accounting chapter 2

A new account is opened for each transaction entered into by a business firm.

false

The recording process becomes more efficient and informative if all transactions are recorded in one account.

false

When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

false

An account is often referred to as a T-account because of the way it is constructed.

true

A debit to an account indicates an increase in that account.

false

If a revenue account is credited, the revenue account is increased.

true

The normal balance of all accounts is a debit.

false

Debit and credit can be interpreted to mean increase and decrease, respectively.

false

The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

false

A credit balance in a liability account indicates that an error in recording has occurred.

false

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

false

Revenues are a subdivision of retained earnings.

true

Under the double-entry system, revenues must always equal expenses.

false

Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

false

Business documents can provide evidence that a transaction has occurred.

true

Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

true

Transactions are entered in the ledger accounts and then transferred to journals.

false

All business transactions must be entered first in the general ledger.

false

A simple journal entry requires only one debit to an account and one credit to an account.

true

A compound journal entry requires several debits to one account and several credits to one account.

false

Transactions are recorded in alphabetic order in a journal.

false

A journal is also known as a book of original entry.

true

The complete effect of a transaction on the accounts is disclosed in the journal.

true

The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

false

The chart of accounts is a special ledger used in accounting systems.

false

A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts.

true

The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

false

Posting is the process of proving the equality of debits and credits in the trial balance.

false

After a transaction has been posted, the reference column in the journal should not be blank.

true

A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

true

The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

true

The normal balance of an expense is a credit.

false

The journal provides a chronological record of transactions.

true

The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

false

The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

true

The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

true

The trial balance will not balance when incorrect account titles are used in journalizing or posting.

false

An account consists of

3 parts

The left side of an account is

the debit side

An account is NOT a

source document

An account consists of

a title, debit side, and credit side

A T-account is

a way of depicting the basic form of an account.

Credits decrease and increase what

decrease assets and increase liabilities

A debit to an asset account indicates

an increase to the asset

The normal balance of any account is the

the side which increases that account

The double-entry system requires that each transaction must be recorded

in at least 2 different accounts

What is the expanded basic accounting equation?

Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues.

In recording an accounting transaction in a double-entry system

the amount of the debits must equal the amount of the credits.

An accounting convention is best described as

an accounting custom

An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?

Credit a different asset account for $700.

An account will have a credit balance if the

credits exceed debits

What is not true of the terms debit and credit?

They can be interpreted to mean increase and decrease.

If a company has overdrawn its bank balance, then

its cash account will show a credit balance.

When a company pays dividends

it doesn’t have to be cash, it could be another asset.

A credit to a liability account

indicates an increase in the amount owed to creditors.

In the first month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $600. The cash account has a(n)

$300 debit balance

TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and

credited a liability account for $2,100.

Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?

Credit an asset account for $400.

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include

a debit to Supplies and a credit to Accounts Payable.

At January 1, 2014, Alligator Industries reported retained earnings of $130,000. During 2014, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31, 2014, the amount of retained earnings is

$85,000.

Mt. Zion Inc. pays its employees twice a month, on the 7 th and the 21 st . On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would

decrease net income for the month by $5,000.

During February 2014 its first month of operations, the owner of Ariel Pink Enterprises invested cash of $25,000. Ariel had cash revenues of $5,000 and paid expenses of $7,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?

$23,000 debit

At January 31, 2014, the balance in Aislers Inc.’s supplies account was $250. During February, Aislers purchased supplies of $300 and used supplies of $375. At the end of February, the balance in the supplies account should be

$175 debit

During 2013, its first year of operations, Neko’s Bakery had revenues of $60,000 and expenses of $33,000. The business paid dividends of $20,000. What is the amount of stockholders’ equity at December 31, 2014?

$7000 credit

On July 7, 2014, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include

a debit to cash $1700

The final step in the recording process is to

transfer journal information to ledger accounts.

The usual sequence of steps in the transaction recording process is:

analyze -> journal -> ledger.

In recording business transactions, evidence that an accounting transaction has taken place is obtained from

business documents

After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to

ledger accounts

The first step in the recording process is to

analyze

The recording process occurs

repeatedly during the accounting period.

A compound journal entry involves

3 or more accounts

A journal provides

a chronological record of transactions.

When three or more accounts are required in one journal entry, the entry is referred to as a

compound entry

When two accounts are required in one journal entry, the entry is referred to as a

simple entry

Another name for journal is

book of original entry

The standard format of a journal would not include

a T-account

Transactions in a journal are recorded in

chronological order

A journal is not useful for

preparing financial statements

A complete journal entry does not show

the new balance in the accounts affected by the transaction.

When journalizing, the reference column is

left blank

On June 1, 2014 Ted Leo buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will

make a compound entry

The ledger should be arranged in

financial statement order

An accounting record of the balances of all assets, liabilities, and stockholders’ equity accounts is called a

general ledger

The usual order of accounts in the general ledger is

assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses.

Management could determine the amounts due from customers by examining which ledger account?

Accounts Receivable

Delta72 Company received a cash advance of $700 from a customer. As a result of this event,

assets increased by $700. stockholders’ equity increased by $700.

Camper Van Company purchased equipment for $2,600 cash. As a result of this event,

total assets remained unchanged

The procedure of transferring journal entries to the ledger accounts is called

posting

A number in the reference column in a general journal indicates

that the entry has been posted to a particular account.

A chart of accounts for a business firm

lists the accounts and account numbers that identify their location in the ledger.

Posting accumulates the effects of

journalized transactions in the individual accounts.

The first step in designing a computerized accounting system is the creation of the

chart of accounts

The steps in preparing a trial balance include

listing the account titles and their balances. totaling the debit and credit columns. proving the equality of the two columns.

A trial balance is a listing of

general ledger accounts and balances.

Customarily, a trial balance is prepared

at the end of an accounting period

What is the correct sequence of steps in the recording process?

analyzing, journalizing, posting

Deerhoof Company purchases equipment for $1,700 and supplies for $400 from Milkman Co. for $2,100 cash. The entry for this transaction will include a

debit to Equipment $1,700 and a debit to Supplies $400 for Deerhoof.

Devendra Company pays cash dividends of $600. The entry for this transaction will include a debit of $600 to

Dividends