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

Q: What is the accounting equation must remain in balance?

Assets = Liabilities + Owners Equity The accounting equation is considered the foundation of double-entry bookkeeping, where every transaction gets recorded as a debit in one account and a credit in another. The equation should always be balanced since assets are either purchased with liabilities or equity.

THE RECORDING PROCESS

CHAPTER LEARNING OBJECTIVES

Explain what an account is and how it helps in the recording process. An account is a record of increases and decreases in specific asset, liability, and equity items.
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Define debits and credits and explain their use in recording business transactions. The terms debit and credit are synonymous with left and right. Assets, dividends, and expenses are increased by debits and decreased by credits. Liabilities, share capital-ordinary, retained earnings, and revenues are increased by credits and decreased by debits.
Identify the basic steps in the recording process. The basic steps in the recording process are: (a) analyze each transaction for its effects on the accounts, (b) enter the transaction information in a journal, (c) transfer the journal information to the appropriate accounts in the ledger.
Explain what a journal is and how it helps in the recording process. The initial accounting record of a transaction is entered in a journal before the data are entered in the accounts. A journal (a) discloses in one place the complete effects of a transaction, (b) provides a chronological record of transactions, and (c) prevents or locates errors because the debit and credit amounts for each entry can be readily compared.
Explain what a ledger is and how it helps in the recording process. The ledger is the entire group of accounts maintained by a company. The ledger keeps in one place all the information about changes in specific account balances.
Explain what posting is and how it helps in the recording process. Posting is the transfer of journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts.
Prepare a trial balance and explain its purposes. A trial balance is a list of accounts and their balances at a given time. Its primary purpose is to prove the equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements.

Test Bank for Financial Accounting: IFRS Edition , 3e

TRUE-FALSE STATEMENTS

A new account is opened for each transaction entered into by a business firm. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The recording process becomes more efficient and informative if all transactions are recorded in one account. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
An account is often referred to as a T-account because of the way it is constructed. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
A debit to an account indicates an increase in that account. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
If a revenue account is credited, the revenue account is increased. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The normal balance of all accounts is a debit. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Debit and credit can be interpreted to mean increase and decrease, respectively. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The double-entry system of accounting refers to the placement of a double line at the end of a column of figures. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
A credit balance in a liability account indicates that an error in recording has occurred. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Revenues are a subdivision of retained earnings. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Under the double-entry system, revenues must always equal expenses. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
All accounts reported in the statement of financial position are increased by using debits on the left-hand side of the T-account. Ans: F LO2 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 2

Test Bank for Financial Accounting: IFRS Edition , 3e

The account titles used in journalizing transactions need not be identical to the account titles in the ledger. Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The chart of accounts is a special ledger used in accounting systems. Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the statement of financal position accounts. Ans: T LO5 BT:C K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises. Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Posting is the process of proving the equality of debits and credits in the trial balance. Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
After a transaction has been posted, the reference column in the journal should not be blank. Ans: T LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Posting involves transferring the journalized debits and credits to the statement of financial position. Ans: F LO6 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The trial balance lists accounts and their balances at a given point in time in the order in which they appear on the statement of financial position. Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
When debits do not equal credits on the trial balance, this indicates that the company has net income that needs to be transferred to the retained earnings account. Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Errors on the statement of financial position are called transpositions and errors on the income statement are called irregularities. Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Currency signs are typically used only in the trial balance and the financial statements. Ans: T LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The general rules of debit and credit, and the steps in the recording process–the journal, ledger, and chart of accounts–are the same under both GAAP and IFRS. Ans: T LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
A trial balance does not prove that all transactions have been recorded or that the ledger is correct. Ans: T LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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The Recording Process

Additional True-False Questions

The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The normal balance of an expense is a credit. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The journal provides a chronological record of transactions. Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The ledger is merely a bookkeeping device and therefore does not provide much useful data for management. Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger. Ans: T LO6 BT: C Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting. Ans: T LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
The trial balance will not balance when incorrect account titles are used in journalizing or posting. Ans: F LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Answers to True-False Statements

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

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The Recording Process

A T-account is a. a way of depicting the basic form of an account. b. what the computer uses to organize bytes of information. c. a special account used instead of a trial balance. d. used for accounts that have both a debit and credit balance.

