What is the term used to describe the right side of a T-account?
Multiple Choice
Credit side
Claims side
Debit side
Equity side
answer
Credit side
Explanation
The right side of an account is the credit side.
question
Which of the following statements is true regarding a trial balance that balances?
Multiple Choice
All transactions have been properly recorded.
There are no missing transactions.
This equality can only be achieved after closing entries have been recorded and posted to the ledger accounts.
The equality of debits and credits has been proven.
answer
The equality of debits and credits has been proven.
Explanation
The trial balance only proves the equality of debits and credits. It does not detect missing or incorrect entries that were recorded with equal debits and credits. If the debit total does not equal the credit total on the trial balance, adjusted trial balance, or post-closing trial balance, the accountant knows to search for an error.
question
What is the term that is used to describe the difference between the total debit and credit amounts in a T-account?
Multiple Choice
Net income
Trial balance
Equality
Account balance
answer
Account balance
Explanation
For any given account, the difference between the total debit and credit amounts is the account balance.
question
Which of the following statements about debits is false?
Multiple Choice
Debits increase assets.
Debits increase expenses.
Debits decrease liabilities.
Debits increase liabilities.
Which of the following statements regarding credit entries is true?
Multiple Choice
Credits decrease liability accounts.
Credits increase asset accounts.
Credits increase the common stock account.
Credits increase asset and common stock accounts, and decrease liability accounts.
answer
Credits increase the common stock account.
Explanation
Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Common Stock, a stockholders' equity account, is increased with a credit.
question
What is the term used to describe the left side of a T-account?
Multiple Choice
Equity side
Debit side
Credit side
Claims side
answer
Debit Side
Explanation
The left side of an account is the debit side.
question
Which one of the following would not be included in a closing entry?
Multiple Choice
A credit to Rent Expense
A debit to Unearned Revenue
A debit to Service Revenue
A credit to Dividends
answer
A debit to Unearned Revenue
Explanation
Closing entries move all current year data from the temporary accounts (revenues, expenses, and dividends) into the retained earnings account. The Unearned Revenue account is a liability account; it is not closed
question
Which of the following accounts is increased with a debit?
Multiple Choice
Insurance expense
Service revenue
Accounts payable
Common stock
Which of the following accounts is increased with a credit?
Multiple Choice
Accounts receivable
Prepaid rent
Common stock
Dividends
answer
Common stock
Explanation
Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Salaries Payable, a liability account, and Common Stock, a stockholders' equity account, are increased with credits.
question
Which account is increased by a credit?
Multiple Choice
Accounts Receivable
Service Revenue
Interest Expense
Supplies
answer
Service Revenue
Explanation
Recognizing revenue earned for cash or on account increases both assets and stockholders' equity. The increase in assets (cash or accounts receivable) is recorded with a debit, and the increase in stockholders' equity (service revenue) is recorded with a credit.
question
Benson Co. purchased land and paid the full purchase price in cash. Which of the following would be included in the journal entry necessary to record this event?
Multiple Choice
A debit to Land and a debit to Cash
A debit to Cash and a credit to Land
A credit to Land and a credit to Cash
A debit to Land and a credit to Cash
answer
A debit to Land and a credit to Cash
Explanation
Land, an asset, is increased with a debit, and cash, another asset, is decreased with a credit.
question
Which of the following statement is true regarding the trial balance?
Multiple Choice
Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance.
The income statement is prepared using the post-closing trial balance.
A balance of debits and credits ensures that all transactions have been recorded correctly.
Trial balances are only prepared at the end of an accounting period.
answer
Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance.
Explanation
Even if the debit and credit totals on the trial balance are equal, there may be errors in the accounting records. For example, equal trial balance totals would not disclose errors like the following: failure to record transactions; misclassifications (such as debiting the wrong account); or incorrectly recording the amount of a transaction. The income statement is prepared using the adjusted trial balance.
question
The Baker Company purchased $1,000 of supplies on account. How would this event be reflected in T-accounts?
