Final T/F (1-8)

Question 1

The accounting equation is most often stated as Assets+Liabilities=Owner’s Equity

Answer 1

False

Question 2

After each transaction, the accounting equation must remain in balance

Answer 2

True

Question 3

A negative amount for net worth would reflect more debt than assets, something a creditor would favor

Answer 3

False

Question 4

When two asset accounts are changed in a transaction, there must be an increase and a decrease

Answer 4

True

Question 5

Detailed information about changes in owner’s equity is needed by owners and managers to make sound business decisions

Answer 5

True

Question 6

When items are bought and paid for at a future date, another way to state this is to say these items are bought in account

Answer 6

True

Question 7

A transaction for the sale of goods or services results in a decrease in owner’s equity

Answer 7

False

Question 8

Keeping separate the financial records for a business and for its owner’s personal belongings is an application of the Business Entity accounting concept

Answer 8

True

Question 9

An expense is a decrease in owner’s equity resulting from the operation of a business

Answer 9

True

Question 10

Business ethics are the principles of right and wrong that guide an individual in making decisions

Answer 10

False

Question 11

Payments for advertising, equipment repairs, utilities, and rent are liabilities

Answer 11

False

Question 12

Withdrawals are assets taken out of a business for the owner’s personal use

Answer 12

True

Question 13

The most common type of withdrawal by an owner from a business is the withdrawal of cash

Answer 13

True

Question 14

When an owner withdrawals cash from the business, the transaction affects both assets and owner’s equity

Answer 14

True

Question 15

A withdrawal is an expense

Answer 15

False

Question 16

An accounting device used to analyze transactions is a T account

Answer 16

True

Question 17

An amount recorded on the right side of a T account is a debit

Answer 17

False

Question 18

Each asset account has a normal credit balance

Answer 18

False

Question 19

Each liability account has a normal debit balance

Answer 19

False

Question 20

The balance of an account increases on the same side as the normal balance side

Answer 20

True

Question 21

Asset accounts decrease on the credit side

Answer 21

True

Question 22

Each transaction changes the balances in at least two accounts

Answer 22

True

Question 23

A list of accounts used by a business is a chart of accounts

Answer 23

True

Question 24

When cash is paid for supplies, the supplies account is increased by a credit

Answer 24

False

Question 25

Common accounting practice is to record withdrawals as debits directly in the owner’s capital account

Answer 25

False

Question 26

The left side of an asset account is the credit side because asset accounts are on the left side of the accounting equation

Answer 26

False

Question 27

A drawing account is increased by debits and decreased by credits

Answer 27

True

Question 28

Increases in expense accounts are recorded as debits because they decrease the owner’s capital account

Answer 28

True

Question 29

The normal balance side of an Accounts Receivable account is a debit

Answer 29

True

Question 30

Accounts Payable accounts are increased with a debit

Answer 30

False

Question 31

Utilities Expense is increased with a debit

Answer 31

True

Question 32

Cash is increased with a debit

Answer 32

True

Question 33

Prepaid Insurance is decreased with a credit

Answer 33

True

Question 34

To summarize withdrawal information separately from the other records, owner withdrawal transactions are recorded in the owner’s capital account

Answer 34

False

Question 35

Decreases to liability accounts are recorded on the credit side

Answer 35

False

Question 36

The source document for all cash payments is a check

Answer 36

True

Question 37

A receipt is the source document for cash received from transactions other than sales

Answer 37

True

Question 38

The accounting concept Unit of Measurement is being applied when a source document is prepared for each transaction

Answer 38

False

Question 39

The source document used when supplies are bought on account is a memorandum

Answer 39

True

Question 40

A general journal page is complete when there is insufficient space to record any more entries

Answer 40

True

Question 41

To correct an error in a journal, one can simply erase the incorrect item and write the correct item

Answer 41

False

Question 42

A transaction recorded in a journal is not considered a permanent record

Answer 42

False

Question 43

Transactions are recorded in a journal in chronological order

Answer 43

True

Question 44

A complete journal entry consists of the date, the debit amount, the credit amount, and a source document

Answer 44

True

Question 45

When an entry in an amount column is an even dollar amount, either “00” or “–” can be entered in the cents column

Answer 45

False

Question 46

The Objective Evidence concept requires proof that a transaction did occur

Answer 46

True

Question 47

A calculator tape is the source document for daily cash sales

Answer 47

True

Question 48

Every business uses the same journal to record transactions

Answer 48

False

Question 49

In double-entry accounting, each transaction affects at least two accounts

Answer 49

True

Question 50

All corrections for posting errors should be made in a way that leaves no question as to the correct amount

Answer 50

True

Question 51

A journal shows in one place all the changes in a single account

Answer 51

False

Question 52

The account number is placed in the Post. Ref. column of the journal as the last step in the posting procedure

Answer 52

True

Question 53

The posting reference should always be recorded in the journal’s Post. Rf. column before amounts are recorded in the ledger

Answer 53

False

Question 54

The two steps for opening an account are writing the account title and recording the balance

Answer 54

False

Question 55

The procedure of arranging accounts in a general ledger, assigning account numbers, and keeping records current is known as file maintenance

Answer 55

True

Question 56

The Cash account is the first asset account and is numbered 110

Answer 56

True

Question 57

The steps for posting are to write the date, the journal page number, the amount, and the balance

