Q: Which of the following best describes the accounting equation and its relationship to accounts?

The accounting equation is $$\text{Assets} = \text{Liabilities} + \text{Equity}$$ and each part contains multiple accounts that record increases and decreases over time.

Q: Which formula is used to calculate the debt ratio, and what does it measure?

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$; measures the proportion of assets financed by debt.

Question 1

Which of the following best describes the accounting equation and its relationship to accounts?

Accepted Answer

The accounting equation is $$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$ and each part contains multiple accounts that record increases and decreases over time.

Question 2

Which of the following is an example of a liability account?

Accepted Answer

Accounts Payable

Question 3

A business purchases office supplies on account. Which accounts are affected and how?

Accepted Answer

Office Supplies is debited; Accounts Payable is credited.

Question 4

What is the normal balance of an asset account, and why?

Accepted Answer

Debit, because assets increase with debits.

Question 5

Which journal entry correctly records the payment of $1,200 in employee salaries with cash?

Accepted Answer

Debit Salaries Expense $$1,200; Credit Cash 1$$,200

Question 6

If a company receives $600 cash in advance for services to be performed next month, which account is credited?

Accepted Answer

Unearned Revenue

Question 7

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

Accepted Answer

Issuing common stock for cash

Question 8

A company purchases a building for $60,000 by signing a note payable. What is the effect on the accounting equation?

Accepted Answer

Increase assets and increase liabilities by $60,000

Question 9

Which formula is used to calculate the debt ratio, and what does it measure?

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$; measures the proportion of assets financed by debt.

Question 10

If total debits on a trial balance do not equal total credits, which method can help locate a transposition error?

Accepted Answer

Divide the out-of-balance amount by 9.

Question 11

Which of the following is NOT a step in the journalizing and posting process?

Accepted Answer

Prepare the adjusted trial balance before posting.

Question 12

A company pays $3,000 cash for three months of rent in advance. Which account is debited?

Accepted Answer

Prepaid Rent

Question 13

Which account would be credited when a company earns service revenue on account?

Accepted Answer

Service Revenue

Question 14

What is the effect on the accounting equation when a company pays $5,000 cash in dividends?

Accepted Answer

Decrease assets and decrease equity by $5,000

Question 15

Which of the following best describes a compound journal entry?

Accepted Answer

A journal entry with multiple debits and/or credits.

Question 16

If a company receives a utility bill for $100 to be paid next month, which accounts are affected?

Accepted Answer

Utilities Expense is debited; Utilities Payable is credited.

Question 17

Which of the following is true about the normal balance of equity accounts?

Accepted Answer

Equity accounts increase with credits and have a credit normal balance.

Question 18

A company collects $2,000 cash from a client who previously owed money. Which accounts are affected?

Accepted Answer

Cash is debited; Accounts Receivable is credited.

Question 19

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

Accepted Answer

To list all account balances and verify that total debits equal total credits.

Question 20

If a company has total liabilities of $$50,000 and total assets of 100$$,000, what is its debt ratio?

Accepted Answer

$$\frac{50,000}{100,000} = 0.5$$

Recording Business Transactions: Accounts, Debits & Credits, and the Accounting Cycle

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