Debt refers to
an asset
the right side of an account
a liability
the left side of an account
Which of the following items is not an asset?
A/R
cash
A/P
supplies
The common characteristic possessed by all assets is?
long life
great monetary value
tangible nature
future economic benefit
Liabilities...
are future economic benefits
are existing debts and obligations
possess service potential
are things of value used by the business in its operation
Owner's Equity , in a proprietorship, can be described as
creditorship claims on total assets
ownership claim on total assets
benefactor's claim on total assets
debtor claim on total assets
Notes Payable are classified as
owner's equity
revenue
The basic accounting EQN is written as
Assets + Liabilities = Owner's Equity
Assets = Liabilities + Owner's Equity
Assets = Revenues - Expenses
Assets + Owner's Equity = Liabilities
A way to write the expanded accounting EQN is
Assets + Expenses + Withdrawals = Owner's Capital + Revenue
Assets = Liabilities + Owner's Capital + Revenue - Expenses - Withdrawals
Assets + Owner's Capital = Liabilities + Revenue - Expenses - Withdrawals
Assets + Revenue = Liabilities + Owner's Capital + Expenses - Withdrawals
What is a ledger?
a list of all assets
accounts grouped together in book or computerized form
a list of all liabilities
the debit side of an account
If total liabilities = $75 000 and OE = $150 000, total assets =
75 000
150 000
250 000
225 000
An activity that changes the value of a firm's assets, liabilities, or owner's equity is referred to as
a service business
an income statement
a net loss
a transaction
If the assets of a business increase by $16 000 during an accounting period and OE increases by $4 000, what is the amount and direction of the change in liabilities for the period?
+ $12 000
- $12 000
+ $20 000
= $16 000
If an individual asset, in a proprietorship, is increased then
there must be an equal decrease in a specific liability
there must be an equal decrease in OE
there must be an equal decrease in another asset
none of these is possible
Net income occurs when
A > L
R = E
R > E
R < E
If the OE account increases from the beginning of the year to the end of the year, then
NI is less than other drawings
a NL is less than owner drawings
additional owner investments are less than NL
NI is greater than owner drawings
Before the following transaction, Sam's Landscaping has $25 000 in assets, $15 000 in liabilities, and $10 000 in OE. Sam borrows $10 000 from the bank. What effect will this have on the accounting EQN?
assets will increase by $10 000 and liabilities will decrease by $10 000
liabilities will decrease by $10 000 and OE will increase by $10 000
assets will increase by $10 000 and liabilities will increase by $10 000
assets will decrease by $10 000 and OE will decrease by $10 000
An accountant has debited an asset account for $1 000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
nothing further must be done
debit an OE account for $500
debit another asset account for $500
credit a different asset account for $500
Eric paid $500 for repairs on the truck he uses in his landscaping business. The effect on the accounting EQN would include a(n)
increase to OE
decrease to liabilities
decrease to assets
increase to revenue
James received a cheque for $1 000 from one of his clients for work he had performed in a prior accounting period. How should James record the receipt for this cheque?
increase cash $1 000, decrease A/P $1 000
increase cash $1 000, decrease service revenue $1 000
increase cash $1 000, increase capital $1 000
increase cash $1 000, decrease A/R $1 000
The purchase of supplies on credit
decreases liabilities
has no effect on the accounting EQN
decreases assets
increases liabilities
Which of the following activities increases OE?
performance of services for client on credit
withdrawal of cash for personal
payment of office rent
purchase of supplies on credit
The three basic financial statements are
income statement, bank statement, balance sheet
income statement, statement of owner's equity, balance sheet
bank statement, invoice, and revenue statement
statement of owner's equity, balance sheet, worksheet
A listing of a firm's assets, liabilities, and OE at a specific point in time is known as
a statement of OE
a balance sheet
the accounting EQN
Which of the following is not true of the terms debit and credit?
they can be abbreviated as DR and CR
they can be interpreted as increase or decrease
they can be used to describe the balance of an account
they can be interpreted to mean left or right
Which statement is true regarding the rules for debits and credits?
debits are always positive, credits always negative
debits on the right, credits on the left
a debit will decrease an asset
a credit will be recorded on the right side of an account
What is the change to the balance in OE when revenues were $1 500, expenses were $800, and withdrawals were $400?
an increase of $1 500
a decrease of $400
an increase of 300
an increase of $700
Tom invoices his customer $1 200 for services. The correct entry to record this transaction is
debit A/R $1 200 and credit deferred payments $1 200
debit cash $1 200 and credit service revenue $1 200
debit A/R $1 200 and service revenue $1 200
none of the above are correct
Which of the following is true?
when we receive cash, we credit the cash account
when we receive cash, we debit the revenue account
when we pay a bill, we debit the cash account
when we pay a bill, we credit the cash account
A TB is a list of all
business liabilities
ledger accounts and their balances
revenues and expenses
business assets
The normal balance of liabilities and OE is, respectively
credit and credit
debit and debit
debit and credit
credit and debit
An account will be said to have a credit balance if
the normal balance is a credit
there are more credit transactions than debit
the sum of the credit transactions is greater than that of the debit
the account is an OE account
A/R had a normal balance of $8 500 at the beginning of the month. During the month, the account had debit postings of $8 500 and credit postings of $10 000. The balance of A/R at the end of the month is a
$8 500 credit balance
$10 000 credit balance
$7 000 debit balance
$10 000 debit balance
The following accounts have normal balances as shown below. What is the TB total for debits and credits? A/P - 1 500, A/R - 2 000, Capital - 4 000, Cash - 1 000, Equip - 5 000, Notes Payable - 3 500, Withdrawals - 1 000
8 000 debit and 8 000 credit
10 000 debit and 10 000 credit
9 000 debit and 9 000 credit
8 000 debit and 10 000 credit
What is the purpose of a TB?
