned by the company.
d. An amount owed by the company.
Answer: c
Learning Objective: 02-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Account Types
[Question]
55. Receiving assets from customers before
services are performed results in:
a. Prepaid Assets.
b. Service Revenue.
c. Unearned Revenues.
d. Accounts Receivable.
Answer: c
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Account Types
[Question]
56. When the company pays stockholders a
dividend, what is the effect on the accounting equation for that company?
a. Decrease stockholders’ equity and
increase assets.
b. Increase liabilities and increase
assets.
c. Decrease assets and decrease
liabilities.
d. Decrease assets and decrease
stockholders’ equity.
Answer: d
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
57. Pumpkin Inc. sold $500 in pumpkins to a
customer on account on January 1. On January 11
Pumpkin collected the cash from that
customer. What is the impact on Pumpkin’s accounting equation from the
collection of cash?
a. No net effect to the accounting
equation.
b. Decrease assets and increase
liabilities.
c. Increase assets and increase
liabilities.
d. Decrease assets and decrease
liabilities.
Answer: a
Learning Objective: 02-02
Difficulty: Hard
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Apply
Topic: Effect of Transactions on Accounting
Equation
[Question]
58. A company receives a $50,000 cash
deposit from a customer on October 15 but will not provide services until
November 20. Which of the following statements is true?
a. The company records service revenue on
October 15.
b. The company records cash collection
November 20.
c. The company records unearned revenue on
October 15.
d. The company records nothing on October
15.
Answer: c
Learning Objective: 02-02
Difficulty: Hard
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Apply
Topic: Recording Transactions
[Question]
59. Which of the following would increase
assets and increase liabilities?
a. Provide services to customers on
account.
b. Purchase office supplies on account.
c. Pay dividends to stockholders.
d. Receive a utility bill but do not pay it
immediately.
Answer: b
Learning Objective: 02-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Effect of Transactions on Accounting
Equation
[Question]
60. Receiving cash from an account
receivable:
a. Increases revenue and decreases an
asset.
b. Decreases a liability and increases an
asset.
c. Increases an asset and increases
revenue.
d. Increases one asset and decreases
another asset.
Answer: d
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