Multiple Choice
On the right side of the Supplies T-account
On the left side of the Supplies T-account
On the left side of the Accounts Payable T-account
On the right side of the Cash T-account
answer
On the left side of the Supplies T-account
Explanation
The purchase increased supplies, an asset account, and increased accounts payable, a liability account. Therefore, $1,000 will appear as a debit on the left side of the supplies T-account and as a credit on the right side of the accounts payable T-account.
question
Which of the following accounts is decreased with a credit?
Multiple Choice
Unearned Revenue
Prepaid Insurance
Accounts Payable
Service Revenue
answer
Prepaid Insurance
Explanation
Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Prepaid insurance, an asset account, is decreased with a credit.
question
The following account balances were taken from the adjusted trial balance of Kendall Company:
Revenues$22,400
Operating Expenses 15,000 Dividends 4,500
Retained Earnings 17,000
What is the Retained Earnings account balance that will be included on the post-closing trial balance?
Multiple Choice
$19,900
$7,400
$2,900
$24,400
Which of the following errors would cause the debit side of a trial balance to be larger than the credit side?
Multiple Choice
Revenue earned on account was recorded with a debit to Cash and a credit to Revenue.
Purchase of supplies on account was recorded with a credit to Supplies and a debit to Accounts Payable.
Land purchased with cash was recorded with a debit to the Land account and a credit to Accounts Payable.
None of these answer choices would cause the debit side of the trial balance to be larger than the credit side.
answer
None of these answer choices would cause the debit side of the trial balance to be larger than the credit side.
Explanation
Equal trial balance totals would not disclose errors in misclassifications; that is, debiting the wrong account or crediting the wrong account. Even though the balances in the individual accounts would be incorrect as a result of each of the errors described, the totals in the trial balance would be in balance.
question
The employees of Able Company have worked the last two weeks of Year 1, but the employees' salaries have not been paid or recorded as of December 31, Year 1. The adjusting entry that Able should make to accrue these unpaid salaries on December 31, Year 1 is:
Multiple Choice
debit to Salaries Expense and credit to Cash.
debit to Salaries Expense and credit to Salaries Payable.
debit to Salaries Payable and credit to Salaries Expense.
no entry is required until the employee is paid next period.
answer
debit to Salaries Expense and credit to Salaries Payable.
Explanation
Accruing salary expenses will increase Salaries Expense and increase Salaries Payable, a liability. The journal entry would be a debit to Salaries Expense and a credit to Salaries Payable.
question
transaction has been recorded in the T-accounts of Gibbs Company as follows:
Cash 1,500 |
Unearned Revenue | 1,500
Which of the following could be an explanation for this transaction?
Multiple Choice
Cash has been paid out to a company that will provide future services to Gibbs Company.
Gibbs has completed services for which they had earlier received cash in advance.
Gibbs has provided services to a customer on account.
Gibbs has received cash for service to be provided in the future.
answer
Gibbs has received cash for service to be provided in the future.
Explanation
Cash, an asset, has been increased with a debit, and unearned revenue, a liability, has been increased with a credit. This indicates that Gibbs has collected cash for services to be provided in the future.
question
Which of the following accounts is decreased with a debit?
Multiple Choice
Accounts Receivable
Accounts Payable
Prepaid Rent
Rent Expense
answer
Accounts Payable
Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Accounts Payable, a liability account, is decreased with a debit.
question
Which of the following statements is true?
Multiple Choice
Adjusting entries are recorded after the closing entries have been recorded.
Equal totals in a trial balance guarantees that no errors were made in the recording process.
Debits are equal to credits only after closing entries have been recorded.
The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet only after closing entries have been posted to the general ledger.
answer
The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet only after closing entries have been posted to the general ledger.