to verify that all transactions are correct
to show net income
to show that all transactions have been recorded
to verify equality of debits and credits
The book of original entry is the
four-column account
journal
ledger
TB
The owner of a business purchases equipment by making a down payment with the balance owed on account. This transaction is recorded by debiting the
equip account and crediting the cash and A/P accounts
equip account and the A/P account and crediting the cash account
cash account and the equip account and crediting the A/P account
cash account and the A/P account and crediting the equip account
When a business transaction requires entries to more than one debit or more than one credit, it is called a
complex entry
compound entry
standard entry
double entry
Thomas' Dry Wall completed work on a house. Thomas received $3 500 when he finished the job and will receive the balance of $1 500 in 30 days. The correct journal entry to record this event is
debit cash $3 500 and credit service revenue $3 500
debit A/R $5 000 and credit cash $3 500 and service revenue $1 500
debit cash $3 500 and credit A/R $1 500 and service revenue $5 000
debit cash $3 500 and A/R $1 500 and credit service revenue $5 000
The journal entry to record the payment of Ralph's Plumbing and Repair electric bill of $175 for the month is
debit cash $175 and credit A/P $175
debit cash $175 and credit utilities expense $175
debit utilities expense $175 and credit cash $175
A term used for transferring information from the journal to the ledger is
transference
transposing
posting
referencing
When the new balance of an account is calculated
a debit posting is added if the account has a credit balance
a credit posting is subtracted if the account has a credit balance
a debit posting is subtracted if the account has a debit balance
a debit posting is subtracted if the account has a credit balance
What is a transposition error?
a math error involving an incorrectly placed decimal point
a recording error involving an incorrectly place decimal point
a posting error involving an incorrectly placed decimal point
a posting error involving a reversal of digits
An awareness of the normal balance of accounts would help you spot which of the following as an error in recording?
a debit balance in the drawings account
a credit balance in an expense account
a credit balance in a liability account
a credit balance in a revenue account
Which of the following errors will cause a TB to not balance?
journalizing a transaction twice
failure to record a transaction
failure to post part of an entry to the ledger
posting a transaction twice
Which of the following entries would cause a TB not to balance
a debit to cash for $360 and credit to equip for $360
a debit to cash for $400 and credit to A/P for $400
a debit to A/P for $560 and credit to A/P for $560
a debit to salaries expense for $780 and credit to salaries payable for $870
A TB would only help in detecting which of the following errors
a transaction not journalized
an entry posted twice
an entry using incorrect accounts
a transposition error when transferring the debit side of a journal entry to the ledger
Linda prepared the Tb and found that total debits were $19 000 and total credits were $21 500. Which of the following errors would cause the TB to be out of balance?
the payment of rent was recorded as a debit to cash for $2 500 and credit to rent expense for $2 500
the purchase of equip on account was recorded as a debit to equip for $2 500 and a credit to cash for $2 500
the receipt of a customer's payment was recorded as a credit to A/R for $1 250 ad a credit to cash for $1 250
the purchase of supplies was recorded as a debit to supplies expense for $1 250 and a credit to supplies for $1 250
If a purchase of supplies on account for $100 is journalized correctly but posted as a debit to the supplies account for $1 000 and a credit to A/P for $100, what effects will the error have?
the TB will be out of balance, but A/P account will be correct
the TB will be in balance
the TB will be in balance, and the supplies account will be correct
the TB will be out of balance, and both supplies account and the A/P account will be incorrect
The payment of a $450 invoice for utilities was recorded as a debit to rent expense for $540 and a credit to cash for $540. The entry to correct this mistake is
debit rent expense $90, credit cash $90
debit utilities expense $540, credit rent expense $540
debit cash $540, credit utilities expense $450 and rent expense $90
debit cash $90 and utilities expense $450, and credit rent expense $540
Trent received a $350 payment from one of his customers and incorrectly recorded this amount as a debit for $530 to cash and a credit to A/P for $530. The entry that will correct the error is
debit A/P $180, credit cash $180
debit A/R $530, credit sales $530
debit A/P 530, credit A/R $350 and cash $180
debit cash $350 and credit A/R $350
A business organized as a corporation
is not a separate legal entity in most provinces
requires that shareholders are personally liable for debts of the business
is owned by its shareholders
terminates when one of the owners dies
A partnership form of business organization
is a separate legal entity
is a common form of organization for professional businesses
enjoys an unlimited life
has limited liability
Which of the following is not an advantage of the corporate business form?
limited liability of shareholders
transferability of ownership
unlimited personal liability for shareholders
unlimited life
The accounting EQN for a corporation may be expressed as
Assets = Liabilities + Shareholders' Equity
Assets = Liabilities + Partners' Equity
all of the above
Accumulated earnings in a corporation are reported in
capital
share capital
retained earnings
dividends
