Question 1

Which of the following best describes the purpose of the double-entry accounting system?

Accepted Answer

To guarantee that the accounting equation remains in balance by affecting at least two accounts for every transaction.

Question 2

A company purchases office supplies on account. Which of the following is the correct effect on the accounts involved?

Accepted Answer

Debit Supplies; Credit Accounts Payable

Question 3

Which of the following statements about the normal balance of accounts is correct?

Accepted Answer

Assets have a normal debit balance.

Question 4

A business pays a $1,000 dividend to its shareholders. Which accounts are affected and how?

Accepted Answer

Debit Dividends $$1,000; Credit Cash 1$$,000

Question 5

Which of the following best explains the difference between journalizing and posting?

Accepted Answer

Journalizing is recording transactions in chronological order in the journal; posting is transferring those entries to the ledger accounts.

Question 6

A company receives $5,000 cash from a customer for services to be performed in the future. Which of the following is the correct journal entry?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 7

Which of the following is NOT considered a source document in accounting?

Accepted Answer

A T-account

Question 8

If a company’s total assets are $$120,000 and total liabilities are 30$$,000, what is the debt ratio? Use the formula $$ 	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}} .$$

Accepted Answer

$$0.25$$

Question 9

Which of the following transactions would require a credit to a liability account?

Accepted Answer

Borrowing money from a bank

Question 10

A company pays $2,000 for rent expense in cash. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$2,000; Equity decreases by 2$$,000

Question 11

Which of the following best describes a ledger?

Accepted Answer

A collection of all accounts showing their changes and current balances.

Question 12

Which of the following accounts would be increased with a credit?

Accepted Answer

Accounts Payable

Question 13

A company performs services on account for $3,000. What is the correct journal entry?

Accepted Answer

Debit Accounts Receivable $$3,000; Credit Revenue 3$$,000

Question 14

Which of the following best describes the purpose of an unadjusted trial balance?

Accepted Answer

To verify that total debits equal total credits before adjustments are made.

Question 15

If a company issues common stock for $10,000 cash, which accounts are affected and how?

Accepted Answer

Debit Cash $$10,000; Credit Common Stock 10$$,000

Question 16

Which of the following best describes a T-account?

Accepted Answer

A simplified version of a ledger account used to illustrate the effects of transactions.

Question 17

A company pays $500 to settle an account payable. What is the correct effect on the accounts?

Accepted Answer

Debit Accounts Payable $$500; Credit Cash 500$$

Question 18

Which of the following best explains why the debt ratio is important for financial analysis?

Accepted Answer

It shows the proportion of assets financed by debt and helps evaluate a company’s ability to pay its total liabilities.

Question 19

Which of the following transactions would require a debit to an expense account?

Accepted Answer

Paying for utilities used during the month

Question 20

A company’s trial balance shows total debits of $$50,000 and total credits of 48$$,000. What does this indicate?

Accepted Answer

There is an error in the trial balance, as debits and credits should be equal.

Chapter 2: Recording Business Transactions – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards