2 Chapter 2 Practice Questions
Rina Dhillon
Practice Questions
- The two-column record used to accumulate monetary increases and decreases for individual assets, liabilities, equity, revenue, expense, and dividends items is a:
a. chart of accounts b. T-account c. trial balance d. posting - The process of transferring amounts from the book of original entry (journal) into the ledger is referred to as:
a. Journalising b. Posting c. Analysing d. Classifying - A list of all active accounts and their balances at a particular date, which is used to prove the equality of debits and credits, is a:
a. chart of accounts b. general ledger c. journal d. trial balance - The correct term for the entry made on the left side of a T-account is:
a. Debit b. Credit c. Posting d. Journalising - A credit means the event had:
a. a favourable impact on the entity’s financial statements b. an unfavourable impact on the entity’s financial statements c. an effect on the right side of the T-account d. the effect of increasing the account balance - The chronological record (time order) in which transactions are initially recorded in the order in which they occur is called a:
a. T-account b. chart of accounts c. trial balance d. journal - Credit entries are used to:
a. increase asset accounts b. increase liability accounts c. increase expense accounts d. increase dividends - Which of the following accounts is decreased by a debit entry?
a. Cash b. Prepaid insurance c. Accounts payable d. Insurance expense - Which of the following accounts is increased by a credit entry?
a. Accounts receivable b. Dividends c. Service revenue d. Salary expense - A list of all active accounts and their balances at a particular date, which is used to prove the equality of debits and credits, is a:
a. chart of accounts b. general ledger c. journal d. trial balance - Which pair of accounts has the same set of rules for debit and credit entries?
a. Contributed equity and accounts payable b. Salary expense and retained earnings c. Cash and notes payable d. Sales revenue and accounts receivable - Transactions for Bravada Enterprises are provided below.
1 Sep Bills are sent to clients for services provided in August equalling $800 9 Sep Barlue Furnishings delivers $1060 of office furniture and $160 of office supplies to Bravada, leaving an invoice for $1220 15 Sep Payment is made to Barlue for the office furniture and supplies delivered on 9 September 23 Sep A $430 bill for advertising for the month of September is received. It will be paid on its due date in October 30 Sep Salaries of $850 are paid to employees
The journal entry to record the transactions from 1 September will include a debit of $800 to:
| a. | service revenue | |
| b. | cash | |
| c. | accounts receivable | |
| d. | retained earnings |
13. Refer to 12., the journal entry to record the transaction on 9 September will include a credit of $1220 to:
| a. | furniture and supplies |
| b. | cash |
| c. | accounts payable |
| d. | delivery expense |
14. Refer to 12., the journal entry to record the transaction on 15 September will include a debit of $1220 to:
| a. | salary expense |
| b. | salaries payable |
| c. | prepaid expenses |
| d. | accounts payable |
15. Refer to 12., the journal entry to record the transaction on 30 September will include a credit to:
| a. | salary expense | |
| b. | salary payable | |
| c. | prepaid salaries | |
| d. | cash |
16. Transactions for Hesson Properties are provided below.
| 1 Nov | Hesson purchases two new maintenance carts on credit at $375 each. The carts are added to Hesson’s property, plant and equipment records. Payment is due in 30 days |
| 8 Nov | Hesson accepts $75 of advance payments from customers for services to be provided in December |
| 15 Nov | Hesson receives the electricity bill for $150. Payment is due in 30 days |
| 20 Nov | Customers are billed $750 by Hesson for property services. |
| | Payment is due from the customers in 30 days |
| 30 Nov | Hesson received $500 from customers who were billed on 20 November |
The journal entry to record the transaction on 1 November is:
