True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.
A. True
B. False

B. False

Which of the following are external transactions?
A. Paying salaries to employees
B. Using supplies purchased last month
C. Borrowing money from the bank
D. Purchasing inventory from suppliers

A. Paying salaries to employees
C. Borrowing money from the bank
D. Purchasing inventory from suppliers

The accounting equation is: Assets = _____ + Stockholders' Equity.

Liabilities

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply)
A. Revenue is increased
B. Stockholders' equity is increased
C. A liability is decreased
D. Another asset is increased

C. A liability is decreased
D. Another asset is increased

The last step for analyzing the effect of transactions is:
A. Determine a second account in the accounting equation that will increase or decrease
B. Determine one account in the accounting equation that will increase or decrease
C. Confirm that assets ar

C. Confirm that assets are equal to liabilities plus stockholders' equity

The two roles of financial accounting are to:
A. report cost accounting information for internal decisions.
B. communicate information to external parties for decision making purposes.
C. measure business activities of the company.
D. measure and report r

B. communicate information to external parties for decision making purposes.
C. measure business activities of the company.

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is
A. two.
B. three.
C. one.
D. four.

B. three.

Which of the following is an external transaction?
A. Earning revenues after cash is received
B. Using supplies on hand
C. Purchasing supplies from a vendor

C. Purchasing supplies from a vendor

The accounting equation is:
A. Assets + Liabilities = Stockholders' Equity
B. Assets = Liabilities - Stockholders' Equity
C. Assets = Liabilities + Stockholders' Equity
D. Assets - Liabilities = Stockholders' Equity - Liabilities

C. Assets = Liabilities + Stockholders' Equity

The two components of stockholders' equity are
A. retained earnings and notes payable.
B. common stock and retained earnings.
C. revenues and dividends.
D. assets and liabilities.

B. common stock and retained earnings.

True or false: The accounting equation must always remain in balance.
A. True
B. False

A. True

The types of accounts which affect retained earnings are
A. liabilities.
B. dividends.
C. revenues.
D. expenses.
E. assets.

B. dividends.
C. revenues.
D. expenses.

The first step for analyzing the effect of transactions is:
A. Determine a second account in the accounting equation that will increase or decrease
B. Confirm that assets are equal to liabilities plus stockholders' equity
C. Determine one account in the a

C. Determine one account in the accounting equation that will increase or decrease

What effect does revenue have on retained earnings?
A. Increases
B. No effect
C. Decreases

A. Increases

A transaction will always affect at least _____ accounts.
A. three
B. four
C. two

C. two

The two basic components for calculating net income are _____ and _____. (Enter one word per blank.)

revenues; expenses

Consistent with the _____ recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)

revenue

Which of the following are stockholder equity accounts?
A. Inventory
B. Notes payable
C. Accounts receivable
D. Retained earnings
E. Common stock

D. Retained earnings
E. Common stock

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?
A. Accounts payable
B. Deferred revenue
C. Prepaid services
D. Accounts receivable

D. Accounts receivable

What are the three components of retained earnings?
A. Assets, liabilities, and stockholders' equity
B. Assets, liabilities, and income
C. Common stock, net income, and notes payable
D. Revenues, expenses, and dividends

D. Revenues, expenses, and dividends

Accounts on the left side of the accounting equation (assets) are increased with a(n) _____ to the account, whereas accounts on the right side of the accounting equation are increased with a(n) _____.

debit; credit

Revenues cause retained earnings to
A. increase.
B. Revenues do not change retained earnings.
C. decrease.

A. increase.

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of this equation are increased with
A. debits.
B. credits.
C. both debits and credits depending on the account.

B. credits.

What is the effect of net income on retained earnings?
A. Increases retained earnings
B. No effect on retained earnings
C. Decreases retained earnings

A. Increases retained earnings

Expenses _____ retained earnings; therefore, to increase any expense, one would _____ the expense account.
A. decrease; credit
B. increase; debit
C. increase; credit
D. decrease; debit

D. decrease; debit

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company
A. received a cash payment from a customer.
B. provided goods or services to a customer.
C. signed a contract with a customer.

B. provided goods or services to a customer.

Which type of account is increased with a credit?
A. Expense
B. Revenue
C. Asset
D. Dividend

B. Revenue

Accounts receivable are
A. stockholders' equity accounts.
B. a component of net income and retained earnings.
C. assets.
D. liabilities.

C. assets.

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with debits (represented by the DEA in the acronym) are (Select all the apply):
A. expenses.
B. dividends.
C. earni

A. expenses.
B. dividends.
D. assets.

The term debit means to place the entry on the _____ hand side of the account, and the term credit means to place the entry on the _____ hand side of the account.

left; right

A chronological record of all economic events affecting a firm are recorded in a(n)
A. trial balance
B. journal
C. ledger
D. balance sheet

B. journal

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the left side of this equation are increased with
A. both debits and credits depending on the account.
B. debits.
C. credits.