Ans: a LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Credits a. decrease both assets and liabilities. b. decrease assets and increase liabilities. c. increase both assets and liabilities. d. increase assets and decrease liabilities.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A debit to an asset account indicates a. an error. b. a credit was made to a liability account. c. a decrease in the asset. d. an increase in the asset.

Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The normal balance of any account is the a. left side. b. right side. c. side which increases that account. d. side which decreases that account.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The double-entry system requires that each transaction must be recorded a. in at least two different accounts. b. in two sets of books. c. in a journal and in a ledger. d. first as a revenue and then as an expense.

Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following accounts does not have a normal credit balance? a. Share Capital–Ordinary b. Revenue account c. Liability account d. Dividends

Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 7

Test Bank for Financial Accounting: IFRS Edition , 3e

Which one of the following represents the expanded basic accounting equation? a. Assets = Liabilities + Share Capital–Ordinary account + Retained Earnings + Dividends – Revenue – Expenses. b. Assets + Dividends + Expenses = Liabilities + Share Capital–Ordinary + Retained Earnings + Revenues. c. Assets – Liabilities – Dividends = Share Capital–Ordinary + Retained Earnings + Revenues – Expenses. d. Assets = Revenues + Expenses – Liabilities.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Equity Credit Revenues Debit Expenses Credit b. Assets Debit Liabilities Credit Equity Credit Revenues Credit Expenses Credit c. Assets Credit Liabilities Debit Equity Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Equity Credit Revenues Credit Expenses Debit

Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The best interpretation of the word credit is the a. offset side of an account. b. increase side of an account. c. right side of an account. d. decrease side of an account.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In recording an accounting transaction in a double-entry system a. the number of debit accounts must equal the number of credit accounts. b. there must always be entries made on both sides of the accounting equation. c. the amount of the debits must equal the amount of the credits. d. there must only be two accounts affected by any transaction.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 8

Test Bank for Financial Accounting: IFRS Edition , 3e

For the basic accounting equation to stay in balance, each transaction recorded must a. affect two or less accounts. b. affect two or more accounts. c. always affect exactly two accounts. d. affect the same number of asset and liability accounts.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is true? a. Debits increase assets and increase liabilities. b. Credits decrease assets and decrease liabilities. c. Credits decrease assets and increase liabilities. d. Debits decrease liabilities and decrease assets.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Assets normally show a. credit balances. b. debit balances. c. debit and credit balances. d. debit or credit balances.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An awareness 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 c. A credit balance in a liabilities account d. A credit balance in a revenue account

Ans: b LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

If a company has overdrawn its bank balance, then a. its cash account will show a debit balance. b. its cash account will show a credit balance. c. the cash account debits will exceed the cash account credits. d. it cannot be detected by observing the balance of the cash account.

Ans: b LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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The Recording Process

Which account below is not a subdivision of retained earnings? a. Dividends b. Revenues c. Expenses d. Share Capital-Ordinary

Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When a company pays dividends a. the dividend doesn't have to be cash, it could be another asset. b. the dividends account will be increased with a credit. c. the retained earnings account will be directly increased with a debit. d. the dividends account will be decreased with a debit.

Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The Dividends account a. appears on the income statement along with the expenses of the business. b. must show transactions every accounting period. c. is increased with debits and decreased with credits. d. is not a proper subdivision of retained earnings.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is not true? a. Expenses increase equity. b. Expenses have normal debit balances. c. Expenses decrease equity. d. Expenses are a negative factor in the computation of net income.

Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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. c. is an error. d. must be accompanied by a debit to an asset account.

Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In the first month of operations, the total of the debit entries to the cash account amounted to $700 and the total of the credit entries to the cash account amounted to $500. The cash account has a a. $500 credit balance. b. $700 debit balance. c. $200 debit balance. d. $200 credit balance.

