Chapter F7: Accumulating Accounting Data
Multiple Choice
1.
Select the statement in which the sequence of steps in the accounting
cycle is in the correct order.
Journalize transactions, adjust the accounts, prepare the financial
statements.
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Post transactions, journalize transactions, adjust the accounts.
Adjust the accounts, prepare the closing entries, prepare the
financial statements.
Journalize transactions, prepare financial statements, post
transactions.
Hint for question 1
Analyze transactions, journalize transactions, post transactions, prepare the trial
balance, adjust the accounts, prepare the financial statements, prepare and post
the closing entries, and, lastly, prepare the post-closing trial balance.
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2.
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The following statement is true regarding accounting information:
An account contains the history of all increases and decreases in the
accounting element.
A special journal is used to record all transactions not recorded in
the general journal.
A group of accounts make up the general journal.
All businesses use the same chart of accounts.
Hint for question 2
Transactions are recorded in chronological order in a journal. All amounts
recorded in a journal are posted to an account. An account contains the history
of all increases and decreases in the accounting element.
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3.
The adjusting process --
takes place continually throughout the accounting period.
always involves the cash account.
is completed before any transactions are posted to the general
ledger.
serves to properly match expenses with the revenues they helped to
produce.
*
Hint for question 3
The adjusting process takes place at the end of each accounting period. At that
time accounts are adjusted to the correct ending balance. This is completed
prior to the preparation of the financial statements.
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4.
The closing process --
results in increasing assets by net income or decreasing assets by a
net loss.
*
resets all temporary accounts to zero so the accounts are ready for
the beginning of the next accounting period.
results in a post-closing trial balance containing zero balances in all
balance sheet accounts.
closes withdrawal accounts but not the dividend account.
Hint for question 4
After financial statements are prepared, the closing process resets the income
statement (temporary or nominal) accounts to zero, and adjusts the equity
accounts by net income/loss and amounts withdrawn or issued as dividends.
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5.
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(A) debit increases --
assets and increases expenses.
the normal balance of a liability account.
equity accounts.
withdrawals and increases revenues.
Hint for question 5
Assets = Liabilities + Equity. Debit means left, and therefore accounts with
normal debit balances reside on the left-hand side of the accounting equation-namely assets. Assets are increased with debits and decreased with credits.
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6.
A trial balance --
is correct if total debits equal total credits.
lists accounts in the following order: assets, liabilities, revenues,
expenses, and equity accounts.
reports cash with a debit balance and common stock also with a
debit balance.
is prepared before adjustments, and again after the closing entries
are posted.
*
Hint for question 6
The trial balance is an organized list of general ledger account balances that
verifies the accounting equation is in balance. A trial balance lists balance sheet
accounts first followed by income statement accounts.
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7.
Use the following information to determine the correct bank balance:
Balance per bank statement $5,000, bank service charge $15, NSF
check $500, checks outstanding $1,000, deposits in transit $2,000.
$5,000
$5,485
*
$6,000
None of the above.
Hint for question 7
Add to, or subtract from, the bank balance those items that appear on the
books, but not on the bank statement.
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8.
During the accounting period Child Care Company provided $20,000 of
child care services on account (for credit); $17,000 cash was received
from parents for the services provided. Assume these are the only two
transactions for the company. To record these transactions --
cash will have an ending balance of $20,000.
revenue will be debited for $20,000.
accounts payable will be credited for $3,000.
*
accounts receivable will be credited for $17,000.
Hint for question 8
In accrual basis accounting, revenue is recognized in the accounting period it is
earned, and expenses are recognized in the accounting period they help produce
revenue.
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9.
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The following trial balance accounts all have normal balances: Cash
$1,000, sales revenue $10,000, wage expense $3,000, and notes
payable $2,000. The total in the debit column will be --
$4,000.
$6,000.
$14,000.
none of the above.
Hint for question 9
A normal balance is either a debit or a credit--whichever increases the account.
Asset, owner's withdrawal, corporate dividends, and expense accounts all have
normal debit balances.
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10.
Book Store Company has a weekly payroll of $5,000, which gets paid
every Friday. January 31st falls on a Wednesday. The January 31st
adjusting entry will include --
a debit to wage expense for $5,000
a debit to wage expense for $2,000
*
a credit to wages payable for $3,000
no adjustment is needed for wages on January 31st
Hint for question 10
For the last week in January, what was the cost of wages incurred during the
month of January? Which accounts are affected? Do the accounts increase or
decrease? Record with a debit or a credit?
