Financial Accounting Tools For Business Decision Making 6th Canadian Edition by Paul D. Kimmel

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Sample Test

CHAPTER 3

THE ACCOUNTING INFORMATION SYSTEM

SUMMARY OF QUESTION TYPES BY STUDY OBJECTIVES AND LEVEL OF DIFFICULTY

Item	SO	LOD	Item	SO	LOD	Item	SO	LOD	Item	SO	LOD	Item	SO	LOD
True-False Statements
1.	1	E	12.	2	M	23.	2	M	34.	3	E	45.	4	M
2.	1	E	13.	2	E	24.	2	E	35.	3	E	46.	4	E
3.	1	M	14.	2	E	25.	2	E	36.	3	E	47.	5	M
4.	1	M	15.	2	E	26.	3	E	37.	3	E	48.	5	E
5.	1	M	16.	2	E	27.	3	E	38.	4	E	49.	5	E
6.	1	M	17.	2	E	28.	3	E	39.	4	E	50.	5	M
7.	1	E	18.	2	E	29.	3	E	40.	4	M	51.	5	M
8.	1	E	19.	2	E	30.	3	E	41.	4	E
9.	2	E	20.	2	E	31.	3	E	42.	4	E
10.	2	E	21.	2	E	32.	3	E	43.	4	M
11.	2	E	22.	2	E	33.	3	E	44.	4	M
Multiple Choice Questions
52.	1	E	72.	2	E	92.	2	M	112.	3	E	132.	4	E
53.	1	M	73.	2	E	93.	2	E	113.	3	E	133.	4	M
54.	1	M	74.	2	E	94.	2	E	114.	3	M	134.	4	E
55.	1	E	75.	2	E	95.	2	E	115.	3	M	135.	4	E
56.	1	M	76.	2	E	96.	2	E	116.	3	E	136.	4	M
57.	1	E	77.	2	M	97.	2	E	117.	3	E	137.	4	M
58.	1	E	78.	2	E	98.	2	E	118.	3	M	138.	4	E
59.	1	E	79.	2	M	99.	2	E	119.	3	M	139.	4	E
60.	1	E	80.	2	M	100.	2	M	120.	3	M	140.	5	E
61.	1	E	81.	2	E	101.	2	M	121.	3	M	141.	5	M
62.	1	E	82.	2	H	102.	2	E	122.	3	M	142.	5	M
63.	1	E	83.	2	E	103.	2	M	123.	4	E	143.	5	M
64.	1	M	84.	2	M	104.	2	E	124.	4	E	144.	5	M
65.	1	M	85.	2	E	105.	3	E	125.	4	E	145.	5	E
66.	1	E	86.	2	M	106.	3	E	126.	4	E	146.	5	H
67.	1	E	87.	2	M	107.	3	E	127.	4	E	147.	5	M
68.	1	M	88.	2	M	108.	3	E	128.	4	E	148.	5	M
69.	2	E	89.	2	E	109.	3	E	129.	4	E
70.	2	E	90.	2	E	110.	3	M	130.	4	E
71.	2	E	91.	2	M	111.	3	M	131.	4	M
Exercises
149.	1	E	154.	2	E	159.	2	M	164.	3	E	169.	5	H
150.	1	E	155.	2	E	160.	2	M	165.	3,5	M	170.	5	E
151.	1	E	156.	2	E	161.	2,3	M	166.	4,5	M	171.	5	E
152.	1	E	157.	2	E	162.	2,4	E	167.	5	E
153.	1,2	E	158.	2	E	163.	3	M	168.	5	H
Matching
172.	2–5	E,M
Short-Answer Essay
173.	2	E	175.	2	M	177.	5	M
174.	2	E	176.	3	E	178.	5	M

