True/False

1. Accounting is an information system and is often called the "language of business." T

2. A business entity is the occurrence of an event or condition that must be recorded. F

3. The accounting equation can be expressed as Liabilities + Assets = Owner's Equity. F

4. Paying an account payable increases equity and decreases assets. F

5. The excess of expenses over revenues is called net loss. T

6. Accounts in the ledger are usually maintained in the order in which they appear on the financial statements. T

7. The three parts of a T account are the title, a space for recording increases, and a space for recording decreases. T

8. The order of the flow of accounting data is (1) recording in accounts, (2) recording in journal, and (3) posting in ledger. T

9. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a trial balance. F

10. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $75 as $750, is called a transposition. T

11. The accrual basis of accounting requires expenses be recorded in the same period that the related revenue is recorded. T

12. The matching concept supports accrual accounting principles. T

13. Accruals are needed when an unrecorded expense has been incurred or unrecorded revenue has been earned. T

14. An adjusting entry to accrue an incurred expense will also affect total liabilities. T

15. A contra asset account for land will normally appear in the balance sheet. F

16. Net income is shown on the work sheet in the Income Statement debit column and the Balance Sheet credit column. T

17. Since the adjustments are recorded on the work sheet, it is not necessary to post them in the ledger. F

18. Capital and Drawing are reported in the owner's equity section of the balance sheet. T

19. Entries required to close the balances of the temporary accounts at the end of the period are called adjusting entries. T

20. In the accounting cycle of a manual accounting system, a trial balance is prepared before the financial statements are prepared. T

21. The methods or procedures used to record and report financial data is called the accounting system. T

22. System analysis is the final phase of the creation or revision of an accounting system and is concerned with implementing proposals. F

23. Adding a review of operations by an internal audit staff strengthens internal control. T

24. Since the concepts, methods, and procedures of a manual accounting system do not apply to a computerized system, there is no need to learn the manual system if one plans to work only for firms that use computerized accounting systems. F

25. The use of subsidiary ledgers is limited to Accounts Payable and Accounts Receivable. F

Multiple-Choice: Each question is worth 2 points

Select only one answer (letter) per question

1. Profit is the difference between:

A. Assets and liabilities

B. Assets and equities

C. The assets purchased with cash contributed by the owner and the cash spent to operate the business

X D. The assets received for goods and services and the amounts used to provide the goods and services

2. The two most common specialized fields of accounting in practice are:

A. Environmental accounting and financial accounting

X B. Managerial accounting and financial accounting

C. Managerial accounting and tax accounting

D. Financial accounting and accounting systems

3. Resources owned by a business are referred to as:

A. Owner's equity

B. Liabilities

C. Equities

X D. Assets

4. The amount charged to customers for goods or services sold is called a(n):

A. Expense

B. Net income

X C. Revenue

D. Asset

5. The financial statement that presents a summary of the assets, liabilities, and owner's equity as of a specific date is called a(n):

A. Income statement

B. Statement of owner's equity

C. Statement of cash flows

X D. Balance sheet

6. Accounts:

A. Do not reflect money amounts

B. Are used only by entities that manufacture products

X C. Are records of increases and decreases in individual financial statement items

D. Are only used by large entities with many transactions

7. The gross increases in owner's equity attributable to business activities are called:

A. Assets

X B. Drawings

C. Revenues

D. Expenses

8. An account is said to have a debit balance if:

X A. The amount of the debits exceeds the amount of the credits

B. There are more entries on the debit side than on the credit side

C. Its normal balance is debit without regard to the amounts or number of entries on the debit side

D. The last entry of the accounting period was posted on the debit side

9. A debit may signify a(n):

XA. Decrease in asset accounts

B. Decrease in liability accounts

C. Increase in the capital account

D. Decrease in expense accounts

10. A credit balance in which of the following accounts would indicate a likely error?

A. Fees Earned

X B. R. Brown, Drawing

C. R. Brown, Capital

D. Accounts Payable

11. Adjusting entries affect at least one:

A. Income statement account and one balance sheet account

X B. Revenue and one expense account

C. Asset and one liability account

D. Revenue and one capital account

12. The balance in the office supplies account on July 1 was $3,200, supplies purchased during July were $2,500, and the supplies on hand at July 31 were $2,800. The amount to be used for the appropriate adjusting entry is:

A. $3,500

B. $2,800

C. $3,200

X D. $2,900

13. A business pays weekly salaries of $15,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is:

A. Debit Salaries Payable, $12,000; credit Cash, $12,000

B. Debit Salary Expense, $12,000; credit Drawing, $12,000

X C. Debit Salary Expense, $12,000; credit Salaries Payable, $12,000

D. Debit Drawing, $12,000; credit Cash, $12,000

14. Tangible assets used in the business that are of a relatively fixed or permanent nature are called:

X A. Fixed assets

B. Revenues

C. Expenses

D. Liabilities

15. The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed:

A. Liability

B. Contra asset

X C. Book value

D. Market value

16. Closing Entries:

A. Need not be journalized since they appear on the work sheet

B. Need not be posted if the financial statements are prepared from the work sheet

C. Are not needed if adjusting entries are prepared

X D. Must be journalized and posted

17. Which of the following is reported on the Statement of Owner's Equity for the current year?

A. Accumulated depreciation

X B. Owner's additional investment made during the current period

C. Depreciation expense

D. Salaries payable

18. Which of the following accounts will not be closed to Income Summary at the end of the fiscal year?

A. Salaries Expense

B. Fees Earned

X C. Drawing

D. Depreciation Expense

19. Which of the following accounts appears on a post-closing trial balance?

A. Insurance Expense

B. Prepaid Rent

X C. Drawing

D. Fees Earned

20. Unearned Fees appears on the :

A. Balance sheet in the current assets section

X B. Balance sheet as a current liability

C. Balance sheet in the long-term liabilities section

D. Income statement as revenue

21. To determine information needs and how the system should provide it is the goal of:

A. Systems design

B. Accounting system

X C. Systems analysis

D. Internal auditing

22. The goal of systems analysis is to determine:

A. When to implement a system

X B. Information needs

C. The size of the competitor's system

D. Changes to the present system

23. The individual accounts with customers are included in a subsidiary ledger called the:

A. Asset ledger

B. Accounts payable ledger

C. Expense ledger

X D. Accounts receivable ledger

24. Every controlling account must have its own:

A. Revenue ledger

B. General ledger

X C. Subsidiary ledger

D. Journal

25. When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called a(n):

A. Accounts receivable ledger

B. Accounts payable ledger

C. Creditors ledger

X D. Subsidiary ledger