| a. | Equipment 750
Accounts payable 750 |
|
| b. | Equipment 750
Cash 750 |
|
| c. | Cash 750
Equipment 750 |
|
| d. | Accounts payable 750
Equipment 750 |
17. Refer to 16., what is the journal entry to record the transaction on 15 November?
| a. | Electricity expense 150
Cash 150 |
|
| b. | Accounts receivable 150
Electricity expense 150 |
|
| c. | Electricity expense 150
Accounts payable 150 |
|
| d. | Cash 150
Electricity expense 150 |
18. Refer to 16., what is the journal entry to record the transaction on 20 November?
| a. | Cash 750
Accounts Receivable 750 |
| b. | Accounts Receivable 750
Service Revenue 750 |
| c. | Service Revenue 750
Cash 750 |
| d. | Service Revenue 750
Accounts Payable 750 |
19. Refer to 16., what is the journal entry to record the transaction on 30 November?
| a. | Cash 500
Accounts Receivable 500 |
|
| b. | Accounts Receivable 500
Service Revenue 500 |
|
| c. | Accounts Payable 500
Cash 500 |
|
| d. | Service Revenue 500
Cash 500 |
20. An account is said to have a debit balance if:
| a. | the amount of the debits exceeds the amount of the credits | |
| b. | there are more entries on the debit side than on the credit side | |
| c. | its normal balance is in debit without regard to the amounts or number of entries on the debit side | |
| d. | the first entry of the accounting period was posted on the debit side |
Solutions:
(1) b – by definition;
(2) b – by definition;
(3) d- by definition;
(4) a- by definition;
(5) c – credits can be favourable (e.g. increase in revenue) or unfavourable (e.g. increase in liability) and a credit can also mean decreasing an account balance (e.g. cash payments) so only c is the best option;
(6) d – by definition;
(7) b – recall ADEX (i.e. Debit) LER (i.e. Credit);
(8) c – recall ADEX (i.e. Debit) LER (i.e. Credit), when cash which is an asset account decreases it is a credit, when prepaid insurance which is an asset account decreases it is a credit, when insurance expense which is an expense account decreases it is a credit, thus accounts payable is correct as being a liability account which has a normal credit balance, a decrease would mean a debit entry;
(9) c – recall ADEX (i.e. Debit) LER (i.e. Credit), accounts receivables which is an asset account, dividends and salary expense which is an expense account are debited when increased thus service revenue is correct as it is a revenue account that when increased is denoted by a credit entry ;
(10) d – by definition;
(11) a – recall ADEX (i.e. Debit) LER (i.e. Credit), contributed equity (the E in LER) and ;
(12) c – accounts receivables as a bill is sent to the customer and thus the amount is owing to the business;
(13) c – accounts payable as an invoice was left by the supplier which is an amount owing by the business, i.e. a liability;
(14) d – since payment is made of the invoice, this reduces the liability (i.e. the amount owing by the business), hence debit accounts payable;
(15) d – a payment is made of salaries which is usually paid in cash, thus an outgoing of cash which is an asset account means a credit to that account;
(16) a – company purchased equipment which is an asset to the business DR Equipment for the amount $375 x 2 equipment = $750 AND the payment is due in 30 days which mean the business is still owing the $750 which results in a liability CR Accounts Payable $750;
(17) c – received a bill that is payable in 30 days. As the business has already consumed the electricity, the expense has already occurred thus DR Electricity expense $150 and as payment has not been made thus the business is still owing $150 which results in a liability CR Accounts Payable $150;
(18) b – the business has billed a customer for services provided and provided payment terms of 30days, thus the bill amount of $750 is still owing to the business DR Accounts Receivable $750 and as the service has already been provided and thus the revenue earned, CR Service Revenue $750;
(19) a – the business has now received the amount owing of $750 which means that cash which is an asset is coming into the business DR Cash $750 and we want to reverse the initial accounts receivables to show that the amount is no longer owed to the business CR Accounts Receivables $750;
(20) a – when we calculate the balance of an account, if the amount of the debits exceeds the amount of the credits, then it has a debit balance (DR$ > CR$). If CR$ >DR$, the account has a credit balance (this is irrespective of what the normal balance of the account is)