Ans: c LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 11

The Recording Process

Omega Company pays its employees twice a month, on the 7th and the 21st. On June 21, Omega Company paid employee salaries of $4,000. This transaction would a. increase equity by $4,000. b. decrease the balance in Salaries and Wages Expense by $4,000. c. decrease net income for the month by $4,000. d. be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense.

Ans: c LO2 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In the first month of operations for Widget Industries, the total of the debit entries to the cash account amounted to ₤18,000 (₤10,000 investment by the owners and revenues of ₤8,000). The total of the credit entries to the cash account amounted to ₤10, (purchase of equipment ₤4,000 and payment of expenses ₤6,000). At the end of the month, the cash account has a(n) a. ₤6,000 credit balance. b. ₤6,000 debit balance. c. ₤8,000 debit balance. d. ₤8,000 credit balance. Ans: c LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting
Rusthe Company showed the following balances at the end of its first year:

Cash $ 19, Prepaid insurance 1, Accounts receivable 7, Accounts payable 5, Notes payable 8, Share capital-ordinary 4, Dividends 1, Revenues 45, Expenses 35, What did Rusthe Company show as total credits on its trial balance? a. $65, b. $63, c. $62, d. $66,

Ans: b LO2 BT: AP Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA PC: PS

Ayala Company showed the following balances at the end of its first year:

Cash $11, Prepaid insurance 500 Accounts receivable 2, Accounts payable 2, Notes payable 6, Share capital-ordinary 4, Dividends 500 Revenues 15, Expenses 12,

2 - 13

Test Bank for Financial Accounting: IFRS Edition , 3e

What did Ayala Company show as total credits on its trial balance? a. $27, b. $27, c. $26, d. $28,

Ans: b LO2 BT: AP Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA PC: PS

During February 2017, its first month of operations, the owner of Alona Enterprises invested cash of $125,000. Alona had cash revenues of $20,000 and paid expenses of $35,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28? a. $15,000 credit b. $110,000 debit c. $145,000 debit d. $90,000 credit

Ans: b LO2 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is true regarding debits and credits? a. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances. b. The basic equation on the statement of financial position is Assets + Liabilities = Equity. c. The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities. d. On the income statement, revenues are increased by debits whereas on the statement of financial position retained earnings is increased by a credit.

Ans: c LO2 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following accounts is reported in the equity section of the statement of financial position? a. Dividends b. Share capitalordinary c. Revenues d. All of these answer choices are correct.

Ans: b LO2 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Revenues are a. impacted by debits and credits in the same way that expenses are impacted by debits and credits. b. a subdivision of equity, providing information about why equity increased. c. reported on the statement of financial position as a current item. d. All of these answer choices are correct.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 14

Test Bank for Financial Accounting: IFRS Edition , 3e

On July 7, 2017, Anaya Enterprises performed cash services of $1,400. The entry to record this transaction would include a. a debit to Service Revenue of $1,400. b. a credit to Accounts Receivable of $1,400. c. a debit to Cash of $1,400. d. a credit to Accounts Payable of $1,400.

Ans: c LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At September 1, 2017, Crews Co. reported equity of ₤272,000. During the month, Crews generated revenues of ₤40,000, incurred expenses of ₤24,000, purchased equipment for ₤10,000 and paid dividends of ₤4,000. What is the amount of equity at September 30, 2017? a. ₤272, b. ₤16, c. ₤274, d. ₤284,

Ans: d LO3 BT: AP Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The final step in the recording process is to a. analyze each transaction. b. enter the transaction in a journal. c. prepare a trial balance. d. transfer journal information to ledger accounts.

Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The usual sequence of steps in the transaction recording process is: a. journal  analyze  ledger. b. analyze  journal  ledger. c. journal  ledger  analyze. d. ledger  journal  analyze.

Ans: b LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In recording business transactions, evidence that an accounting transaction has taken place is obtained from a. business documents. b. the taxing authority. c. the public relations department. d. the IASB.

