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Quiz 3 Chapter 3
Chapter 3
THE ACCOUNTING INFORMATION SYSTEM
IFRS questions are available at the end of this chapter.
TRUE/FALSE
1. A ledger is where the company
initially records transactions and selected other events.
2. Nominal (temporary) accounts are revenue, expense, and dividend
accounts and are periodically closed.
3. Real (permanent) accounts are revenue, expense, and dividend
accounts and are periodically closed.
4. An example of an internal event would be a flood that destroyed
a portion of a company's inventory.
5. All liability and stockholders’ equity accounts are increased
on the credit side and decreased on the debit side.
6. In general, debits refer to increases in account balances, and
credits refer to decreases.
7. The first step in the accounting cycle is the journalizing of
transactions and selected other events.
8. One purpose of a trial balance is to prove that debits and
credits of an equal amount are in the general ledger.
9. A general journal chronologically lists transactions and other
events, expressed in terms of debits and credits to accounts.
10. If a company fails to post one of its journal entries to its
general ledger, the trial balance will not show an equal amount of debit and
credit balance accounts.
11. Adjusting entries for prepayments record the portion of the
prepayment that represents the expense incurred or the revenue earned in the
current accounting period.
12. An adjustment for wages expense, earned but unpaid at year end,
is an example of an accrued expense.
13. The book value of any depreciable asset is the difference
between its cost and its salvage value.
14. The ending retained earnings balance is reported on both the
retained earnings statement and the balance sheet.
15. The post-closing trial balance consists of asset, liability,
owners' equity, revenue and expense accounts.
16. All revenues, expenses, and the dividends account are closed
through the Income Summary account.
17. It is not necessary to post the closing entries to the ledger
accounts because new revenue and expense accounts will be opened in the
subsequent accounting period.
*18. The accrual basis recognizes revenue when earned and expenses
in the period when cash is paid.
*19. Reversing entries are made at the end of the accounting cycle
to correct errors in the original recording of transactions.
*20. An adjusted trial balance that shows equal debit and credit
columnar totals proves the accuracy of the adjusting entries.
True / False Answers — Conceptual
MULTIPLE CHOICE—Conceptual
21. 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.
22. Maintaining a set of accounting records is
a. optional.
b. required by the Internal Revenue Service.
c. required by the Foreign Corrupt Practices
Act.
d. required by the Internal Revenue Service and
the Foreign Corrupt Practices Act.
23. Debit always means
a. right side of an account.
b. increase.
c. decrease.
d. none of these.
24. An accounting record into which the essential facts and figures
in connection with all transactions are initially recorded is called the
a. ledger.
b. account.
c. trial balance.
d. none of these.
25. A trial balance
a. proves that debits and credits
are equal in the ledger.
b. supplies a listing of open
accounts and their balances that are used in preparing financial statements.
c. is normally prepared three
times in the accounting cycle.
d. all of these.
26. Which of the following is a real (permanent) account?
a. Goodwill
b. Sales
c. Accounts Receivable
d. Both Goodwill and Accounts Receivable
27. Which of the following is a nominal (temporary) account?
a. Unearned Revenue
b. Salary Expense
c. Inventory
d. Retained Earnings
28. Nominal accounts are also called
a. temporary accounts.
b. permanent accounts.
c. real accounts.
d. none of these.
29. 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. More than one of the above.
30. 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. they will debit notes payable and interest
expense.
d. they will debit cash.
31. Stockholders’ equity is not affected by all
a. cash receipts.
b. dividends.
c. revenues.
d. expenses.
32. The debit and credit analysis of a transaction normally takes
place
a. before an entry is recorded in a journal.
b. when the entry is posted to the ledger.
c. when the trial balance is prepared.
d. at some other point in the accounting cycle.
33. The accounting equation must remain in balance
a. throughout each step in the accounting cycle.
b. only when journal entries are recorded.
c. only at the time the trial balance is
prepared.
d. only when formal financial statements are
prepared.
34. The difference between the accounting process and the accounting
cycle is
a. the accounting process results
in the preparation of financial statements, whereas the accounting cycle is
concerned with recording business transactions.
b. the accounting cycle represents
the steps taken to accomplish the accounting process.
c. the accounting process
represents the steps taken to accomplish the accounting cycle.
d. merely semantic, because both
concepts refer to the same thing.
35. An optional step in the accounting cycle is the preparation of
a. adjusting entries.
b. closing entries.
c. a statement of cash flows.
d. a post-closing trial balance.
36. Which of the following criteria must be met before an event or
item should be recorded for accounting purposes?
a. The event or item can be measured objectively
in financial terms.
b. The event or item is relevant and reliable.
c. The event or item is an element.
d. All of these must be met.
37. 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. None of these
38. 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.
39. External events do not include
a. interaction between an entity and its
environment.
b. a change in the price of a good or service
that an entity buys or sells, a flood or earthquake.
c. improvement in technology by a competitor.
d. using buildings and machinery in operations.
40. 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.
