Chapter 3

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1

Factors that shape an accounting information system include the
A.
nature of the business.
B.
size of the firm.
C.
volume of data to be handled.
D.
all of these.

D.
all of these.

2

The double-entry accounting system means
A.
Each transaction is recorded with two journal entries.
B.
Each item is recorded in a journal entry, then in a general ledger account.
C.
The dual effect of each transaction is recorded with a debit and a credit.
D.
All of these.

C.
The dual effect of each transaction is recorded with a debit and a credit.

3

Which of the following is a recordable event or item?
A.
Changes in managerial policy
B.
The value of human resources
C.
Changes in personnel
D.
Purchase of supplies

D.
Purchase of supplies

4

A trial balance
A.
proves that debits and credits are equal in the ledger.
B.
lists accounts and their balances.
C.
does not prove that a company recorded all transactions.
D.
all of these.

D.
all of these.

5

How do the prepaid expenses of rent and supplies expire?
A.
Rent: with the passage of time; supplies: through use and consumption
B.
Rent: with the passage of time; supplies: with the passage of time
C.
Rent: through use and consumption; supplies: through use and consumption
D.
Rent: through use and consumption; supplies: with the passage of time

A.
Rent: with the passage of time; supplies: through use and consumption

6

The financial statements are prepared from the
A.
trial balance.
B.
adjusted trial balance.
C.
post closing trial balance.
D.
closing trial balance.

B.
adjusted trial balance.

7

Which type of account is always debited during the closing process?
A.
Dividends.
B.
Expense.
C.
Revenue.
D.
Retained earnings.

C.
Revenue.

8

An accrued expense is
A.
an expense which is recorded with the passage of time.
B.
an expense that has been incurred but for which payment has not yet been made.
C.
an expense for which cash is paid before the expense is incurred
D.
initially recorded as an asset.

B.
an expense that has been incurred but for which payment has not yet been made.

9

Which of the following is not a nominal account?
A.
Dividends
B.
Revenues
C.
Expenses
D.
Equity

D.
Equity

10

When a corporation pays a note payable and interest,
A.
the account Notes Payable will be increased.
B.
the account Interest Expense will be decreased.
C.
the accounts Notes Payable and Interest Expense will be debited.
D.
the account Cash will be debited.

C.
the accounts Notes Payable and Interest Expense will be debited.

11

Which of the following is not an internal event?
A.
Depreciation
B.
Using raw materials in the production process
C.
Dividend declaration and subsequent payment
D.
All of these are internal transactions.

C.
Dividend declaration and subsequent payment

12

A trial balance may prove that debits and credits are equal, but
A.
an amount could be entered in the wrong account.
B.
a transaction could have been entered twice.
C.
a transaction could have been omitted.
D.
all of these.

D.
all of these.

13

Adjustments are often prepared
A.
after the balance sheet date, but dated as of the balance sheet date.
B.
after the balance sheet date, and dated after the balance sheet date.
C.
before the balance sheet date, but dated as of the balance sheet date.
D.
before the balance sheet date, and dated after the balance sheet date.

A.
after the balance sheet date, but dated as of the balance sheet date.

14

The proper sequence of financial statement preparation is:
A.
The Retained Earnings Statement, the Balance Sheet, the Income Statement, and then the Statement of Cash Flows.
B.
The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.
C.
The Balance Sheet, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows.
D.
The Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Balance Sheet.

B.
The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.

15

R. Gordon Corporation had revenues of $2,000,000, expenses of $1,700,000, and dividends of $130,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a
A.
debit of $300,000.
B.
debit of $130,000.
C.
credit of $300,000.
D.
credit of $170,000.

C.
credit of $300,000.

Since the credit to Retained Earnings is equal to Revenues less Expenses, the credit amount is $300,000. Dividends are closed to Retained Earnings in a separate entry.

16

If the balances in both accounts receivable and accounts payable decrease during the year
A.
the decrease in both the accounts receivable and accounts payable balances will result in a increase in cash for the period.
B.
the decrease in both the accounts receivable and accounts payable balances will result in an decrease in cash for the period.
C.
the decrease in the accounts receivable balance would result in a increase in cash for the period.
D.
the decrease in the accounts payable balance would result in a increase in cash for the period.

C.
the decrease in the accounts receivable balance would result in a increase in cash for the period.

17

The financial statement that shows the financial condition of the enterprise at the end of a period is the:
A.
income statement.
B.
statement of retained earnings.
C.
balance sheet.
D.
statement of cash flows.

C.
balance sheet.

18

All of the following accounts are increased on the credit side except:
A.
Common Stock.
B.
Salaries Expense.
C.
Retained Earnings.
D.
Service Revenues.

B.
Salaries Expense.

19

Which of the following are reported in the stockholders' equity section of the balance sheet?
A.
Revenues and expenses.
B.
Dividends and retained earnings.
C.
Common stock and dividends.
D.
Common stock and retained earnings.

D.
Common stock and retained earnings.

20

An optional step in the accounting cycle is the preparation of:
A.
the trial balance.
B.
adjusting entries.
C.
closing entries.
D.
the worksheet.

D.
the worksheet.

21

All of the following are external events except:
A.
a transaction with another entity.
B.
consuming raw materials in production processes.
C.
a change in the price of a good that an entity buys or sells.
D.
an improvement in technology by a competitor.

B.
consuming raw materials in production processes.

22

Posting is the process of transferring items entered in a general journal to the:
A.
worksheet.
B.
trial balance.
C.
general ledger.
D.
financial statements.

C.
general ledger.

23

Which of the following statements about a trial balance is incorrect?
A.
Its primary purpose is to prove the mathematical equality of debits and credits after posting.
B.
It uncovers errors in journalizing and posting.
C.
It is useful in the preparation of financial statements.
D.
It proves that all transactions have been recorded.

D.
It proves that all transactions have been recorded.

24

An adjusting entry would never include a:
A.
debit to an expense account and a credit to an asset account.
B.
debit to an expense account and a credit to a liability account.
C.
debit to a liability account and a credit to a revenue account.
D.
debit to an asset account and a credit to a liability account.

D.
debit to an asset account and a credit to a liability account.

25

The adjusting entry to record accrued revenue includes a debit to:
A.
an asset account and a credit to a revenue account.
B.
a liability account and a credit to a revenue account.
C.
an expense account and a credit to a revenue account.
D.
a revenue account and a credit to an asset account.

A.
an asset account and a credit to a revenue account.

26

If the adjusting entry for an accrued expense is not made:
A.
assets will be overstated.
B.
expenses will be overstated.
C.
liabilities will be understated.
D.
equity will be understated.

C.
liabilities will be understated.