B. debits.

Revenues _____ retained earnings; therefore, to increase any revenue, one would _____ the revenue account.
A. decrease; credit
B. decrease; debit
C. increase; credit
D. increase; debit

C. increase; credit

Which type of account is increased with a debit?
A. Expense
B. Revenue
C. Liability
D. Stockholders' Equity

A. Expense

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with credits (represented by the LOR in the acronym) are
A. operating activities.
B. liabilities.
C. revenues.
D. o

B. liabilities.
C. revenues.
D. owners' equity.

True or false: A ledger provides a chronological record of all transactions affecting the firm.
A. True
B. False

B. False

A journal provides a
A. chronological record of all transactions affecting a firm.
B. summary of all the debits and credits made during the period.
C. listing of all accounts used by a firm.

A. chronological record of all transactions affecting a firm.

The process of transferring information from the journal to the ledger is referred to as
A. transaction analysis.
B. preparing adjustments.
C. posting.
D. preparing journal entries.

C. posting.

Which of the following contains a list of transactions affecting each account and the account's balance?
A. Account
B. General journal
C. General ledger

C. General ledger

A transaction is initially recorded in the general _____, and then subsequently posted to the general _____.

journal; ledger

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as _____. (Enter only one word.)

posting

Which of the following includes the list of transactions affecting each individual account and the account's balance?
A. Ledger
B. Account
C. Journal

A. Ledger

A(n) _____ is maintained for each financial statement item, whereas a(n) _____ contains all of the accounts of the company.
A. account; general ledger
B. account; journal
C. journal; general ledger
D. general ledger; journal

A. account; general ledger

The type of information included in an account includes
A. a daily total.
B. the account title.
C. columns for debits and credits.
D. a posting reference.

B. the account title.
C. columns for debits and credits.

Which of the following represents a common advantage of a computerized accounting system?
A. Prevents errors in the preparation of journal entries
B. Ensures accuracy of all the accounts in the general ledger
C. Journal entries are instantly posted to the

C. Journal entries are instantly posted to the ledger

Analyze the following postings. Which of the following is the transaction that required this posting?
A. Perform services for customers for cash
B. Issue common stock to investors
C. Borrow from bank
D. Record income for the period

B. Issue common stock to investors

The purpose of a general ledger is to
A. record a chronological listing of the accounts used by a particular company.
B. record all transactions for a particular item.
C. provide in a single location the list of transactions affecting each account and the

C. provide in a single location the list of transactions affecting each account and the account's balance.

An account should have an account title, account number, a place for the date of the transaction, and two columns for
A. closing and post-closing.
B. revenues and expenses.
C. debits and credits.
D. assets and liabilities.

C. debits and credits.

Match the type of the accounting system with the method for posting journal entries.
Computerized system
Manual system
________________________
Journal entries are posted periodically to the general ledger
Journal entries are instantly posted to the gener

Computerized system: Journal entries are instantly posted to the general ledger
Manual system: Journal entries are posted periodically to the general ledger

Shannon Corporation issues common stock for $25,000. Recording this transaction will include a
A. credit to accounts receivable.
B. debit to retained earnings.
C. credit to revenues.
D. credit to common stock.

D. credit to common stock.

Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick:
A. issued shares to stockholders
B. purchased shares from investors
C. paid dividends to its stockholders

A. issued shares to stockholders

Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:
A. debit to cash
B. credit to retained earnings
C. credit to notes payable
D. debit to accounts receivable

A. debit to cash
C. credit to notes payable

A t-account has space at the top for the account title and two sides for recording _____ and _____ to the account.
A. assets; liabilities
B. debits; credits
C. inputs; outputs

B. debits; credits

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:
A. received cash of $15,000 from an investor
B. borrowed $15,000 cash and signed a note
C. paid a loan in the amount of $15,0

B. borrowed $15,000 cash and signed a note

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have
A. sold equipment and paid off a note payable
B. purchased equipment and signed a note for the purchase price
C. sold eq

B. purchased equipment and signed a note for the purchase price

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?
A. Credit common stock
B. Credit revenues
C. Debit to retained earnings
D. Debit to cash

A. Credit common stock
D. Debit to cash

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.
A. True
B. False

B. False

Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following?
A. Credit revenue
B. Debit cash
C. Credit note payable
D. Debit notes receivable

B. Debit cash
C. Credit note payable

An account that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:
A. journal account
B. credit account
C. t-account
D. debit account

C. t-account

Analyze the following t-accounts. The transaction that required the posting for item (2) is
A. performing services to customers.
B. borrowing cash from the bank.
C. issuing stock to investors.
D. collecting cash from customers.

B. borrowing cash from the bank.

Analyze the following journal entry. What is the transaction that required this journal entry?
A. Purchase equipment by signing a note payable
B. Sell equipment to customers
C. Purchase equipment for cash

C. Purchase equipment for cash

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) _____ _____.

trial balance