Note: E = Easy M = Medium H = Hard

Item	Type	Item	Type	Item	Type	Item	Type	Item	Type	Item	Type	Item	Type
Study Objective 1
1.	TF	6.	TF	54.	MC	59.	MC	64.	MC	149.	Ex
2.	TF	7.	TF	55.	MC	60.	MC	65.	MC	150.	Ex
3.	TF	8.	TF	56.	MC	61.	MC	66.	MC	151.	Ex
4.	TF	52.	MC	57.	MC	62.	MC	67.	MC	152.	Ex
5.	TF	53.	MC	58.	MC	63.	MC	68.	MC	153.	Ex
Study Objective 2
9.	TF	19.	TF	72.	MC	82.	MC	92.	MC	102.	MC	160.	Ex
10.	TF	20.	TF	73.	MC	83.	MC	93.	MC	103.	MC	161.	Ex
11.	TF	21.	TF	74.	MC	84.	MC	94.	MC	104.	MC	162.	Ex
12.	TF	22.	TF	75.	MC	85.	MC	95.	MC	153.	Ex	172.	Ma
13.	TF	23.	TF	76.	MC	86.	MC	96.	MC	154.	Ex	173.	SAE
14.	TF	24.	TF	77.	MC	87.	MC	97.	MC	155.	Ex	174.	SAE
15.	TF	25.	TF	78.	MC	88.	MC	98.	MC	156.	Ex	175.	SAE
16.	TF	69.	MC	79.	MC	89.	MC	99.	MC	157.	Ex
17.	TF	70.	MC	80.	MC	90.	MC	100.	MC	158.	Ex
18.	TF	71.	MC	81.	MC	91.	MC	101.	MC	159.	Ex
Study Objective 3
26.	TF	32.	TF	105.	MC	111.	MC	117.	MC	161.	Ex
27.	TF	33.	TF	106.	MC	112.	MC	118.	MC	163.	Ex
28.	TF	34.	TF	107.	MC	113.	MC	119.	MC	164.	Ex
29.	TF	35.	TF	108.	MC	114.	MC	120.	MC	165.	Ex
30.	TF	36.	TF	109.	MC	115.	MC	121.	MC	172.	Ma
31.	TF	37.	TF	110.	MC	116.	MC	122.	MC	176.	SAE
Study Objective 4
38.	TF	43.	TF	124.	MC	129.	MC	134.	MC	139.	MC
39.	TF	44.	TF	125.	MC	130.	MC	135.	MC	162.	Ex
40.	TF	45.	TF	126.	MC	131.	MC	136.	MC	166.	Ex
41.	TF	46.	TF	127.	MC	132.	MC	137.	MC	172.	Ma
42.	TF	123.	MC	128.	MC	133.	MC	138.	MC
Study Objective 5
47.	TF	51.	TF	143.	MC	147.	MC	167.	Ex	171.	Ex
48.	TF	140.	MC	144.	MC	148.	MC	168.	Ex	172.	Ma
49.	TF	141.	MC	145.	MC	165.	Ex	169.	Ex	177.	SAE
50.	TF	142.	MC	146.	MC	166.	Ex	170.	Ex	178.	SAE

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Note: TF = True-False Ma = Matching

MC = Multiple Choice Ex = Exercise SAE = Short-Answer Essay

CHAPTER STUDY OBJECTIVES

1. Analyze the effects of transactions on the accounting equation. Each business transaction has a dual effect on the accounting equation: assets = liabilities + shareholders’ equity. For example, if an individual asset is increased, there must be a corresponding decrease in another asset, or an increase in a specific liability, or an increase in shareholders’ equity.

2. Define debits and credits and explain how they are used to record transactions. The terms debit and credit mean the same thing as left and right, respectively. Assets, dividends, and expenses are increased by debits and decreased by credits. The normal balance of these accounts is a debit balance (the increase side). Liabilities, common shares, retained earnings, and revenues are increased by credits and decreased by debits. The normal balance of these accounts is a credit balance (the increase side).