Explanation
Every entry (not only closing entries) must include at least one debit to an account and at least one credit to an account. This system is called double-entry accounting. Adjusting entries are recorded before (rather than after) the closing entries are recorded. If the debit total does not equal the credit total on the trial balance, the accountant knows to search for an error. Even if the totals are equal, however, there may be errors in the accounting records. Prior to posting closing entries, the balance in the retained earnings account will be the balance at the beginning of the accounting period. Only after closing entries are posted will the trial balance reflect the same retained earnings account balance as the balance sheet.
question
What effect will the following closing entry have on the retained earnings account?
Service Revenue 18,800 |
Interest Expense |750
Operating Expenses |15,500
Retained Earning |2,550
Multiple Choice
Retained earnings will remain unchanged.
Retained earnings will decrease by $2,550.
Retained earnings will increase by $2,550.
Retained earnings will be transferred to the income statement.
answer
Retained earnings will increase by $2,550.
Explanation
A credit to retained earnings of $2,550 (to close the service revenue, interest expense, and operating expenses accounts) will increase retained earnings by $2,550.
question
The closing entry for the Dividends account would involve which of the following?
Multiple Choice
A credit to Retained Earnings
A credit to Dividends
A credit to Common Stock
A credit to Cash
answer
A credit to Dividends
Explanation
The closing entry to move the balance of the dividends account to the retained earnings account would include a debit to retained earnings to decrease that account. The credit to the dividends account leaves a zero balance in that account.
question
The following is a trial balance of Barnhart Company as December 31, Year 1:
Account Title:Deb | Cred
Cash12,500 |
Accounts Receivable 3,250 |
Accounts Payable | 2,800
Common Stock |6,600
Retained Earnings | 4,500
Service Revenue | 7,450
Operating Expenses 5,100 | Dividends 500 |
Totals 21,350 | 21,350
What is the total amount of assets that will be reported on the balance sheet prepared as of December 31, Year 1?
Multiple Choice
$21,350
$12,500
$15,750
$23,200
answer
$15,750
Explanation
The two asset accounts listed on the trial balance are Cash and Accounts Receivable. Total assets = $12,500 + $3,250 = $15,750
question
Why are adjusting entries recorded at the end of the accounting period?
Multiple Choice
The Cash account must be adjusted for the effects of the daily transactions with customers and creditors.
The company's accounts must be adjusted to ensure that debits are equal to credits prior to preparing the trial balance.
Unrecorded accruals and deferrals must be recognized before the financial statements can be prepared.
The data from the temporary accounts (revenues, expenses, and dividends) must be moved into the retained earnings account.
answer
Unrecorded accruals and deferrals must be recognized before the financial statements can be prepared.
Explanation
At the end of the accounting period, a company will have several unrecorded accruals and deferrals that must be recognized before the financial statements can be prepared. As a result, adjusting entries always involve (1) an asset or liability account and (2) a revenue or expense account.
question
Which of the following accounts normally has a debit balance?
Multiple Choice
Prepaid insurance
Unearned service revenue
Accounts payable
Common stock
answer
Prepaid Insurance
Explanation
Assets, such as prepaid insurance, normally have a debit balance; that is, debits increase those accounts. Liabilities, such as unearned revenue and accounts payable, normally have a credit balance; that is, credits increase those accounts. Stockholders' equity accounts, such as common stock, normally have a credit balance; that is, credits increase those accounts.
question
Explain how the following general journal entry affects the accounting equation.
Accounts receivable 500 |
Service revenue | 500
Multiple Choice
Both assets and stockholders' equity increase.
Both liabilities and assets increase.
Assets increase and stockholders' equity decreases.
Liabilities increase and stockholders' equity decreases.
answer
Both assets and stockholders' equity increase.
Explanation
A debit to accounts receivable increases assets and a credit to service revenue increases stockholders' equity (retained earnings).
question
On October 1, Year 1, Senegal Company paid $1,200 in advance for rent of office space for one year and recorded a journal entry debiting Prepaid Rent and crediting Cash for $1,200. On December 31, Year 1, the required adjusting entry was recorded. What are the adjusted account balances at December 31, Year 1?
