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Fundamental Accounting Principles 23rd Edition By by John Wild – Test Bank
Sample Questions
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Chapter 02 Analyzing and Recording Transactions
MULTIPLE CHOICE QUESTIONS
1) The first step in the processing of a transaction is to analyze the transaction and source documents.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
2) Preparation of a trial balance is the first step in processing a financial transaction.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
3) Source documents identify and describe transactions and events entering the accounting process.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- Items such as sales tickets, bank statements, checks, and purchase orders are examples of a business’s source
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
6) A customer’s promise to pay on credit is classified as an account payable by the seller.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
7) Withdrawals by the owner are a business expense.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
8) The purchase of land and buildings will generally be recorded in the same ledger account.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
9) Unearned revenues are classified as liabilities.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- Cash withdrawn by the owner of a proprietorship for personal expenses, should be treated as an expense of the
A) True
- False
Answer: B Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- When a company provides services for which cash will not be received until some future date, the company should record the amount billed as accounts
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
12) Owner withdrawals always decrease equity.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
13) Expenses always decrease equity.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
14) Revenues always increase equity.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
15) Owner investments always decrease equity.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
16) “Unearned” accounts are liabilities that must be fulfilled.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- A company’s chart of accounts is a list of all the accounts used and includes an identification number assigned to each
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- An account’s balance is the difference between the total debits and total credits for the account, including any beginning
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
19) The right side of an account is called the debit side.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- In a double-entry accounting system, the total dollar amount debited must always equal the total dollar amount
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
21) Increases in liability accounts are recorded as debits.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
22) Debits increase asset and expense accounts.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
23) Credits always increase account balances.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- Crediting an expense account decreases
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
25) A revenue account normally has a debit balance.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
26) Asset accounts are decreased by debits.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- Debit means increase and credit means decrease for all
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
28) Asset accounts normally have debit balances and revenue accounts normally have credit balances.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
29) An owner’s withdrawal account normally has a debit balance.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
30) A debit entry is always an increase in the account.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- A transaction that credits an asset account and credits a liability account must also affect one or more other
A) True
- False
Answer: A Explanation:
Diff: 3
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- A transaction that decreases a liability and increases an asset must also affect one or more other
A) True
- False
Answer: A Explanation:
Diff: 3
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- If a company purchases equipment paying cash, the journal entry to record this transaction will include a debit to
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- If a company provides services to a customer on credit, the company providing the service should credit Accounts
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- When a company bills a customer for $700 for services rendered, the journal entry to record this transaction will include a $700 debit to Services
A) True
- False
Answer: B Explanation:
Diff: 3
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- The higher a company’s debt ratio, the lower the risk of a company not being able to meet its
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
40) The debt ratio is calculated by dividing total assets by total liabilities.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- If a company is highly leveraged, this means that it has relatively high risk of not being able to repay its
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- Booth Industries has liabilities of $105 million and total assets of $350 Its debt ratio is 40.0%.
A) True
- False
Answer: B Explanation:
Diff: 3
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
44) A journal entry that affects no more than two accounts is called a compound entry.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Industry; FN Decision Making
45) Posting is the transfer of journal entry information to the ledger.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
46) Transactions are recorded first in the ledger and then transferred to the journal.
- True
- False
Answer: B Explanation:
Diff: 1
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
47) The journal is known as a book of original entry.
- True
- False
Answer: A Explanation:
Diff: 1
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- The general journal is known as the book of final entry because financial statements are prepared from
A) True
- False
Answer: B Explanation:
Diff: 1
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- At a given point in time, a business’s trial balance is a list of all of its general ledger accounts and their
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- The ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, that is, assets first, then liabilities, then owner’s capital and withdrawals, followed by revenues and
A) True
- False
Answer: A Explanation:
Diff: 1
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- The trial balance can serve as a replacement for the balance sheet, since total debits must equal total
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- A balanced trial balance is proof that no errors were made in journalizing transactions, posting to the ledger, and preparing the trial
A) True
- False
Answer: B Explanation:
Diff: 1
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- If cash was incorrectly debited for $100 instead of correctly crediting it for $100, the cash account’s balance will be overstated (too high).