3. Journalize transactions. The initial record of a transaction is entered in a general journal. The journal discloses in one place the complete effect of a transaction, provides a chronological record of transactions, and helps prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

4. Post transactions. Posting is the process of transferring journal entries from the general journal to the general ledger. This accumulates the effects of the journalized transactions in the individual ledger accounts.

5. Prepare a trial balance. A trial balance is a list of accounts and their balances at a specific time. The main purpose of the trial balance is to prove the mathematical equality of debits and credits after posting. A trial balance also can help uncover errors in journalizing and posting and is useful in preparing financial statements.

TRUE-FALSE STATEMENTS

1. Economic events that require recording in the accounting records are called accounting transactions.

2. Revenue is only recorded when cash is received.

3. Collection of an account receivable will increase total assets.

4. Cash received from a customer in advance of work being performed or goods provided is recorded as revenue.

5. If total assets are increased, there must be a corresponding increase in liabilities or an increase in shareholders’ equity.

6. An increase in the Dividends account will result in an increase in the Retained Earnings account.

7. Prepaid expenses are recorded as liabilities.

8. The payment of an account payable decreases total assets.

9. In its simplest form, a T account consists of three parts: (1) its title, (2) a left or credit side and (3) a right or debit side.

10. An individual accounting record for a specific asset, liability or shareholders’ equity item is called an account.

11. A debit increases an account and a credit decreases an account.

12. If a revenue account is credited, this must increase shareholders’ equity.

13. The normal balance of a liability account is a debit.

14. Debit and credit can be interpreted to mean “bad” and “good,” respectively.

15. A credit means that an account has been increased.

16. A decrease in a liability account is recorded by a debit.

17. An increase in an asset is recorded by a debit.

18. The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

19. The double-entry accounting system records the dual effect of each transaction.

20. The normal balance of an asset is a credit.

21. The normal balance of the Dividends account is a debit.

22. Assets are decreased with a credit.

23. An expense account is a subdivision of the retained earnings account and decreases shareholders’ equity.

24. Revenues are a subdivision of shareholders’ equity.

25. Under the double-entry system, revenues must always equal expenses.

26. The first step in the recording process is entering the transaction into the general journal.

27. Source documents can provide evidence that a transaction has occurred.

28. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

29. A simple journal entry affects two or more accounts.

30. A journal lists all the accounts maintained by a business.

31. The journal is a chronological record of all transactions.

32. A journal is an accounting record in which transactions are initially recorded.

33. The complete effect of a transaction on the accounts is disclosed in the journal.

34. The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

35. Entering transactions into the journal is called posting.

36. The account to be credited is entered first in a journal entry.

37. A compound journal entry affects more than two accounts.

38. Transactions are entered in the general ledger and then transferred to the general journal.

39. All transactions must be entered first in the general ledger.

40. The chart of accounts is a special ledger used in accounting systems.

41. A general ledger should be arranged in financial statement order beginning with the statement of financial position accounts.

42. The chart of accounts is the framework for the accounting database.

43. Prepaid expenses are reported as assets on the statement of financial position.

44. Unearned revenues are classified as assets on the statement of financial position.

45. Posting is the process of proving the equality of debits and credits in the trial balance.

46. A list of accounts and their account numbers is called the chart of accounts.

47. A trial balance lists all the debit balances first, then all the credit balances.

48. A trial balance can still balance even if an entry is posted to the wrong account.

49. The main purpose of the trial balance is to check that debits equal credits.

50. If a journal entry is posted twice, this will be discovered by preparing a trial balance.

51. The retained earnings on the trial balance prepared immediately after posting represents the retained earnings at the beginning of the period.

