Exam (elaborations) Test Bank For Fundamental Accounting Principles 20th Edition Wild
Test Bank For Fundamental Accounting Principles 20th Edition Wild
... [Show More] Fundamental-Accounting-Principles-20th-Edition-Test-Bank-Wil Chapter 02 Analyzing and Recording Transactions True / False Questions 1. The first step in the processing of a transaction is to analyze the transaction and source documents. True False 2. Preparation of a trial balance is the first step in the analyzing and recording process. True False 3. Source documents provide evidence of business transactions and are the basis for accounting entries. True False 4. Items such as sales tickets, bank statements, checks, and purchase orders are source documents. True False 5. An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. True False 6. A customer's promise to pay is called an account payable to the seller. True False 7. Withdrawals by the owner are a business expense. True False 2-1 Full file at 8. Land and buildings are generally recorded in the same ledger account. True False 9. Unearned revenues are liabilities. True False 10. Cash withdrawn by the owner of a proprietorship should be treated as an expense of the business. True False 11. When a company provides services for which cash will not be received until some future date, the company should record the amount charged as unearned revenue. True False 12. The chart of accounts is a list of all the accounts used by a company and includes an identification number assigned to each account. True False 13. An account balance is the difference between the debits and credits for an account including any beginning balance. True False 14. Debit means the right side of an account. True False 15. In a double-entry accounting system, the total amount debited must always equal the total amount credited. True False 2-2 Full file at 16. Increases in liability accounts are recorded as debits. True False 17. Debits increase asset and expense accounts. True False 18. Credits always increase account balances. True False 19. Crediting an expense account decreases it. True False 20. A revenue account normally has a debit balance. True False 21. Accounts are normally decreased by debits. True False 22. The owner's withdrawal account normally has a credit balance since it is an equity account. True False 23. Asset accounts normally have credit balances and revenue accounts normally have debit balances. True False 2-3 Full file at 24. An owner's capital account normally has a debit balance. True False 25. A debit entry is always favorable. True False 26. A transaction that decreases an asset account and increases a liability account must also affect one or more other accounts. True False 27. A transaction that increases an asset and decreases a liability must also affect one or more other accounts. True False 28. If insurance coverage for the next three years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance. True False 29. The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable. True False 30. If a company purchases land paying cash, the journal entry to record this transaction will include a debit to Cash. True False 2-4 Full file at 31. If a company provides services to a customer on credit the selling company should credit Accounts Receivable. True False 32. When a company bills a customer for $600 for services rendered, the journal entry to record this transaction will include a $600 debit to Services Revenue. True False 33. The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors. True False 34. The higher a company's debt ratio is, the higher the risk of a company not being able to meet its obligations. True False 35. The debt ratio is calculated by dividing total assets by total liabilities. True False 36. A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage. True False 37. If a company is highly leveraged, this means that it has relatively low risk of not being able to repay its debt. True False 2-5 Full file at 38. Hamilton Industries has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%. True False 39. A compound journal entry affects no more than two accounts. True False 40. Posting is the transfer of journal entry information to the ledger. True False 41. Transactions are first recorded in the ledger. True False 42. The journal is known as a book of original entry. True False 43. A journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction. True False 44. The journal is known as the book of final entry because financial statements are prepared from it. True False 45. The trial balance is a list of all accounts and their balances at a point in time taken from the ledger. True False 2-6 Full file at 46. Generally, the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, that is, assets first, then liabilities, then owner's capital and withdrawals, followed by revenues and expenses. True False 47. The trial balance can serve as a replacement for the balance sheet, since debits must equal with credits. True False 48. A trial balance that is in balance is proof that no errors were made in journalizing the transactions, posting to the ledger, and preparing the trial balance. True False 49. If cash was incorrectly debited for $100 instead of correctly credited for $100, the cash account is out of balance by $100. True False 50. The balance sheet provides a link between beginning and ending income statements. True False 51. The heading on each financial statement lists the three W's - Who (the name of the organization), What (the name of the statement), and Where (the organization's address). True False 52. An income statement reports the revenues earned less expenses incurred by a business over a period of time. True False 2-7 Full file at 53. The balance sheet reports the financial position of a company at a point in time. True False 54. Both U.S. GAAP and IFRS prepare the same four basic financial statements. True False 55. Both U.S. GAAP and IFRS do not require the use of accrual basis accounting. True False Multiple Choice Questions 56. The accounting process begins with: A. Analysis of business transactions and source documents. B. Preparing financial statements and other reports. C. Summarizing the recorded effect of business transactions. D. Presentation of financial information to decision-makers. E. Preparation of the trial balance. 57. All of the following statements regarding a sales invoice are True except: A. A sales invoice is a type of source document. B. A sales invoice is used by sellers to record the sale. C. A sales invoice is used by buyers to record purchases. D. A sales invoice gives rise to an entry in the accounting process. E. A sales invoice does not provide objective evidence about a transaction. 58. Source documents include all of the following except: A. Sales tickets. B. Ledgers. C. Checks. D. Purchase orders. E. Bank statements. 2-8 Full file at 59. Source documents: A. Include the ledger. B. Are the sources of accounting information. C. Must be in electronic form. D. Are based on accounting entries. E. Include the chart of accounts. 60. A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is a(n): A. Journal. B. Posting. C. Trial balance. D. Account. E. Chart of accounts. 61. An account used to record the owner's investments in the business is called a(n): A. Withdrawals account. B. Capital account. C. Revenue account. D. Expense account. E. Liability account. 62. The account used to record the transfers of assets from a business to its owner is: A. A revenue account. B. The owner's withdrawals account. C. The owner's capital account. D. An expense account. E. A liability account. 2-9 Full file at 63. Which of the following statements is correct? A. When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B. Promises of future payment are called accounts receivable. C. Increases and decreases in cash are always recorded in the owner's capital account. D. An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. E. Accrued liabilities include accounts receivable. 64. Unearned revenues are: A. Revenues that have been earned and received in cash. B. Revenues that have been earned but not yet collected in cash. C. Liabilities created when a customer pays in advance for products or services before the revenue is earned. D. Recorded as an asset in the accounting records. E. Increases to owners' capital. 65. Prepaid expenses are: A. Payments made for products and services that do not ever expire. B. Classified as liabilities on the balance sheet. C. Decreases in equity. D. Assets that represent prepayments of future expenses. E. Promises of [Show Less]