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

$$\text{End RE} = \text{Beg RE} + \text{Net Income} - \text{Dividends}$$

Question 1

Which of the following best describes the accounting equation?

Accepted Answer

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

Question 2

A company purchases $$\3$$,700$ of supplies on account. Which accounts are affected and how?

Accepted Answer

Increase Supplies (Asset) and Increase Accounts Payable (Liability) by $$\3$$,700$

Question 3

Which of the following is NOT considered an asset account?

Accepted Answer

Accounts Payable

Question 4

If a company pays $$\2$$,700$ in expenses, what is the impact on the accounting equation?

Accepted Answer

Decrease Assets by $$\2$$,700$$ and Decrease Stockholders' Equity by $$\$$2,700$$

Question 5

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

Accepted Answer

Earning service revenue for cash

Question 6

What is the normal balance for the Dividends account?

Accepted Answer

Debit

Question 7

Which step comes immediately after posting to ledger accounts in the accounting cycle?

Accepted Answer

Preparing the trial balance

Question 8

A company collects $$\1$$,000$ from a customer on account. What is the effect on the accounts?

Accepted Answer

Increase Cash (Asset) by $$\1$$,000$$ and Decrease Accounts Receivable (Asset) by $$\$$1,000$$

Question 9

Which of the following is TRUE about double-entry accounting?

Accepted Answer

Every transaction affects at least two accounts

Question 10

If a company issues common stock for $$\50$$,000$ cash, what is the effect on the accounting equation?

Accepted Answer

Increase Assets by $$\50$$,000$$ and Increase Stockholders' Equity by $$\$$50,000$$

Question 11

Which account would be credited when a company earns revenue?

Accepted Answer

Revenue

Question 12

A company pays $$\1$$,900$ toward a previously recorded account payable. What is the effect?

Accepted Answer

Decrease Cash (Asset) by $$\1$$,900$$ and Decrease Accounts Payable (Liability) by $$\$$1,900$$

Question 13

Which of the following accounts has a normal credit balance?

Accepted Answer

Revenues

Question 14

What is the effect of paying dividends on the accounting equation?

Accepted Answer

Decrease Assets and Decrease Stockholders' Equity

Question 15

Which of the following is the correct formula for ending retained earnings?

Accepted Answer

$$	ext{End RE} = 	ext{Beg RE} + 	ext{Net Income} - 	ext{Dividends}$$

Question 16

Which of the following is NOT a step in journalizing a transaction?

Accepted Answer

Prepare the trial balance

Question 17

A company sells land at cost for $$\22$$,000$ cash. What is the effect on the accounting equation?

Accepted Answer

Increase Cash (Asset) by $$\22$$,000$$ and Decrease Land (Asset) by $$\$$22,000$$

Question 18

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

Accepted Answer

To verify that total debits equal total credits

Question 19

Which account type increases with a debit?

Accepted Answer

Expenses

Question 20

A company performs $$\3$$,000$ of services on account. What is the effect on the accounts?

Accepted Answer

Increase Accounts Receivable (Asset) by $$\3$$,000$$ and Increase Revenue by $$\$$3,000$$

Fundamentals of Financial Accounting: Transactions, Accounts, and the Accounting Cycle

Study Guide - Practice Questions