Chapter 02 - The Accounting Cycle: During the Period

Chapter 02 - The Accounting Cycle: During the Period

2-1 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw- Hill Education.File: Chapter 002 The Accounting Cycle: During the Period

True/False

[Question]

• External transactions are transactions the firm conducts with a separate economic entity, such

as selling products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing money from a bank.

Answer: True

Learning Objective: 02-01

Difficulty: Easy

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

Blooms: Remember

Topic: External Transactions

[Question]

• Internal transactions are events that affect the financial position of the company but do not

include an exchange with a separate economic entity. Examples are using supplies on hand and earning revenues after having received cash in advance from a customer.

Answer: True

Learning Objective: 02-01

Difficulty: Easy

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

Blooms: Remember

Topic: Internal Transactions

[Question]

• A list of all account names used to record transactions of a company is referred to as a T-

account.

Answer: False

Feedback: This is referred to as a chart of accounts.

Learning Objective: 02-01

Difficulty: Easy

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

Blooms: Remember

Topic: Chart of Accounts

[Question]

• After recording each transaction, total assets must equal total liabilities plus stockholders’

equity.

Answer: True

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Chapter 02 - The Accounting Cycle: During the Period

2-2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw- Hill Education.

Learning Objective: 02-02

Difficulty: Easy

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Remember

Topic: Effect of Transactions on Accounting Equation

[Question]

• If a transaction causes total assets of the company to increase by $2,000, then liabilities plus

stockholders’ equity also increases by $2,000.

Answer: True

Learning Objective: 02-02

Difficulty: Hard

AACSB: Analytic

AICPA: FN Measurement

Blooms: Apply

Topic: Effect of Transactions on Accounting Equation

[Question]

• If a transaction causes total assets of the company to increase by $5,000 and total liabilities to

increase by $3,000, then stockholders’ equity increases by $8,000.

Answer: False

Feedback: Assets ($5,000) = Liabilities ($3,000) + Stockholders’ Equity ($2,000).

Learning Objective: 02-02

Difficulty: Hard

AACSB: Analytic

AICPA: FN Measurement

Blooms: Apply

Topic: Effect of Transactions on Accounting Equation

[Question]

• Borrowing cash from the bank causes assets to increase and liabilities to increase.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Purchasing equipment using cash causes assets to increase.

Answer: False

Feedback: One asset goes up; another asset goes down. There is no change to total assets.

Learning Objective: 02-02

Difficulty: Medium

Chapter 02 - The Accounting Cycle: During the Period

2-3 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw- Hill Education.

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Providing services to customers for cash causes stockholders’ equity to increase.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Incurring employees’ salaries but not paying them causes no change to stockholders’ equity.

Answer: False

Feedback: Salaries expense would reduce stockholders’ equity.

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Paying dividends to its stockholders causes a company’s stockholders’ equity to decrease.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Selling common stock for cash causes assets to increase and stockholders’ equity to decrease.

Answer: False

Feedback: Stockholders’ equity increases.

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

Chapter 02 - The Accounting Cycle: During the Period

2-4 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw- Hill Education.

[Question]

• Purchasing office supplies on account causes assets to increase and liabilities to increase.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Providing services to customers on account causes assets to increase and stockholders’ equity

to increase.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Receiving cash in advance from a customer for services to be provided in the future causes

assets to increase and stockholders’ equity to increase.

Answer: False

Feedback: Assets increase and liabilities increase.

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Paying for one year of rent in advance does not affect the accounting equation.

Answer: True

Learning Objective: 02-02

Difficulty: Medium

AACSB: Reflective Thinking

AICPA: FN Measurement

Blooms: Understand

Topic: Effect of Transactions on Accounting Equation

[Question]

• Purchasing supplies on account increases the balance of the Accounts Receivable account.