Answers to True-False Statements

Item	Ans.	Item	Ans.	Item	Ans.	Item	Ans.	Item	Ans.	Item	Ans.
1.	T	10.	T	19.	T	28.	T	37.	T	46.	T
2.	F	11.	F	20.	F	29.	F	38.	F	47.	F
3.	F	12.	T	21.	T	30.	F	39.	F	48.	T
4.	F	13.	F	22.	T	31.	T	40.	F	49.	T
5.	T	14.	F	23.	T	32.	T	41.	T	50.	F
6.	F	15.	F	24.	T	33.	T	42.	T	51.	T
7.	F	16.	T	25.	F	34.	F	43.	T
8.	T	17.	T	26.	F	35.	F	44.	F
9.	F	18.	F	27.	T	36.	F	45.	F

MULTIPLE CHOICE QUESTIONS

52. Shareholders’ equity is increased by

(a) dividends.

(b) revenues.

(d) liabilities.

53. If total liabilities increased by $15,000, then

(a) assets must have increased by $15,000.

(b) only shareholders’ equity must have increased by $15,000.

(d) assets and shareholders’ equity must have both decreased by $15,000.

54. Collection of a $1,500 accounts receivable

(a) increases an asset $1,500; decreases a liability $1,500.

(b) decreases a liability $1,500; increases shareholders’ equity $1,500.

(d) has no effect on total assets.

55. If an individual asset is increased, then

(a) there could be an equal decrease in a specific liability.

(b) there could be an equal decrease in shareholders’ equity.

(d) none of these is possible.

56. If services are performed on credit, then

(a) assets will decrease.

(b) liabilities will increase.

(d) liabilities will decrease.

57. If expenses are paid in cash, then

(a) assets will increase.

(b) liabilities will decrease.

(d) assets will decrease.

58. Accounting systems should record

(a) all economic events.

(b) events that result in a change in assets, liabilities, or shareholders’ equity items.

(d) only events that include revenues, expenses, and cash.

59. An investment by the shareholders in a company increases

(a) assets and shareholders’ equity.

(b) assets and liabilities.

(d) assets only.

60. The purchase of an asset for cash

(a) increases assets and shareholders’ equity.

(b) increases assets and liabilities.

(d) has no effect on total assets.

61. The purchase of an asset on credit

(a) increases assets and shareholders’ equity.

(b) increases assets and liabilities.

(d) has no effect on total assets.

62. The payment of a liability

(a) decreases assets and shareholders’ equity.

(b) increases assets and decreases liabilities.

(d) decreases assets and liabilities.

63. Recording revenue

(a) increases assets and liabilities.

(b) increases assets and shareholders’ equity.

(d) has no effect on total assets.

64. A paid dividend

(a) decreases assets and shareholders’ equity.

(b) increases assets and shareholders’ equity.

(d) decreases assets and increases shareholders’ equity.

65. An expense

(a) decreases assets and liabilities.

(b) decreases shareholders’ equity.

(d) increases assets and decreases shareholder’ equity.

66. Which of the following items has no effect on retained earnings?

(a) expenses

(b) dividends

(d) hiring a new employee

67. A paid income tax instalment

(a) increases assets and shareholders’ equity.

(b) decreases assets and shareholders’ equity.

(d) decreases assets and increases shareholders’ equity.

68. A payment of a portion of accounts payable will

(a) not affect total assets.

(b) increase liabilities.

(d) decrease profit.

69. The left side of a T account is the

(a) credit side.

(b) debit side.

(d) balance of the account.

70. An individual accounting record of increases and decreases in a specific asset, liability, or shareholders’ equity item is called a(n)

(a) single entry accounting system.

(b) accounting transaction.

(d) normal balance.

71. The equality of debits and credits is the basis for

(a) the double-entry accounting system.

(b) the single-entry accounting system.

(d) all accounting systems.

72. The right side of an account is

(a) always used to record increases.

(b) the credit side.

(d) always used to record decreases.

73. A T account consists of

(a) a title, a debit balance, and a credit balance.

(b) a title, a left side, and a debit balance.

(d) a title, a right side, and a debit balance.

74. A T account is

(a) a way of illustrating the basic form of an account.

(b) a special account used to record only debits.

