Chapter 2: The Recording Process

Question 1

1. Which of the following statements about an account
   is true?

(a) The right side of an account is the debit or
increase side.
(b) An account is an individual accounting record of
increases and decreases in specifi c asset, liability,
and owner’s equity items.
(c) There are separate accounts for specifi c assets
and liabilities but only one account for owner’s equity items.
(d) The left side of an account is the credit or decrease
side.

Answer 1

1. (b) An account is an individual accounting record of increases and decreases in specifi c asset, liability, and owner’s equity items.

Question 2

2. Debits:

(a) increase both assets and liabilities.
(b) decrease both assets and liabilities.
(c) increase assets and decrease liabilities.
(d) decrease assets and increase liabilities.

Answer 2

2. (c) Debits increase assets but they decrease liabilities.

Question 3

3. A revenue account:

(a) is increased by debits.
(b) is decreased by credits.
(c) has a normal balance of a debit.
(d) is increased by credits.

Answer 3

3. (d) A revenue account is increased by credits.

Question 4

4. Accounts that normally have debit balances are:

(a) assets, expenses, and revenues.
(b) assets, expenses, and owner’s capital.
(c) assets, liabilities, and owner’s drawings.
(d) assets, owner’s drawings, and expenses.

Answer 4

4. (d) Assets, owner’s drawings, and expenses all have normal debit balances.

Question 5

5. The expanded accounting equation is:
   (a) Assets + Liabilities = Owner’s Capital + Owner’s
   Drawings + Revenues + Expenses.
   (b) Assets = Liabilities + Owner’s Capital + Owner’s
   Drawings + Revenues - Expenses.
   (c) Assets = Liabilities - Owner’s Capital - Owner’s
   Drawings - Revenues - Expenses.
   (d) Assets = Liabilities + Owner’s Capital - Owner’s
   Drawings + Revenues - Expenses.

Answer 5

5. (d) The expanded accounting equation is

Assets =5 Liabilities + Owner’s Capital - Owner’s Drawings + Revenue - Expenses.

Question 6

6. Which of the following is not part of the recording
   process?

(a) Analyzing transactions.
(b) Preparing a trial balance.
(c) Entering transactions in a journal.
(d) Posting transactions.

Answer 6

6. (b) Preparing the trial balance is not part of the recording process.

Question 7

7. Which of the following statements about a journal is
   false?

(a) It is not a book of original entry.
(b) It provides a chronological record of transactions.
(c) It helps to locate errors because the debit and credit
amounts for each entry can be readily compared.
(d) It discloses in one place the complete effect of a
transaction.

Answer 7

7. (a) The journal is a book of original entry

Question 8

8. The purchase of supplies on account should result in:
   (a) a debit to Supplies Expense and a credit to Cash.
   (b) a debit to Supplies Expense and a credit to Accounts Payable.
   (c) a debit to Supplies and a credit to Accounts Payable.
   (d) a debit to Supplies and a credit to Accounts
   Receivable.

Answer 8

8. (c) The purchase of supplies on account results in a debit to Supplies and a credit to Accounts Payable.

Question 9

9. The order of the accounts in the ledger is:

(a) assets, revenues, expenses, liabilities, owner’s capital, owner’s drawings.
(b) assets, liabilities, owner’s capital, owner’s drawings, revenues, expenses.
(c) owner’s capital, assets, revenues, expenses, liabilities, owner’s drawings.
(d) revenues, assets, expenses, liabilities, owner’s
capital, owner’s drawings.

Answer 9

9. (b) The correct order of the accounts in the ledger is assets, liabilities, owner’s capital, owner’s drawing, revenues, expenses.

Question 10

10. A ledger:

(a) contains only asset and liability accounts.
(b) should show accounts in alphabetical order.
(c) is a collection of the entire group of accounts
maintained by a company.
(d) is a book of original entry.

Answer 10

10. (c) A ledger is a collection of all the accounts maintained by a company.

Question 11

11. Posting:

(a) normally occurs before journalizing.
(b) transfers ledger transaction data to the journal.
(c) is an optional step in the recording process.
(d) transfers journal entries to ledger accounts.

Answer 11

11. (d) Posting transfers journal entries to ledger accounts

Question 12

12. Before posting a payment of $5,000, the Accounts Payable of Senator Company had a normal balance of
    $16,000. The balance after posting this transaction was:

(a) $21,000.
(b) $5,000.
(c) $11,000.
(d) Cannot be determined.

Answer 12

12. (c) The balance is $11,000

$16,000 normal balance - $5,000 payment

Question 13

13. A trial balance:

(a) is a list of accounts with their balances at a given
time.
(b) proves the journalized transactions are correct.
(c) will not balance if a correct journal entry is posted
twice.
(d) proves that all transactions have been recorded.

Answer 13

13. (a) A trial balance is a list of accounts with their balances at a given time.

Question 14

14. A trial balance will not balance if:

(a) a correct journal entry is posted twice.
(b) the purchase of supplies on account is debited to
Supplies and credited to Cash.
(c) a $100 cash drawing by the owner is debited to
Owner’s Drawings for $1,000 and credited to Cash
for $100.
(d) a $450 payment on account is debited to Accounts
Payable for $45 and credited to Cash for $45.

Answer 14

14. (c) The trial balance will not balance in this case because the debit of $1,000 to Owner’s Drawings is not equal to the credit
    of $100 to Cash

Question 15

15. The trial balance of Jeong Company had accounts
    with the following normal balances: Cash $5,000,
    Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000, Rent Expense $10,000, Owner’s Capital $42,000,Owner’s Drawings $15,000, and Equipment $61,000. In preparing a trial balance, the total in the debit column is:

(a) $131,000.
(b) $216,000.
(c) $91,000.
(d) $116,000.

Answer 15

15. (a) The total debit column = $5,000 (Cash) + $40,000 (Salaries and Wages Expense) + $10,000 (Rent Expense) + $15,000
    (Owner’s Drawings) + $61,000 (Equipment) = $131,000. The normal balance for Assets, Expenses, and Owner’s Drawings is a debit.