Answer 57

False

Question 58

If the payment of cash for rent was journalized and posted in error as a debit to Miscellaneous Expense instead of Rent Expense, the correcting entry will include a credit to Cash

Answer 58

False

Question 59

If the previous account balance and the current entry posted to an account are both debits, the new account balance is a debit

Answer 59

True

Question 60

A group of accounts is called a ledger

Answer 60

True

Question 61

The only use for the Post. Ref. column of a journal and general ledger is to indicate which entries in the journal still need to be posted if posting is interrupted

Answer 61

False

Question 62

When posting is complete, the Post. Ref. column in the General Journal is completely filled in with account numbers

Answer 62

True

Question 63

When adding a new expense account between accounts numbered 510 and 520, the new account is assigned the account number 515

Answer 63

True

Question 64

Errors discovered after an entry is posted may be corrected by ruling through the item

Answer 64

False

Question 65

An outstanding check is one that has been issued but not yet reported on a bank statement

Answer 65

True

Question 66

When petty cash is replenished, Petty Cash us debited and Cash is credited

Answer 66

False

Question 67

Voided checks should be recorded in the journal

Answer 67

True

Question 68

The source document for an electronic funds transfer is a memorandum

Answer 68

True

Question 69

The petty cash fund is a liability with a normal debit balance

Answer 69

False

Question 70

Only accounts with a balance are listed in the Trial Balance columns of a work sheet

Answer 70

False

Question 71

Adjusting entries must be posted to the general ledger accounts

Answer 71

True

Question 72

Many businesses choose a one-year fiscal period that ends during a period of high business activity

Answer 72

False

Question 73

Two financial statements are prepared from the information on the work sheet

Answer 73

True

Question 74

If the Trial Balance columns are not equal and the difference can be evenly divided by 9, then the error most likely is a transposed number

Answer 74

True

Question 75

When the Income Statement Debit column total is greater than the Income Statement Credit column total on a work sheet, the business has a net income

Answer 75

False

Question 76

Net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total

Answer 76

True

Question 77

If an amount is written in an incorrect column of a work sheet, the error should be erased and the amount should be written in the correct column

Answer 77

True

Question 78

The accounting concept Consistent Reporting is being applied when a word processing service business reports revenue per page one year and revenue per hour the next year

Answer 78

False

Question 79

The amount of the supplies used during a fiscal period is an expense

Answer 79

True

Question 80

For a service business, the revenue reported in an income statement is often compared to two items: total expenses and net income

Answer 80

True

Question 81

The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries

Answer 81

False

Question 82

An amount written in parentheses on a financial statement indicates an estimate

Answer 82

False

Question 83

The formula for calculating the net income ratio is net income divided by total sales

Answer 83

True

Question 84

The area of accounting that focuses on reporting information to internal users is called managerial accounting

Answer 84

True

Question 85

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue

Answer 85

False

Question 86

The Owner’s Equity section of a balance sheet may report different kinds of details about owner’s equity, depending on the need of the business

Answer 86

True

Question 87

If a business has a net loss for the period, expenses should be reported before revenues on the income statement

Answer 87

False

Question 88

The owner’s capital amount reported on a balance sheet is calculated as capital account balance less drawing account balance plus net income

Answer 88

True

Question 89

The area of accounting that focuses on reporting info to external users is called managerial accounting

Answer 89

False

Question 90

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner’s equity

Answer 90

True

Question 91

The formula for calculating the total expenses ratio is total expenses divided by net income

Answer 91

False

Question 92

A financial ration is a comparison between two components of financial information

Answer 92

True

Question 93

The calculation and interpretation of a financial ratio is called ratio analysis

Answer 93

True

Question 94

A balance sheet reports financial information for a specific date

Answer 94

True

Question 95

An income statement reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss

Answer 95

False

Question 96

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business’s financial condition

Answer 96

True

Question 97

Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement

Answer 97

True

Question 98

The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period

Answer 98

True

Question 99

Return on sales (ROS) is the ratio of net income to total sales

Answer 99

True

Question 100

Temporary accounts include assets, expenses, and the owner’s drawing account

Answer 100

False

Question 101

Temporary accounts are also called nominal accounts

Answer 101

True

Question 102

Journal entries used to prepare temporary accounts for a new fiscal period are closing entries

Answer 102

True

Question 103

The balances of the liability accounts must be reduced to zero to prepare the accounts for the next period

Answer 103

False

Question 104

Permanent accounts are used to accumulate information until it is transferred to the owner’s capital account

Answer 104

False

Question 105

The capital account’s new balance after all closing entries are posted is verified by checking it with the amount of capital shown on the balance sheet at the end of the fiscal period

Answer 105

True

Question 106

The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period

Answer 106

True

Question 107

The Income Summary account has a normal debit balance

Answer 107

False

Question 108

A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted

Answer 108

True

Question 109

To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance

Answer 109

True

Question 110

The series of accounting activities included in recording financial information for a fiscal period is called an accounting cycle

Answer 110

True

Question 111

The drawing account is a permanent account

Answer 111

False

Question 112

Temporary accounts must start each fiscal period with a zero balance

Answer 112

True

Question 113

At the end of a fiscal period, the balances of permanent accounts are summarized and transferred to the owner’s capital account

Answer 113

False