Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS

1. The role of the accounting records includes (a) Establishing accountability. (b) obtaining detailed information about a particular transaction. (c) evaluating efficiency and performance of various departments. (d) all of the above The collection of all of the accounts is kept together in the (a) journal, only. (b) ledger, only. (c) trial balance, only. (d) both the journal and the ledger. The simplest form of an account is called a (a) T account. (b) modified account. (c) ledger account. (d) none of the above. Which of the following is NOT true about the normal balance of the accounts or account categories shown below? (a) Assets normally have a debit balance. (b) Liabilities normally have a credit balance. (c) Owners' equity accounts normally have a credit balance. (d) Accounts receivable normally has a credit balance. Which of the following is a CORRECT statement of the rules of debit and credit? (a) Debits increase assets and decrease liabilities. (b) Debits increase assets and increase owners' equity. (c) Credits decrease assets and decrease liabilities. (d) Credits increase assets and increase owners' equity. Which of the following is NOT true? (a) Increases in assets are recorded as debits. (b) Increases in liabilities are recorded as debits. (c) Decreases in owners' equity are recorded as debits. (d) Increases in expenses are recorded as debits. Which of the following provides a system of recording every business transaction with equal dollar amounts of both debit and credit entries? (a) matching principle (b) realization principle (c) double-entry accounting (d) accrual basis of accounting If an asset is debited, which of the following might also have occurred? (a) A credit to owners' equity. (b) A credit to another asset. (c) A credit to a liability. (d) All of the above. A collection of an account receivable will result in which of the following? (a) No increase in total assets, total liabilities, or total owners' equity. (b) An increase in cash, only (c) A decrease in accounts receivable, only. (d) Net income will increase.

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Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS 10. Consider the following:
Assets = Debit Credit A B C D Liabilities + Owners' Equity Debit Credit Debit Credit Increase Increase Decrease Increase Decrease Increase

Increase Decrease Decrease Increase Decrease Decrease

Decrease Increase Increase Decrease Decrease Increase Decrease Increase Increase Decrease Increase Decrease

Which line of the schedule correctly reflects the rule of debits and credits? (a) (b) (c) (d) 11. Line A Line B Line C Line D

Economic events (transactions) that affect the accounting equation are initially recorded in a (a) ledger. (b) T account. (c) journal. (d) trial balance The process of transferring information from the journal to the ledger, in order to update the ledger, is called which of the following? (a) Posting (b) Recording (c) Journalizing (d) Accounting Which of the following is NOT true about net income? (a) The company can have a cash shortage and still have net income. (b) Net income is an asset. (c) Net income is the result of revenues exceeding expenses. (d) Net income represents an increase in owners' equity. To provide the users of financial statements with timely information, net income is measured for relatively short accounting periods of equal length as called for by the (a) matching principle. (b) realization principle. (c) time period principle. (d) accrual basis of accounting. Distributions of assets to stockholders are called (a) dividends. (b) losses. (c) expenses. (d) contra-revenues. The net total of all income, losses, and dividends are found in (a) expense accounts. (b) the Retained Earnings account. (c) revenue and expense accounts.

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Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS
(d) Asset accounts.

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Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS
17. The fiscal year of a company is (a) any consecutive 12-month period. (b) one that ends on December 31. (c) one that ends on June 30. (d) the same as the calendar year. The generally accepted accounting principle that determines when expenses should be recorded in the accounting records is called the (a) matching principle. (b) realization principle. (c) Time period principle. (d) Accrual basis of accounting. The effect of events on the business is recognized as services are rendered or consumed rather than when cash is received or paid and is a result of using the (a) Matching principle. (b) Realization principle. (c) Time period principle. (d) Accrual basis of accounting. Services were performed and delivered on January 15. The customer paid for the services on February 10. The expenses related to performing the services were paid on January 31. The fiscal year of the company ends December 31. When should the revenue be recognized? (a) January 15 (b) January 31 (c) February 10 (d) December 31

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Consider the following:

Event A Owners' equity is increased B Revenue increases C Owners' equity is decreased D Expenses increase X X Debit Credit X X

Which of the lines in the schedule are correct? (a) Line A, only (b) Line B, only (c) Lines B and C, only (d) All of the lines are correct. 22. Which of the following is TRUE about dividends? (a) Dividends are an expense to the company. (b) Dividends are deducted from revenue in the income statement. (c) Dividends are always equal to net income. (d) Dividends reduce both assets and owners' equity. Which of the following is TRUE about expenses? (a) Expenses may result in a decrease of assets. (b) Expenses may result in an increase in liabilities. (c) Expenses reduce owners' equity. (d) All of the above are true.

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Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS
24. The collection of an account receivable (a) increases total assets. (b) increases owners' equity. (c) increases revenues. (d) has no affect on total assets. On March 1, the company delivered $3,000 of services to one of its customers. As a result, the accounting equation will reflect (a) an increase in assets and an increase in owners' equity. (b) an increase in assets and a decrease in liabilities. (c) an increase in one asset and a decrease in another. (d) no changes in any of the elements of the accounting equation. On March 31, the company paid its employees at total of $8,000 for wages earned during the month of March. As a result, the accounting equation will reflect (a) an increase in assets and an increase in owners' equity. (b) a decrease in liabilities and a decrease in owner's equity.. (c) a decrease in assets and a decrease in liabilities. (d) a decrease in assets and decrease in owners' equity. On March 10, the company paid $8,000 for advertising contracted for the month of February. On February 1, the advertising expense was recognized. As a result of the payment of March 10, the accounting equation will reflect (a) an increase in assets and an increase in owners' equity. (b) a decrease in liabilities and a decrease in owner's equity.. (c) a decrease in an asset and a decrease in liabilities. (d) none of the above. On March 10, the company purchased $5,000 of office supplies that are anticipated to meet the company's office supplies needs for the next four months. As a result of recording the payment for the supplies, the accounting equation will reflect (a) an increase in assets and an increase in owners' equity. (b) a decrease in liabilities and a decrease in owner's equity.. (c) a decrease in an asset and a decrease in liabilities. (d) none of the above. Recording a December 31 cash dividend of $0.50 for each of the 10,000 shares of capital stock will result in (a) an increase in assets and an increase in owners' equity. (b) a decrease in liabilities and a decrease in owner's equity.. (c) a decrease in an asset and a decrease in owners' equity. (d) none of the above. A trial balance with equal total credits and total debits is proof of which of the following? (a) No errors occurred when journalizing or posting. (b) No errors occurred when posting. (c) No errors occurred when journalizing (recording) transactions. (d) The equality of debit and credits. The debit balance of the trial balance is $456,000 and the credit balance of the trial balance is $465,000. This indicates that (a) an account was not posted. (b) an account was posted twice. (c) an account was posted for an incorrect amount. (d) any of the above might have occurred.

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Chapter 3 Self Test Questions THE ACCOUNTING CYCLE: CAPTURING ECONOMIC EVENTS
32. Knowing and understanding the accounting procedures, particularly the accounting cycle, has given you which of the following? (a) A complete knowledge of accounting (b) An understanding of an accounting process (c) The procedures to prepare some accounting information (d) (B) and (C) only

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