(d) the actual account form used in real accounting systems.

75. A credit to an asset account indicates a(n)

(a) error.

(b) credit was made to a liability account.

(d) increase in the asset.

76. The normal balance of any account is the

(a) left side.

(b) right side.

(d) side which decreases the account.

77. The double-entry system requires that each transaction must be recorded

(a) in at least two different accounts.

(b) in a T account.

(d) twice.

78. A credit is not the normal balance for

(a) common shares.

(b) revenues.

(d) cash.

79. The classification and normal balance of an expense account is

(a) revenue, credit.

(b) asset, debit.

(d) shareholders’ equity, debit.

80. The classification and normal balance of the retained earnings account is

(a) asset, debit.

(b) shareholders’ equity, credit.

(d) liability, debit.

81. The classification and normal balance of the unearned revenue account is

(a) asset, debit.

(b) liability, credit.

(d) shareholders’ equity, credit.

82. Which one of the following represents the expanded basic accounting equation?

(a) Assets = Liabilities + Common Shares + Retained Earnings + Revenues – Expenses – Dividends.

(b) Assets + Liabilities = Dividends + Expenses + Common Shares + Revenues.

(d) Assets = Revenues + Expenses – Liabilities.

83. The best interpretation of the word credit is the

(a) left side of an account.

(b) increase side of an account.

(d) decrease side of an account.

84. In recording an accounting transaction in a double-entry system,

(a) the number of accounts to be debited must equal the number of accounts to be credited.

(b) there must always be entries made on both sides of the accounting equation.

(d) there must only be two accounts affected by any transaction.

85. A debit is not the normal balance for which account listed below?

(a) Dividends

(b) Cash

(d) Service Revenue

86. Which of the following correctly identifies the normal balances of accounts?

(a) Assets Debit

Liabilities Credit

Common Shares Credit

Revenues Debit

Expenses Credit

(b) Assets Debit

Liabilities Credit

Common Shares Credit

Revenues Credit

Expenses Credit

Liabilities Debit

Common Shares Debit

Revenues Credit

Expenses Debit

(d) Assets Debit

Liabilities Credit

Common Shares Credit

Revenues Credit

Expenses Debit

87. An accountant has debited an asset account for $3,000 and credited a revenue account for $6,000. What can be done to complete the recording of the transaction?

(a) Nothing further can be done.

(b) Credit a shareholders’ equity account for $3,000.

(d) Credit another asset account for $3,000.

88. An accountant has debited an asset account for $1,000 and credited an expense account for $2,000. Which of the following would be the correct way to complete the recording of the transaction?

(a) Credit an asset account for $2,000.

(b) Credit a liability account for $1,000.

(d) Debit a shareholders’ equity account for $1,000.

89. Which of the following accounts is increased with a debit?

(a) Dividends

(b) Legal Fees Earned

(d) Common Shares

90. Which of the following accounts is increased with a credit?

(a) Supplies Expense

(b) Accounts Receivable

(d) Dividends

91. Which pair of accounts follows the rules of debit and credit in the same manner?

(a) Dividends Payable and Rent Expense

(b) Repair and Maintenance Expense and Bank Loan Payable

(d) Service Revenue and Accounts Receivable

92. Which of the following is not true of the terms debit and credit?

(a) They can be abbreviated as Dr. and Cr.

(b) They can be interpreted to mean increase and decrease.

(d) They can be interpreted to mean left and right.

93. An account will have a credit balance if the

(a) credits exceed the debits.

(b) first transaction entered was a credit.

(d) last transaction entered was a credit.

94. For the basic accounting equation to stay in balance, each transaction recorded must

(a) affect two or fewer accounts.

(b) affect two or more accounts.

(d) affect the same number of asset and liability accounts.

95. Which of the following statements is true?

(a) Debits increase assets and increase liabilities.

(b) Credits decrease assets and decrease liabilities.

(d) Debits increase liabilities and decrease assets.