Ans: a LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to a. the company's bank. b. equity. c. ledger accounts. d. financial statements.

Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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The Recording Process

The first step in the recording process is to a. prepare financial statements. b. analyze each transaction for its effect on the accounts. c. post to a journal. d. prepare a trial balance.

Ans: b LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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. bill. c. advertising brochure. d. check.

Ans: c LO3 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After transaction information has been recorded in the journal, it is transferred to the a. trial balance. b. income statement. c. book of original entry. d. ledger.

Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the a. journal, and transfer the information to the ledger accounts. b. ledger, and transfer the information to the journal. c. book of accounts, and transfer the information to the journal. d. book of original entry, and transfer the information to the journal.

Ans: a LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The final step in the recording process is to transfer the journal information to the a. trial balance. b. financial statements. c. ledger. d. file cabinets.

Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The recording process occurs a. once a year. b. once a month. c. repeatedly during the accounting period. d. infrequently in a manual accounting system. Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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The Recording Process

Transactions in a journal are initially recorded in a. account number order. b. dollar amount order. c. alphabetical order. d. chronological order.

Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A journal is not useful for a. disclosing in one place the complete effect of a transaction. b. preparing financial statements. c. providing a record of transactions. d. locating and preventing errors.

Ans: b LO4 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

122 A complete journal entry does not show a. the date of the transaction. b. the new balance in the accounts affected by the transaction. c. a brief explanation of the transaction. d. the accounts and amounts to be debited and credited.

Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The name given to entering transaction data in the journal is a. chronicling. b. listing. c. posting. d. journalizing.

Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The standard form of a journal entry has the a. debit account entered first and indented. b. credit account entered first and indented. c. debit account entered first at the extreme left margin. d. credit account entered first at the extreme left margin.

Ans: c LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

125 When journalizing, the reference column is a. left blank. b. used to reference the source document. c. used to reference the journal page. d. used to reference the financial statements.

Ans: a LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2 - 19

Test Bank for Financial Accounting: IFRS Edition , 3e

On June 1, 2017 Quang Le buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will a. use two journal entries. b. make a compound entry. c. make a simple entry. d. list the credit entries first, which is proper form for this type of transaction.

Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following journal entries is recorded correctly and in the standard format? a. Salaries and Wages Expense ............................................. 1, Cash ............................................................................. 2, Rent Expense ..................................................................... 1,

b. Salaries and Wages Expense ............................................. 1, Rent Expense ..................................................................... 1, Cash ............................................................................. 2,

c. Cash ................................................................................... 2, Salaries and Wages Expense ....................................... 1, Rent Expense ............................................................... 1,

d. Salaries and Wages Expense ............................................. 1, Rent Expense ..................................................................... 1, Cash ............................................................................. 2,

Ans: d LO4 BT: AN Difficulty: Easy TOT: 1 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

Which of the following statements is true regarding simple and compound entries? a. Simple entries can be prepared by anyone whereas compound entries need to be prepared by a skilled accountant. b. Simple entries are recorded on the income statement whereas compound entries are recorded on the statement of financial position. c. Simple entries involve one account, whereas compound entries involved 2 or more accounts. d. An example of a compound entry would be the purchase of a machine for $400 cash and a $2,000 note payable.

Ans: d LO4 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Compound entries a. would include an entry to record the purchase of a computer for cash. b. include at least two debits or two credits. c. require that all credits be listed before the debits for entries affecting the statement of financial position. d. should be broken into their component parts and recorded as simple entries.

Ans: b LO4 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

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What is the accounting equation must remain in balance?

Assets = Liabilities + Owners' Equity The accounting equation is considered the foundation of double-entry bookkeeping, where every transaction gets recorded as a debit in one account and a credit in another. The equation should always be balanced since assets are either purchased with liabilities or equity.

Why must the accounting equation remain in balance after each transaction?

The accounting equation will always balance because the dual aspect of accounting for income and expenses will result in equal increases or decreases to assets or liabilities.