Question 1

Which of the following best describes the accounting equation and its components?

Accepted Answer

Assets = Liabilities + Equity

Question 2

A company purchases office supplies on account for $800. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Office Supplies $$800; Credit Accounts Payable 800$$

Question 3

Which of the following accounts normally has a credit balance?

Accepted Answer

Accounts Payable

Question 4

If a company receives $10,000 cash from issuing common stock, what is the effect on the accounting equation?

Accepted Answer

$$10,000 increase in assets and 10$$,000 increase in equity

Question 5

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

Accepted Answer

Debit

Question 6

A company pays $2,000 for rent expense in cash. Which of the following is the correct journal entry?

Accepted Answer

Debit Rent Expense $$2,000; Credit Cash 2$$,000

Question 7

Which of the following transactions would require a compound journal entry?

Accepted Answer

Paying $$1,000 for rent and 500 $$for salaries in a single cash payment

Question 8

What is the purpose of a trial balance?

Accepted Answer

To verify that total debits equal total credits in the ledger

Question 9

If the total debits in a trial balance do not equal the total credits, which of the following steps should you take first?

Accepted Answer

Search the trial balance for a missing account

Question 10

A company collected $3,000 cash from a client for services to be performed in the future. Which accounts are affected and how?

Accepted Answer

Debit Cash $$3,000; Credit Unearned Revenue 3$$,000

Question 11

Which formula is used to calculate the debt ratio?

Accepted Answer

$$Debt\ Ratio = \frac{Total\ Liabilities}{Total\ Assets}$$

Question 12

Which of the following is NOT a source document in the accounting cycle?

Accepted Answer

A trial balance

Question 13

If a company posts a $$1,000 debit to Accounts Receivable and a 1$$,000 credit to Service Revenue, what does this transaction represent?

Accepted Answer

Services performed on account

Question 14

Which of the following statements about the normal balance of accounts is correct?

Accepted Answer

Asset accounts have a normal debit balance

Question 15

A company pays $500 on an account payable. What is the effect on the accounting equation?

Accepted Answer

Decrease in assets and decrease in liabilities

Question 16

Which of the following best describes the process of posting?

Accepted Answer

Transferring journal entries to the ledger accounts

Question 17

If a company’s total assets are $$200,000 and total liabilities are 80$$,000, what is the debt ratio?

Accepted Answer

$$Debt\ Ratio = \frac{80,000}{200,000} = 0.4$$

Question 18

Which of the following transactions would increase both an asset and a liability?

Accepted Answer

Purchasing equipment by signing a note payable

Question 19

Which of the following is the correct sequence of steps in the journalizing and posting process?

Accepted Answer

Identify accounts, apply debit/credit rules, record in journal, post to ledger, check equation balance

Recording Business Transactions: Foundations of Financial Accounting

Study Guide - Practice Questions