$\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$

Question 1

Which of the following best describes a business transaction in financial accounting?

Accepted Answer

Any event that has a financial impact on the business and can be measured reliably.

Question 2

Which equation represents the basic relationship in accounting?

Accepted Answer

$	ext{Assets} = 	ext{Liabilities} + 	ext{Stockholders' Equity}$

Question 3

Which of the following is NOT considered an asset account?

Accepted Answer

Notes Payable

Question 4

A company receives $10,000 cash from a customer for services to be performed next month. Which accounts are affected and how?

Accepted Answer

Cash increases; Unearned Revenue increases

Question 5

Which account is classified as a liability?

Accepted Answer

Accounts Payable

Question 6

If Alladin Travel, Inc. issues $50,000 of common stock for cash, what is the effect on the accounting equation?

Accepted Answer

Assets increase by $50,000; Stockholders' Equity increases by $50,000

Question 7

Which of the following is a correct journal entry for purchasing equipment for $5,000 cash?

Accepted Answer

Debit Equipment $5,000; Credit Cash $5,000

Question 8

Which of the following statements about the double-entry system is TRUE?

Accepted Answer

Each transaction affects at least two accounts.

Question 9

What is the normal balance for the Cash account?

Accepted Answer

Debit

Question 10

A company pays $2,000 for rent in advance. How should this transaction be recorded?

Accepted Answer

Debit Prepaid Expenses $2,000; Credit Cash $2,000

Question 11

Which of the following is an example of a stockholders’ equity account?

Accepted Answer

Common Stock

Question 12

If a company has beginning cash of $1,000, receives $8,000 during the month, and ends with $3,000, what were the total cash payments?

Accepted Answer

$\$6,000$

Question 13

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To list all accounts and their balances to ensure debits equal credits

Question 14

Which account would be credited when a company borrows money by signing a note?

Accepted Answer

Notes Payable

Question 15

Which of the following is a real-world application of machine learning in accounting?

Accepted Answer

Identifying general ledger account names for transactions

Question 16

Which programming language is most popular for machine learning applications in accounting?

Accepted Answer

Python

Question 17

A company declares and pays dividends of $5,000. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $5,000; Stockholders' Equity decreases by $5,000

Question 18

Which of the following is an example of an accrued liability?

Accepted Answer

Interest payable that has not yet been paid

Question 19

Which of the following is TRUE about the rules of debit and credit?

Accepted Answer

Debits increase assets; credits increase liabilities and equity

Question 20

If a company earns $12,000 in revenue and incurs $7,000 in expenses, what is the effect on retained earnings?

Accepted Answer

Retained earnings increase by $5,000

Chapter 2: Transaction Analysis – Financial Accounting Study Notes

Study Guide - Practice Questions