Chapter 6: Business Transactions and their Analysis

Question 1

True or False

Identifying transactions that are accountable and analyzing their effects is the first step in the accounting cycle

Answer 1

True

Question 2

True or False

There can be no journal entry with only one debit but no credits, or vice versa

Answer 2

True

Question 3

True or False
Entity A sells goods. Entity A will most likely record the sale in two journal entries - one to record sales and one to record the cost of sales

Answer 3

True

Question 4

True or False

The “cost of sales” account is an asset account

Answer 4

False

Question 5

True or False

A cash purchase of equipment increases the total assets of an entity

Answer 5

False

Question 6

True or False

Business transactions are normally identified from “source documents”

Answer 6

True

Question 7

True or False

After an accountable event is identified, the second step is to record it in the ledger

Answer 7

False

Question 8

True or False

A simple journal entry is one that contains two or more debits or credits

Answer 8

False

Question 9

True or False

Losses from typhoons and similar calamities are considered external events

Answer 9

False

Question 10

True or False

All of the ten steps in the accounting cycle are required; none is optional

Answer 10

False

Question 11

The account that is debited everytime a business receives money is

a. cash
b. accounts receivable
c. money
d. wallet

Answer 11

a. cash

Question 12

The source documents that evidence the sale of goods is

a. sales invoice
b. official receipt
c. bank statement
d. check

Answer 12

a. sales invoice

Question 13

You have a business. Every time your business makes a disbursement, you will credit which of the following accounts?

a. cash
b. accounts payable
c. disbursements
d. pocket

Answer 13

a. cash

Question 14

A business prepares this document when making purchases

a. sales invoice
b. official receipt
c. purchase order
d. delivery receipt

Answer 14

c. purchase order

Question 15

Your business sells goods to a credit customer. Which of the following accounts is increased?

a. accounts receivable
b. sales
c. cost of sales
d. all of these

Answer 15

d. all of these

Question 16

Entity A purchases inventories and pays outright in cash. This transaction would result in an increase in

a. total assets
b. total liabilities
c. total assets and total liabilities
d. no effect on total assets and liabilities

Answer 16

d. no effect on total assets and liabilities

Question 17

Entity A makes the following journal entry:
Accounts receivable 900,000
Cost of sales 400,000
Sales 900,000
Inventory 400,000

The journal entry above is

a. simple entry
b. a compound entry
c. a complicated entry
d. no id, no entry

Answer 17

b. a compound entry

Question 18

Purchases of inventory on account increase which of the following accounts?

a. inventory
b. accounts payable
c. cash
d. a and b

Answer 18

d. a and b

Question 19

Cash drawings of a business owner from the business increase which of the following accounts?

a. owner’s drawings
b. cash
c. a and b
d. none of these

Answer 19

a. owner’s drawings

Question 20

The account that is credited when a business earns revenue from rendering services is

a. sales
b. service fees/revenue
c. accounts receivable
d. b and c

Answer 20

b. service fees/revenue