Chapter 5—review
K/U
True and False
1. Capital, Revenue, Expense and Drawings are all classifications of owner’s equity
accounts.
_________
2. A revenue account has a credit balance.
_________
3. According to the revenue recognition principle, a business must wait until payment
is received before recording revenue.
_________
4. A net loss will always result in a decrease of equity.
_________
5. A purchase of new equipment should be debited to an expense account.
_________
6. Net income results when revenues exceed drawings.
_________
7. Expenses must be recorded in the same time period from that in which revenue is
earned.
_________
8. The terms drawings and expenses are interchangeable.
_________
9. The Drawings account normally has a debit balance.
_________
10. A computer taken from a business for the owner’s use at home should be debited to
the Drawings account.
_________
11. A fiscal period is always a month in length.
_________
12. Accounts with credit balances are normally liabilities, capital, or revenue.
_________
13. A net loss results in reduced owner’s equity.
_________
14. Net income or net loss is shown on the balance sheet.
_________
15. The date in the heading of the income statement is the day the statement was
prepared.
_________
16. A chart of accounts is the listing of all the accounts, with a number assigned to
each.
_________
17. The number 205 would indicate an expense account in the chart of accounts.
_________
18. A business must have a revenue account to match each expense account.
_________
19. Net income shows how much cash has increased during a fiscal period.
_________
20. The matching principle is more closely related to the balance sheet than it is to the
income statement.
_________
K/U
Multiple Choice
21. The owner’s equity is decreased by
A. a credit to a revenue account.
B. a credit to an expense account.
C. a debit to a drawings account.
D. a debit to an asset account.
22. A listing of the accounts and their numbers is referred to as
A. a balance sheet.
B. a chart of accounts.
C. a ledger.
D. a fundamental accounting chart.
23. Which of the following accounts would normally have a debit balance?
A. owner’s equity
B. liabilities
C. expenses
D. A and C
24. Accounting work was done for a client with 30 days given for payment. Accounts Receivable
was debited and Revenue was credited. The business was following
A. the time period principle.
B. the matching principle.
C. the fiscal period concept.
D. the revenue recognition principle.
25. Which of the following is not an owner’s equity account?
A. Fees Earned
B. Taxes Payable
C. Bank Charges
D. P. Halpert, Capital
26. Repair work was done for a customer. $100 cash was received, with the remaining $240 due
25 days later. In recording this transaction, the accountant should
A. credit the Revenue account $140.
B. credit the Revenue account $340.
C. debit the Bank account $340.
D. debit Accounts Payable $240.
27. Which of the following statements concerning drawings is false?
A. Drawings does not affect net income.
B. The Drawings account is usually debited.
C. Cash withdrawn by the owner should be debited to Drawings.
D. Equipment for business use purchased using the owner’s personal money should be
debited to Drawings.
28. Identify the transaction that is not an expense for a business.
A. payment of salaries to employees
B. payment for gasoline for delivery truck
C. payment for new office chairs
D. payment of telephone bill
29. According to the matching principle,
A. debits must equal credits.
B. expenses must be recorded in the same time period as the revenue they helped to earn.
C. assets must equal liabilities plus owner’s equity.
D. a business must have an equal number of revenue and expense accounts.
30. The owner started the business with $40 000, earned $3500 net income during the year, and
had drawings of $1400.
A. $4900
B. $42 100
C. $43 500
D. $44 900
31. Which of the following statements concerning fiscal periods is true?
A. All fiscal periods for a business are of the same length.
B. Fiscal periods may be for less than one year.
C. The fiscal period is identified in the heading of the income statement.
D. All of the above are true.
32. The income statement would include all of the following except
A. the financial position of the business.
B. the net income or net loss of the business.
C. the total amount received as revenue.
D. the total amount of expenses incurred.
33. The number 410 indicates which type of account?
A. Liability
B. Asset
C. Revenue
D. Expense
34. At the beginning of the year, the owner’s capital was $28 000. At the end of the year, capital
was $36 000. If drawings were $3000, how much was net income?
A. $11 000
B. $8000
C. $5000
D. $28 000
35. At the beginning of the year, the owner’s capital was $34 000. At the end of the year, capital
was $31 600. If the business lost $1000 during the year, how much were drawings?
A. $3400
B. $2400
C. $1400
D. $600
36. The reason that an expense is recorded by a debit entry is
A. the expense decreases owner’s equity.
B. expenses must be matched with their corresponding revenue.
C. debits must equal credits.
D. expenses involve a credit to Bank.
37. A business purchased a new delivery van for cash. In this case, the account to be debited is
A. Vehicle Expense.
B. Cash.
C. Accounts Payable.
D. None of the above.
38. A business performed a service on account. The transaction should be recorded by a
A. debit to Accounts Receivable and a credit to Capital.
B. debit to Accounts Payable and a credit to Drawings.
C. debit to Accounts Receivable and a credit to Revenue.
D. debit to Revenue and a credit to Accounts Payable.
39. A business received a bill for advertising on the local radio station. The business was allowed
30 days to pay. This transaction should be recorded as a
A. debit to Advertising Expense and a credit to Accounts Payable.
B. debit to Accounts Payable and a credit to Capital.
C. debit to Advertising Expense and a credit to Bank.
D. debit to Capital and a credit to Accounts Receivable.
40.The formal fiscal period is
A. three months in length.
B. one year in length.
C. the same as the calendar year.
D. variable; it depends on the size of the business.