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11.
The adjusted trial balance accounts listed below all have normal
balances: Accounts receivable $2,000, wages payable $1,000, sales
revenue $10,000, and wage expense $3,000. The following statement is
correct regarding this information:
Accounts receivable of $2,000 will appear on the income statement.
Sales revenue of $12,000 will appear on the income statement.
*
Wages payable of $1,000 will appear on the balance sheet.
Wage expense of $4,000 will appear on the income statement.
Hint for question 11
Of the $10,000 in sales revenue earned, customers still owe $2,000 on account.
Of the $3,000 in wage costs incurred, the company still owes $1,000 to
employees.
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12.
The adjusted trial balance accounts listed below all have normal
balances: Accounts receivable $2,000, dividends $1,000, sales revenue
$10,000, and wage expense $3,000. The following statement is correct
regarding this information and closing entries:
Sales revenue will be closed by crediting sales revenue and debiting
income summary.
When the income summary account is closed it contains an amount
equal to the net income or loss for the accounting period.
*
The closing process will increase retained earnings by $7,000.
At the end of the closing process each of the accounts listed above
will have a zero balance.
Hint for question 12
During the closing process the following amounts are closed out or
transferred: revenues to income summary, expenses to income
summary, income summary to retained earnings, and dividends to
retained earnings.
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Submit for Grade
Chapter F7: Accumulating Accounting Data
True or False
1.
A journal entry is recorded when an asset, liability, or equity account
changes as a result of a business event.
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TRUE
FALSE
Hint for question 1
A transaction occurs and is recorded when an accounting element changes.
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2.
A normal balance is always a debit balance.
TRUE
*
FALSE
Hint for question 2
Assets = Liabilities + Equity. Debit means left in Latin, and, therefore, accounts
with normal debit balances reside on the left-hand side of the accounting
equation--namely assets. Assets are increased with debits and decreased with
credits.
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3.
*
Transaction entries, adjusting entries, and closing entries are first
recorded in a journal and then posted to a ledger account.
TRUE
FALSE
Hint for question 3
The journal is known as the book of original entry. The journal is where all
entries are first recorded.
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4.
The trial balance always lists accounts in the following order: asset,
liability, equity, revenue, and expense.
*
TRUE
FALSE
Hint for question 4
A trial balance lists balance sheet accounts first followed by income statement
accounts.
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5.
Closing entries reduce all asset and liability accounts to a zero balance.
TRUE
*
FALSE
Hint for question 5
The closing process reduces all income statement, dividend, and
withdrawal accounts to a zero balance.
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Submit for Grade
Chapter F7: Accumulating Accounting Data
Fill In The Blanks
1.
The process of transferring amounts from a journal to a ledger account is
referred to as __________.
balancing
recording
*
posting
journalizing
Hint for question 1
Balancing, journalizing, posting, or recording?
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2.
The book of original entry is referred to as the __________.
worksheet
chart
ledger
*
journal
Hint for question 2
Chart, journal, ledger, or worksheet?
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3.
The cash receipts journal and the cash payments journal are examples of
__________ journals.
purchases
sales
*
special
general
Hint for question 3
General, purchases, sales, or special?
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4.
__________ accounts are never closed. The ending balance of one
accounting period becomes the beginning balance in the next accounting
period. Examples include cash and common stock.
*
Permanent
Nominal
Asset
Temporary
Hint for question 4
Asset, nominal, permanent, or temporary?
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5.
To record sales revenue a __________ is recorded in the journal.
increase
*
credit
decrease
debit
Hint for question 5
Credit, decrease, debit, or increase?
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Chapter F7: Accumulating Accounting Data
Essay Questions
1.
Explain the purpose of the journal, ledger, and trial balance and the
relationship between them.
2.
3.
Describe the purpose and/or unique characteristics of the trial balance
prepared before adjusting journal entries, after adjusting journal entries,
and after closing entries.
The adjusted trial balance accounts listed below all have normal balances:
Cash $20,000, accounts receivable $15,000, land $65,000, accounts
payable $30,000, common stock $60,000, sales revenue $200,000, and
rent/utility/wage expenses $190,000. This is the first year of business. Use
the above information to calculate net income, ending retained earnings,
ending total assets, ending total liabilities, ending total stockholders'
equity, and verify the accounting equation is in balance at the end of the
accounting period.
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