Multiple Choice
Prepaid Rent, $300; Rent Expense, $900
Prepaid Rent, $1,200; Rent Expense, $0
Prepaid Rent, $0; Rent Expense, $1,200
Prepaid Rent, $900; Rent Expense, $300
answer
Prepaid Rent, $900; Rent Expense, $300
Explanation
This is similar in concept to making a prepayment for insurance coverage. The monthly rent is $100 ($1,200 Γ· 12 months). By December 31, the company had rented (used) the office space for three months. The Prepaid Rent account has an adjusted balance of $900 ($1,200 β $300). The Rent Expense account will reflect the rent for those three months of $300 ($100 Γ 3).
question
How would the trial balance column totals be affected if a $600 credit to Service Revenue was erroneously posted as a $600 debit to Salaries Expense?
Multiple Choice
The credit column of the trial balance would be $600 more than the debit column.
The debit column of the trial balance would be $1,200 more than the credit column.
The credit column of the trial balance would be $1,200 more than the debit column.
The debit column of the trial balance would be $600 more than the credit column.
answer
The debit column of the trial balance would be $1,200 more than the credit column.
Explanation
The error would cause the debit column to be overstated by $600 and the credit column to be understated by $600. The difference between the two column totals would be $1,200.
question
During a company's first year of operations, the asset account, Office Supplies, was debited for $2,300 for the purchases of supplies. At year-end, a physical count of the supplies on hand revealed that $825 of unused supplies were available for future use. How will the related adjusting entry affect the company's financial statements?
Multiple Choice
Expenses will increase and assets will decrease by $1,475.
Assets and expenses will both increase by $825.
Expenses and assets will both increase by $1,475.
The related adjusting entry has no effect on net income or the accounting equation.
answer
Expenses will increase and assets will decrease by $1,475.
Explanation
The company used $1,475 ($2,300 β $825) supplies during its first year of operations. The adjusting entry debiting supplies expense and crediting supplies will increase expenses and decrease assets by $1,475.
question
The Wagner Company acquired $500,000 cash from the issue of common stock. How would this transaction be recorded in the company's T-accounts?
Multiple Choice
Cash 500,000
Common Stock 500,000
Common Stock 500,000
Cash 500,000
Common Stock 500,000
Retained Earnings 500,000
Retained Earnings 500,000
Common Stock 500,000
answer
Cash 500,000
Common Stock 500,000
Explanation
The event increases cash, an asset account, and common stock, a stockholders' equity account. It is recorded as a debit in the Cash T-account and a credit to the Common Stock account.
question
Bijan Corporation earned $4,000 of revenue that had been deferred. How would the related adjusting entry be recorded in the company's T-accounts?
Multiple Choice
Cash 4,000 |
Unearned Revenue | 4,000
Cash 4,000 |
Revenue | 4,000
Revenue 4,000 |
Unearned Revenue | 4,000
Unearned Revenue 4,000 |
Revenue | 4,000
answer
Unearned Revenue 4,000 |
Revenue | 4,000
Explanation
The adjusting entry decreases unearned revenue, a liability, and increases revenue. It is recorded as a debit to unearned revenue and a credit to the revenue account.
question
A $200 credit to Interest Payable was instead recorded in error as a $200 credit to Cash in an adjusting entry, which has been posted to the ledger accounts. Which of the following is the result of this error?
Multiple Choice
The trial balance is out of balance by $200.
Total assets are understated by $200.
Net income is overstated by $200.
Total liabilities are overstated by $200.
answer
Total assets are understated by $200.
Explanation
This misclassification (crediting the wrong account) will not cause the debit and credit totals on the trial balance to be out of balance. Crediting an asset (Cash) instead of crediting a liability (Interest Payable) would understate total assets and understate total liabilities. That error has no effect on net income.
question
During Year 5, Magellan Corporation earned net income of $32,000 and paid cash dividends of $8,500 to its stockholders. Which of the following choices reflects the effect of closing entries on the company's financial statements?
