$\text{Ending Cash} = \text{Beginning Cash} + \text{Cash Receipts} - \text{Cash Payments}$

Question 1

Which of the following best describes the effect on the accounting equation when a company issues common stock for $50,000 cash?

Accepted Answer

Assets increase by $50,000; Stockholders’ Equity increases by $50,000.

Question 2

A business purchases land for $40,000 cash. What is the effect on the accounting equation?

Accepted Answer

Total assets remain unchanged; one asset increases and another decreases by $40,000.

Question 3

If a company buys $3,700 of supplies on account, which of the following journal entries is correct?

Accepted Answer

Debit Supplies $3,700; Credit Accounts Payable $3,700

Question 4

Alladin Travel, Inc. performs services for customers and receives $7,000 cash. What is the effect on retained earnings?

Accepted Answer

Retained earnings increase by $7,000.

Question 5

Which of the following transactions will NOT affect the total assets of a company?

Accepted Answer

Paying a liability with cash

Question 6

A company pays $2,700 in cash for rent, salaries, and utilities expenses. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $2,700; Retained Earnings decrease by $2,700.

Question 7

Which of the following accounts normally has a credit balance?

Accepted Answer

Accounts Payable

Question 8

If Alladin Travel, Inc. pays $1,900 on account, what is the effect on the accounts?

Accepted Answer

Accounts Payable decreases by $1,900; Cash decreases by $1,900.

Question 9

Which of the following is the correct formula for calculating ending cash balance, given beginning cash, cash receipts, and cash payments?

Accepted Answer

$	ext{Ending Cash} = 	ext{Beginning Cash} + 	ext{Cash Receipts} - 	ext{Cash Payments}$

Question 10

A company declares and pays a $2,100 dividend. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $2,100; Retained Earnings decrease by $2,100.

Question 11

Which of the following best describes the normal balance of the Dividends account?

Accepted Answer

Debit

Question 12

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Preparing a bank reconciliation

Question 13

If a company collects $1,000 from a customer for services previously performed on account, what is the effect on the accounts?

Accepted Answer

Cash increases by $1,000; Accounts Receivable decreases by $1,000.

Question 14

Which of the following transactions would increase both assets and stockholders’ equity?

Accepted Answer

Issuing common stock for cash

Question 15

A company sells land for $22,000, which is the same amount it paid for the land. What is the effect on the accounting equation?

Accepted Answer

One asset (cash) increases by $22,000; another asset (land) decreases by $22,000; total assets remain unchanged.

Question 16

Which of the following is the correct effect of earning service revenue on account?

Accepted Answer

Accounts Receivable increases; Retained Earnings increases.

Question 17

Which of the following is the correct journal entry for paying a $2,100 dividend?

Accepted Answer

Debit Dividends $2,100; Credit Cash $2,100

Question 18

Which of the following is the correct formula for calculating collections on account?

Accepted Answer

$	ext{Collections} = 	ext{Beginning Accounts Receivable} + 	ext{Sales on Account} - 	ext{Ending Accounts Receivable}$

Question 19

Which of the following statements is TRUE regarding the rules of debits and credits?

Accepted Answer

Debits increase assets and expenses; credits increase liabilities, revenues, and stockholders’ equity.

Question 20

A company’s trial balance shows total debits of $61,800 and total credits of $61,800. What does this indicate?

Accepted Answer

The ledger is in balance, but errors may still exist.

Transactional Analysis and the Accounting Cycle: Study Notes for ACC 201 Exam 1

Study Guide - Practice Questions