96. Assets normally show

(a) credit balances.

(b) debit balances.

(d) debit or credit balances.

97. A knowledge of the normal balances of accounts would help you spot which of the following as an error in recording?

(a) a debit balance in the dividends account

(b) a credit balance in an expense account

(d) a credit balance in a revenue account

98. If a company has overdrawn its bank balance, then

(a) the cash account will show a debit balance.

(b) the cash account will show a credit balance.

(d) this cannot be detected by observing the balance of the cash account.

99. Which account below is not a subdivision of shareholders’ equity?

(a) Dividends

(b) Revenues

(d) Liabilities

100. When a corporation pays a dividend, the

(a) cash account will be increased with a debit.

(b) dividends account will be increased with a credit.

(d) dividends account will be increased with a debit.

101. The dividends account

(a) appears on the income statement along with the expenses of the business.

(b) must show transactions every accounting period.

(d) is not a proper subdivision of shareholders’ equity.

102. Which of the following statements is not true?

(a) Expenses increase shareholders’ equity.

(b) Expenses have normal debit balances.

(d) Expenses are a negative factor in the calculation of profit.

103. A credit to a liability account

(a) indicates an increase in the amount owed to creditors.

(b) indicates a decrease in the amount owed to creditors.

(d) must be accompanied by a debit to an asset account.

104. In the first month of operations, the total of the debit entries to the cash account amounted to $1,900 and the total of the credit entries to the cash account amounted to $1,500. Therefore, at the end of the month, the cash account has a

(a) $500 credit balance.

(b) $900 debit balance.

(d) $400 credit balance.

105. The sequence of steps in the transaction recording process is

(a) journal à analyze à ledger.

(b) analyze à journal à ledger.

(d) ledger à journal à analyze.

106. In recording accounting transactions, evidence that a transaction has taken place is obtained from

(a) source documents.

(b) the bank.

(d) the chart of accounts.

107. The first step in the recording process is to

(a) prepare financial statements.

(b) analyze the transaction in terms of its effect on the accounts.

(d) post to the ledger.

108. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)

(a) cash register sales tape.

(b) invoice.

(d) cheque.

109. The usual sequence of steps in the recording process is to

(a) analyze each transaction, enter the transaction in the journal, and transfer the information to the ledger accounts.

(b) analyze each transaction, enter the transaction in the ledger, and transfer the information to the journal.

(c) analyze each transaction, enter the transaction in the book of accounts, and transfer the information to the journal.

(d) analyze each transaction, enter the transaction in the book of original entry, and transfer the information to the journal.

110. The recording process occurs

(a) once a year.

(b) once a month.

(d) Infrequently – usually every two or three months.

111. A journal provides

(a) the balances for each account.

(b) information about a transaction in several different places.

(d) a chronological record of transactions.

112. The basic format of a journal would not include a(n)

(a) brief explanation.

(b) account title column.

(d) date column.

113. Transactions recorded in a journal are done in

(a) account number order.

(b) financial statement order.

(d) chronological order.

114. A journal is not useful for

(a) recording in one place the complete effect of a transaction.

(b) finding account balances.

(d) locating and preventing errors.

115. A complete journal entry does not show

(a) the date of the transaction.

(b) the new balance in the accounts affected by the transaction.

(d) the accounts and amounts to be debited and credited.

116. The name given to entering transaction data in the journal is

(a) transacting.

(b) listing.

(d) journalizing.

117. Which of the following journal entries is recorded correctly in the basic format (ignoring explanations)?

(a) Salaries Expense………………………………………………………….. 550

Cash…………………………………………………………………….. 1,500

Advertising Expense……………………………………………………… 950

(b) Salaries Expense………………………………………………………….. 550

Advertising Expense……………………………………………………… 950

Cash……………………………………………………………………………. 1,500

Advertising Expense……………………………………………………… 950

Cash…………………………………………………………………….. 1,500

(d) Cash…………………………………………………………………….. 1,500

Salaries Expense………………………………………………………….. 550

Advertising Expense……………………………………………………… 950

118. When a company has performed a service but has not yet received payment, it

(a) debits Accounts Receivable and credits Service Revenue.

