True/False with proper reason.
Problem 1. Accounting is an information system and is often called the "language of business.
Problem 2. A business entity is the occurrence of an event or condition that must be recorded.
Problem 3. The accounting equation can be expressed as Liabilities + Assets = Owner's Equity.
Problem 4. Paying an account payable increases equity and decreases assets.
Problem 5. The excess of expenses over revenues is called net loss.
Problem 6. Accounts in the ledger are usually maintained in the order in which they appear on the financial statements.
Problem 7. The three parts of a T account are the title, a space for recording increases, and a space for recording decreases.
Problem 8. The order of the flow of accounting data is (1) recording in accounts, (2) recording in journal, and (3) posting in ledger.
Problem 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.
Problem 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.
Problem 11. The accrual basis of accounting requires expenses be recorded in the same period that the related revenue is recorded.
Problem 12. The matching concept supports accrual accounting principles.
Problem 13. Accruals are needed when an unrecorded expense has been incurred or unrecorded revenue has been earned.
Problem 14. An adjusting entry to accrue an incurred expense will also affect total liabilities.
Problem 15. A contra asset account for land will normally appear in the balance sheet.
Problem 16. Net income is shown on the work sheet in the Income Statement debit column and the Balance Sheet credit column.
Problem 17. Since the adjustments are recorded on the work sheet, it is not necessary to post them in the ledger.
Problem 18. Capital and Drawing are reported in the owner's equity section of the balance sheet.
Problem 19. Entries required to close the balances of the temporary accounts at the end of the period are called adjusting entries.
Problem 20. In the accounting cycle of a manual accounting system, a trial balance is prepared before the financial statements are prepared.
Problem 21. The methods or procedures used to record and report financial data is called the accounting system.
Problem 22. System analysis is the final phase of the creation or revision of an accounting system and is concerned with implementing proposals.
Problem 23. Adding a review of operations by an internal audit staff strengthens internal control.
Problem 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.
Problem 25. The use of subsidiary ledgers is limited to Accounts Payable and Accounts Receivable.
Multiple-Choice:
Select only one answer (letter) per question
Problem 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
D. The assets received for goods and services and the amounts used to provide the goods and services
Problem 2. The two most common specialized fields of accounting in practice are:
A. Environmental accounting and financial accounting
B. Managerial accounting and financial accounting
C. Managerial accounting and tax accounting
D. Financial accounting and accounting systems
Problem 3. Resources owned by a business are referred to as:
A. Owner's equity
B. Liabilities
C. Equities
D. Assets
Problem 4. The amount charged to customers for goods or services sold is called a(n):
A. Expense
B. Net income
C. Revenue
D. Asset
Problem 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
D. Balance sheet
Problem 6. Accounts:
A. Do not reflect money amounts
B. Are used only by entities that manufacture products
C. Are records of increases and decreases in individual financial statement items
D. Are only used by large entities with many transactions
Problem 7. The gross increases in owner's equity attributable to business activities are called:
A. Assets
B. Drawings
C. Revenues
D. Expenses
Problem 8. An account is said to have a debit balance if:
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
Problem 9. A debit may signify a(n):
A. Decrease in asset accounts
B. Decrease in liability accounts
C. Increase in the capital account
D. Decrease in expense accounts
Problem 10. A credit balance in which of the following accounts would indicate a likely error?
A. Fees Earned
B. R. Brown, Drawing
C. R. Brown, Capital
D. Accounts Payable
Problem 11. Adjusting entries affect at least one:
A. Income statement account and one balance sheet account
B. Revenue and one expense account
C. Asset and one liability account
D. Revenue and one capital account
Problem 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
D. $2,900
Problem 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
C. Debit Salary Expense, $12,000; credit Salaries Payable, $12,000
D. Debit Drawing, $12,000; credit Cash, $12,000
Problem 14. Tangible assets used in the business that are of a relatively fixed or permanent nature are called:
A. Fixed assets
B. Revenues
C. Expenses
D. Liabilities
Problem 15. The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed:
A. Liability
B. Contra asset
C. Book value
D. Market value
Problem 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
D. Must be journalized and posted
Problem 17. Which of the following is reported on the Statement of Owner's Equity for the current year?
A. Accumulated depreciation
B. Owner's additional investment made during the current period
C. Depreciation expense
D. Salaries payable
Problem 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
C. Drawing
D. Depreciation Expense
Problem 19. Which of the following accounts appears on a post-closing trial balance?
A. Insurance Expense
B. Prepaid Rent
C. Drawing
D. Fees Earned
Problem 20. Unearned Fees appears on the :
A. Balance sheet in the current assets section
B. Balance sheet as a current liability
C. Balance sheet in the long-term liabilities section
D. Income statement as revenue
Problem 21. To determine information needs and how the system should provide it is the goal of:
A. Systems design
B. Accounting system
C. Systems analysis
D. Internal auditing
Problem 22. The goal of systems analysis is to determine:
A. When to implement a system
B. Information needs
C. The size of the competitor's system
D. Changes to the present system
Problem 23. The individual accounts with customers are included in a subsidiary ledger called the:
A. Asset ledger
B. Accounts payable ledger
C. Expense ledger
D. Accounts receivable ledger
Problem 24. Every controlling account must have its own:
A. Revenue ledger
B. General ledger
C. Subsidiary ledger
D. Journal
Problem 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
D. Subsidiary ledger