Q: Which equation must always remain in balance as transactions are recorded?

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

Question 1

Which of the following best describes the accounting cycle?

Accepted Answer

A process that starts with analyzing transactions and ends with preparing a post-closing trial balance.

Question 2

Which equation must always remain in balance as transactions are recorded?

Accepted Answer

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

Question 3

Plush Service Corporation pays $72,000 for a three-year insurance policy on July 10, with coverage beginning August 1. What is the adjusting journal entry on December 31 of the same year?

Accepted Answer

Debit Insurance Expense $$15,000; Credit Prepaid Insurance 15$$,000

Question 4

Which of the following is true regarding the double-entry system?

Accepted Answer

Debits must always equal credits for each transaction.

Question 5

A company receives $25,000 in advance for services to be provided over the next year. By year-end, 30% of the services have been performed. What is the correct adjusting entry?

Accepted Answer

Debit Deferred Service Revenue $$7,500; Credit Service Revenue 7$$,500

Question 6

Which of the following accounts is considered a permanent account?

Accepted Answer

Retained Earnings

Question 7

What is the purpose of closing entries in the accounting cycle?

Accepted Answer

To bring all temporary accounts to a zero balance for the next period.

Question 8

Which of the following is NOT revealed by a trial balance?

Accepted Answer

A transaction that is not journalized.

Question 9

A company incurs $6,000 in legal fees but has not yet paid them. What is the correct journal entry?

Accepted Answer

Debit Legal Fees Expense $$6,000; Credit Accounts Payable 6$$,000

Question 10

Which of the following best describes a deferred expense?

Accepted Answer

A cash payment made before the expense is recognized under accrual accounting.

Question 11

Which of the following is the correct journal entry to record depreciation of $8,000 for the year?

Accepted Answer

Debit Depreciation Expense $$8,000; Credit Accumulated Depreciation 8$$,000

Question 12

Which of the following statements about the adjusted trial balance is correct?

Accepted Answer

It ensures the equality of debits and credits after adjusting entries.

Question 13

Which of the following is true about the accrual basis of accounting?

Accepted Answer

Expenses are recognized when incurred, regardless of when cash is paid.

Question 14

A company has $$1,115,000 in supplies on its unadjusted trial balance. At year-end, only 500$$,000 of supplies remain. What is the adjusting entry?

Accepted Answer

Debit Supplies Expense $$615,000; Credit Supplies 615$$,000

Question 15

Which of the following is the correct sequence for preparing financial statements?

Accepted Answer

Income Statement, Statement of Stockholders’ Equity, Balance Sheet

Question 16

Which of the following is true about reversing entries?

Accepted Answer

They are optional and simplify the recording of subsequent transactions related to accruals.

Question 17

If a company initially records all prepaid expenses as expenses, what is the effect before adjustment at year-end?

Accepted Answer

Assets are understated and expenses are overstated.

Question 18

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

Accepted Answer

Preparing the worksheet before journalizing transactions

Question 19

Which of the following accounts would NOT appear on a post-closing trial balance?

Accepted Answer

Dividends

Question 20

A company earned $35,000 in service revenue that has not yet been billed to customers by year-end. What is the correct adjusting entry?

Accepted Answer

Debit Accounts Receivable $$35,000; Credit Service Revenue 35$$,000

Chapter 4: Review of the Accounting Cycle – Principles of Accounting Study Notes

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