(b) debits Service Revenue and credits Accounts Receivable.

(d) makes no entry until the cash is received.

119. A company that receives money in advance of performing a service

(a) debits Cash and credits Prepaid Fees.

(b) debits Unearned Revenue and credits Accounts Payable.

(d) debits Cash and credits Accounts Receivable.

120. When a company receives a utility bill but will not pay it right away, it should

(a) debit Utilities Expense and credit Accounts Receivable.

(b) debit Utilities Expense and credit Accounts Payable.

(d) make no entry until the bill is paid.

121. When a service has been performed, but no cash has been received, which of the following statements is true?

(a) No journal entry is made.

(b) The entry includes a debit to Accounts Payable.

(d) The entry includes a debit to Accounts Receivable.

122. A $30,000 machine is purchased by paying $20,000 cash and signing a bank loan payable for the balance. The journal entry should include a

(a) credit to Bank Loan Payable.

(b) debit to Cash.

(d) credit to Machinery.

123. After a business transaction has been analyzed and entered in the journal, the next step in the recording process is to transfer the information to

(a) the company’s bank.

(b) shareholders’ equity.

(d) financial statements.

124. After transaction information has been recorded in the journal, it is transferred to the

(a) chart of accounts.

(b) income statement.

(d) ledger.

125. The chart of accounts begins with

(a) asset accounts.

(b) liability accounts.

(d) expense accounts.

126. The purpose of the ledger is to

(a) record the day’s transactions in date order.

(b) keep a record of documentation to support each transaction.

(d) make sure that all assets and liabilities have normal balances at all times.

127. Which of the following accounts probably would be listed before the others in a chart of accounts?

(a) Buildings

(b) Insurance expense

(d) Revenue from services

128. The Unearned revenue account is classified as a(n)

(a) asset.

(b) revenue.

(d) liability.

129. Which of the following is an asset?

(a) Service Revenue

(b) Bank Loan Payable

(d) Prepaid Rent

130. A person who wants to determine the balance of a particular account should refer to the

(a) ledger.

(b) source document.

(d) journal.

131. The usual ordering of accounts in the general ledger is

(a) assets, liabilities, shareholders’ equity, revenues, and expenses.

(b) assets, liabilities, shareholders’ equity, expenses, and revenues.

(d) shareholders’ equity, assets, liabilities, expenses, and revenues.

132. Management could determine the amounts due from customers by examining which ledger account?

(a) Service Revenue

(b) Accounts Payable

(d) Supplies

133. The ledger accounts should be arranged in

(a) date order.

(b) alphabetical order.

(d) order of appearance in the journal.

134. The procedure of transferring journal entries to the ledger accounts is called

(a) journalizing.

(b) analyzing.

(d) posting.

135. A chart of accounts

(a) is a chart created in Excel.

(b) indicates the amount of profit or loss for the period.

(d) shows the balance of each account in the general ledger.

136. Which of the following guidelines should be applied when choosing an account name to be included in the chart of accounts?

(a) Account names should identify the nature and content of each account.

(b) Account names should be used consistently.

(d) All of the above are correct.

137. The principal purpose of posting is to

(a) help identify errors made in the journal.

(b) accumulate the effects of journalized transactions in the individual accounts.

(d) help determine if the financial statements are ready to be prepared.

138. Posting is performed by transferring information from the

(a) source documents to the journal.

(b) ledger to the journal.

(d) journal to the ledger.

139. Josephine Debit recently started work with New Beginnings Ltd. It is her first job and she doesn’t have a lot of accounting experience. When recording the sales for the day, she debited sales and credited cash. The entry is

(a) correct.

(b) an error.

(d) not necessary.

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