41. A general journal
a. chronologically lists transactions and other
events, expressed in terms of debits and credits.
b. contains one record for each of the asset,
liability, stockholders’ equity, revenue, and expense accounts.
c. lists all the increases and decreases in each
account in one place.
d. contains only adjusting entries.
42. A journal entry to record the sale of inventory on account will
include a
a. debit to inventory.
b. debit to accounts receivable.
c. debit to sales.
d. credit to cost of goods sold.
43. A journal entry to record a payment on account will include a
a. debit to accounts receivable.
b. credit to accounts receivable.
c. debit to accounts payable.
d. credit to accounts payable.
44. A journal entry to record a receipt of rent revenue in advance
will include a
a. debit to rent revenue.
b. credit to rent revenue.
c. credit to cash.
d. credit to unearned rent.
45. Which of the following errors will cause an imbalance in the
trial balance?
a. Omission of a transaction in
the journal.
b. Posting an entire journal entry
twice to the ledger.
c. Posting a credit of $720 to
Accounts Payable as a credit of $720 to Accounts Receivable.
d. Listing the balance of an
account with a debit balance in the credit column of the trial balance.
S46. Which of the following is not a principal
purpose of an unadjusted trial balance?
a. It proves that debits and
credits of equal amounts are in the ledger.
b. It is the basis for any
adjustments to the account balances.
c. It supplies a listing of open
accounts and their balances.
d. It proves that debits and
credits were properly entered in the ledger accounts.
S47. An adjusting entry should never include
a. a debit to an expense account
and a credit to a liability account.
b. a debit to an expense account
and a credit to a revenue account.
c. a debit to a liability account
and a credit to revenue account.
d. a debit to a revenue account
and a credit to a liability account.
48. Which of the following is an example of an accrued expense?
a. Office supplies purchased at
the beginning of the year and debited to an expense account.
b. Property taxes incurred during
the year, to be paid in the first quarter of the subsequent year.
c. Depreciation expense
d. Rent earned during the period,
to be received at the end of the year
P49. Which of the following statements is
associated with the accrual basis of accounting?
a. The timing of cash receipts and
disbursements is emphasized.
b. A minimum amount of record
keeping is required.
c. This method is used less
frequently by businesses than the cash method of accounting.
d. Revenues are recognized in the
period they are earned, regardless of the time period the cash is received.
P50. An adjusting entry to record an accrued
expense involves a debit to a(an):
a. expense account and a credit to
a prepaid account.
b. expense account and a credit to
Cash.
c. expense account and a credit to
a liability account.
d. liability account and a credit
to an expense account.
P51. The failure to properly record an adjusting
entry to accrue an expense will result in an:
a. understatement of expenses and
an understatement of liabilities.
b. understatement of expenses and
an overstatement of liabilities.
c. understatement of expenses and
an overstatement of assets.
d. overstatement of expenses and
an understatement of assets.
P52. Which of
the following properly describes a deferral?
a. Cash is received after revenue
is earned.
b. Cash is received before revenue
is earned.
c. Cash is paid after expense is
incurred.
d. Cash is paid in the same time
period that an expense is incurred.
P53. The failure to properly record an adjusting
entry to accrue a revenue item will result in an:
a. understatement of revenues and
an understatement of liabilities.
b. overstatement of revenues and
an overstatement of liabilities.
c. overstatement of revenues and
an overstatement of assets.
d. understatement of revenues and
an understatement of assets.
P54. The omission of the adjusting entry to
record depreciation expense will result in an:
a. overstatement of assets and an
overstatement of owners' equity.
b. understatement of assets and an
understatement of owner's equity.
c. overstatement of assets and an
overstatement of liabilities.
d. overstatement of liabilities
and an understatement of owners' equity.
55. 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.
56. At the time a company prepays a cost
a. it debits an asset account to show the
service or benefit it will receive in the future.
b. it debits an expense account to match the
expense against revenues earned.
c. its credits a liability account to show the
obligation to pay for the service in the future.
d. more than one of the above.
57. How do these prepaid expenses expire?
Rent Supplies
a. With the passage of time Through use and
consumption
b. With the passage of time With the passage of
time
c. Through use and consumption Through use and consumption
d. Through use and consumption With the passage of time
58. Recording the adjusting entry for depreciation has the same
effect as recording the adjusting entry for
a. an unearned revenue.
b. a prepaid expense.
c. an accrued revenue.
d. an accrued expense.
59. Unearned revenue on the books of one company is likely to be
a. a prepaid expense on the books of the company
that made the advance payment.
b. an unearned revenue on the books of the
company that made the advance payment.
c. an accrued expense on the books of the
company that made the advance payment.
d. an accrued revenue on the books of the
company that made the advance payment.
60. To compute interest expense for an adjusting entry, the formula
is (principal X annual rate X a fraction). The numerator and denominator of the
fraction are:
Numerator Denominator
a. Length of time note has been outstanding 12 months
b. Length of note 12 months
c. Length of time until note matures Length of note
d. Length of time note has been outstanding Length of note
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