Multiple Choice
The income statement will report net income of $23,500 after the closing entries have been posted to the ledger accounts.
The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts.
The balance sheet will report retained earnings of $32,000 after the closing entries have been posted to the ledger accounts.
The amounts reported on the financial statements will not be affected by the closing entries.
answer
The amounts reported on the financial statements will not be affected by the closing entries.
Explanation
Closing entries are recorded after financial statements have been prepared. Therefore, they do not have any effect on the financial statements. The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts only if this is the company's first year of operations.
question
A transaction has been recorded in the general journal of Manella Company as follows:
Cash | 6,000
Unearned revenue 6,000 |
Which of the following could be an explanation for this transaction?
Multiple Choice
Paid cash to a customer who requested a refund
Received cash in advance for work to be performed in future months
Recorded adjusting entry for work completed
Received cash for services completed
answer
Received cash in advance for work to be performed in future months
Explanation
The debit to Cash increases this asset account and the credit to unearned revenue increases this liability account. That would be the journal entry recorded when cash is collected as an advance for work to be performed in the future.
question
Kincaid Company provided consulting services of $2,500 to a customer who paid $1,300 and promised to pay the remainder next month. Which of the following journal entries correctly records this transaction?
Multiple Choice
Cash 1,300 |
Accounts payable 1,200 |
Consulting revenue | 2,500
Cash 1,300 |
Accounts receivable 1,200 | Consulting revenue |2,500
Cash 1,300 |
Consulting revenue | 1,300
Consulting revenue 2,500 |
Cash | 1,300
Accounts receivable | 1,200
answer
Cash 1,300 |
Accounts receivable 1,200 | Consulting revenue | 2,500
Explanation
The company would record an increase in cash (a debit) of $1,300, an increase in accounts receivable (a debit) of $1,200, and an increase in revenue (a credit) of $2,500.
question
Fitzpatrick Company had $500 of accrued salary expenses that will be paid during the following accounting period. How would the related adjusting entry be recorded in the company's T-accounts?
Multiple Choice
Salaries Expense 500 |
Cash | 500
Cash 500 |
Salaries Expense | 500
Salaries Expense 500 |
Salaries Payable | 500
Salaries Payable 500 |
Salaries Expense | 500
answer
Salaries Expense 500 |
Salaries Payable | 500
Explanation
The required adjusting entry increases liabilities by crediting salaries payable and increases expenses by debiting salaries expense.
question
On November 1, Year 1, Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months. Which of the following will be included in the adjustment required on December 31, Year 1?
Multiple Choice
A debit to Prepaid Insurance for $400
A credit to Prepaid Insurance for $400
A debit to Insurance Expense for $1,200
A credit to Insurance Expense for $1,200
answer
A credit to Prepaid Insurance for $400
Explanation
TThe monthly insurance cost is $200 ($1,200 Γ· 6 months). By December 31, Year 1 the company had used the insurance coverage for two months. The Insurance Expense account must be increased with a debit for $400 ($200 Γ 2) and the Prepaid Insurance account must be decreased with a credit for the same amount.
question
On August 1, Year 1, Benjamin and Associates collected $18,000 in advance for legal services to be rendered for one year. Which of the following entries reflect the end-of-the-year adjustment to reflect revenue earned?
Multiple Choice
Cash 7,500 |
Revenue | 7,500
Accounts receivable 6,000 |
Revenue | 6,000
Cash 18,000 |
Unearned revenue | 10,500
Revenue | 7,500
Unearned revenue 7,500 |
Revenue | 7,500
answer
Unearned revenue 7,500 |
Revenue | 7,500
The adjusting entry will increase revenue and decrease unearned revenue, a liability. The journal entry would be a debit to unearned revenue and a credit to revenue. $18,000 Γ· 12 months = $1,500 per month. August through December is five months. $1,500 Γ 5 = $7,500.
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