21 Jan Yes, they are treated

ACC556 Financial Accounting for Managers

CHAPTER 3 EXERCISE

Question 1 The primary purpose of the trial balance is to.

Answers:

disclose the complete effect of a transaction in one place.

make sure a journal entry is not posted twice.

transfer journal entries to the ledger accounts.

prove the equality of the debit and credit amounts after posting.

Question 2 Which one of the following represents the expanded basic accounting equation?

Answers:

Assets = Liabilities + Common Stock + Dividends – Revenue – Expenses

Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues

Assets= Liabilities + Common Stock + Revenues – Expenses – Dividends

Assets = Revenues + Expenses – Liabilities

Question 3 Match the items below by entering the appropriate code letter in the space provided.

Question

Account

An accounting record of increases and decreases in specific assets, liabilities, and stockholders’ equity items.

Normal account balance

The side which increases an account.

Debit

Left side of an account.

Revenue account

Has a credit normal balance

Ledger

The entire group of accounts maintained by a company.

Journal

Shows the debit and credit effects of specific transactions.

Posting

Transferring journal entries to ledger accounts.

Chart of accounts

A list of all the accounts used by a company.

Trial balance

A list of accounts and their balances at a given time.

Source document

Evidence that a transaction has taken place.

Question 4 If total liabilities decreased by $4,000, then

Answers:

stockholders’ equity must have decreased by $4,000.

assets must have decreased by $4,000, or stockholders’ equity must have increased by $4,000.

assets and stockholders’ equity each increased by $2,000.

assets must have increased by $4,000.

Question 5 All of the following are characteristics of every accounting information system except it is a system

Answers:

that collects transaction data.

that processes transaction data.

that communicates financial information to decision makers.

of data storage hardware for the chart of accounts.

Question 6 An account is often referred to as a T-account because of the way it is constructed.

Answers:

True

False

Question 7 Operating activities are the types of activities the company performs to generate profits.

Answers:

True

False

Question 8 All of the following statements regarding the double-entry system are true except

Answers:

a two-sided effect of each transaction is recorded in appropriate accounts when using the double-entry system.

the double-entry system provides a logical method for recording transactions.

both sides of the accounting equation must be affected when recording a transaction using the double-entry system.

when using the double-entry system, the sum of all debits to the accounts must equal the sum of all credits.

Question 9 Revenues are a subdivision of stockholders’ equity.

Answers:

True

False

Question 10 Salaries and wages payable is a type of expense.

Answers:

True

False

Question 11 An expense

Answers:

decreases assets and liabilities.

decreases stockholders’ equity.

leaves stockholders’ equity unchanged.

is basically the same as a liability.

Question 12 On June 1, 2014, England Inc. reported a cash balance of $21,000. During June, England made deposits of $8,000 and made disbursements totaling $24,000. What is the cash balance at the end of June?

Answers:

$5,000 credit balance

$29,000 debit balance

$5,000 debit balance

$3,000 credit balance

Question 13 Which of the following statements is not true?

Answers:

Expenses increase stockholders’ equity.

Expenses have normal debit balances.

Expenses decrease stockholders’ equity.

Expenses are a negative factor in the computation of net income.

Question 14 The purpose of the ledger is to

Answers:

record chronologically the day’s transactions.

keep a record of documentation to support each transaction.

keep in one place all information about changes in specific account balances.

make sure that all assets, liabilities, etc., have normal balances at all times.

Question 15 Borrowing money and issuing shares of stock are

Answers:

operating activities.

investing activities.

financing activities.

None of these answer choices are .

Question 16 Which of the following is not an example of a source document that provides evidence of a transaction?

Answers:

A cancelled check

A sales slip

A trial balance

A cash register tape

Question 17 Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

Answers:

Yes, they are treated as revenue at the time of receipt because the company has access to the cash.

No, the amount of revenue cannot be adequately determined until the company completes the work.

Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed.

No, revenue cannot be recognized until the work is performed.

Question 18 Economic events that require recording in the financial statements are called accounting transactions.

Answers:

True

False