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
- The financial statement that summarizes the changes in an owner’s capital account is called the balance
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- An income statement is also called an earnings statement, a statement of operations or a profit and loss
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- The detail of individual revenue and expense accounts is reported on the statement of owner’s
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- The heading on every financial statement lists the three W’s—Who (the name of the business); What (the name of the statement); and Where (the organization’s address).
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
- If an owner’s capital account had a $10,000 credit balance at the beginning of the period, and during the period, the owner invests an additional $5,000, the balance in the capital account listed on the trial balance will be equal to a debit balance of $5,000.
A) True
- False
Answer: B Explanation:
Diff: 2
Topic: Debits and Credits; Preparing a Trial Balance
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.; 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand AACSB: Communication
AICPA: BB Industry; FN Reporting
60) Owner’s withdrawals are not reported on a business’s income statement.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
- An income statement reports the revenues earned less the expenses incurred by a business over a period of
A) True
- False
Answer: A Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
62) The balance sheet reports the financial position of a company at a point in time.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
63) The same four basic financial statements are prepared by both U.S. GAAP and IFRS.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: FN Reporting; BB Global
64) Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.
- True
- False
Answer: B Explanation:
Diff: 2
Topic: Using a Trial Balance to Prepare Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: FN Reporting; BB Global
65) The amount of net income is added on the statement of owner’s equity.
- True
- False
Answer: A Explanation:
Diff: 2
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand
AACSB: Communication
AICPA: FN Reporting; BB Global
66) The accounting process begins with:
- Analysis of business transactions and source
- Presentation of financial information to decision-makers.
- Summarizing the recorded effect of business
- Preparing financial statements and other
- Preparation of the trial Answer: A
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
67) Which of the following statements is not true:
- Accounts receivable are increased by customer
- Accounts receivable are held by a
- Accounts receivable are classified as
- Accounts receivable are increased by billings to
- Accounts receivable arise from credit Answer: A
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
68) A business’s source documents may include all of the following except:
- Sales
- Bank
- Purchase
Answer: C Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
69) A business’s source documents:
- Include the chart of
- Must be in electronic
- Include the
- Are prepared internally to ensure
- Provide objective evidence that a transaction has taken Answer: E
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- A business’s record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
A) Posting.
- Trial
- Chart of
Answer: E Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
71) An account used to record the owner’s investments in a business is called a(n):
- Capital
- Expense
- Liability
- Withdrawals
- Revenue
Answer: A Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:
A) The owner’s withdrawals account.
- The owner’s capital
- A revenue
- An expense
- A liability Answer: A
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
73) Identify the statement below that is correct.
- When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid
- An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a
C) Promises of future payment by the customer are called accounts receivable.
- Accrued liabilities include accounts
- Increases and decreases in cash are always recorded in the owner’s capital Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 3
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Apply
AACSB: Communication
AICPA: BB Industry; FN Decision Making
74) Unearned revenues are generally:
- Increases to owners’
- Recorded as an asset in the accounting
- Liabilities created when a customer pays in advance for products or services before the revenue is
D) Revenues that have been earned but not yet collected in cash.
- Revenues that have been earned and received in Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
75) Unearned revenues refer to a(n):
- Expense incurred because a customer has paid in
- Increase in revenues as a result of delivering products or services to a
- Liability that is settled in the future when a company delivers its products or
- Decrease in an
- Asset that will be used over Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
76) Prepaid accounts (also called prepaid expenses) are generally:
- Decreases in
- Payments made for products and services that never
- Promises of payments by
- Classified as liabilities on the balance
- Assets that represent prepayments of future Answer: E
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
77) A company’s formal promise to pay (in the form of a promissory note) a future amount is a(n):
- Account
- Unearned
- Note
- Prepaid
- Credit
Answer: C Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
78) The record of all accounts and their balances used by a business is called a:
- Balance column
- Ledger (or General Ledger).
- General
- Book of original
Answer: B Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
79) A company’s ledger is:
- A list of all accounts a company uses with an assigned identification
- A collection of documents that describe transactions and events entering the accounting
- A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense
D) A journal in which transactions are first recorded.
- A record containing all accounts and their balances used by the Answer: E
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
80) A company’s list of accounts and the identification numbers assigned to each account is called a:
- General
- Source
- Trial
- Chart of
Answer: D Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
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