Chapter 2T Accounts, Debits and Credits, Trial Balance, and Financial Statements

Chapter 2—T Accounts, Debits and Credits, Trial Balance, and Financial Statements

MULTIPLE CHOICE

• The normal balance of an account is on the
• plus side.
• left side.
• debit side.
• right side.
• credit side.

ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Knowledge

• When a T account has several items on both sides, the balance of the account is written
• on the side with the greatest number of items.
• on the side with the least number of items.
• on the side with the larger total.
• on the side with the smaller total.
• in none of these locations.

ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• A debit may signify a decrease in a(n)
• liability account.
• asset account.
• revenue account.
• liability and a revenue account.
• asset and a revenue account.

ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• A debit may result in
• an increase in an expense account.
• an increase in an asset account.
• a decrease in a liability account.
• a decrease in a revenue account.
• all of these.

ANS: E PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• A credit may result in
• an increase in a liability account.

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• an increase in a revenue account.
• a decrease in an asset account.
• an increase in the Capital account.
• all of these.

ANS: E PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• A credit may result in
• an increase in an asset account.
• a decrease in the Capital account.
• an increase in a liability account.
• a decrease in a liability account.
• none of these.

ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• Which of the following classifications of accounts has/have a normal credit balance?
• Drawing
• Revenues
• Liabilities
• Revenues and liabilities
• All of these

ANS: D PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• Which of the following describes the classification and normal balance of H. Gale, Capital?
• Asset, debit
• Revenue, credit
• Owner's equity, debit
• Expense, debit
• None of these

ANS: E PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom's: Knowledge

• Which of the following describes the classification and normal balance of the Income from Services

account?

• Capital, debit
• Revenue, credit
• Asset, credit
• Asset, debit
• Expense, debit

ANS: B PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 | LO: 2-3 NAT: AACSB: Reflective Thinking

STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom's: Knowledge

• Which of the following is an asset account?
• Insurance Expense
• Advertising Expense
• Office Equipment
• Sales
• None of these

ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom's: Knowledge

• The second step in the analytical phase of accounting is
• to determine whether there is an increase or a decrease in the accounts.
• to determine which accounts are involved.
• to formulate the entry as a debit to one account and as a credit to another account.
• to identify the classification of the accounts involved.
• none of these.

ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Comprehension

• If a $47 cash purchase of supplies is recorded as a $57 debit to Supplies Expense and a $57 credit to

Cash, the result will be that

• the trial balance will be out of balance.
• the Supplies Expense account will be understated.
• the Cash account will be overstated.
• Supplies Expense will be overstated and Supplies will be understated.
• none of these will be true.

ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Analytic STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Application

• A purchase of supplies on account should be recorded as
• a debit to Supplies and a credit to Cash.
• a debit to Accounts Payable and a credit to Supplies.
• a debit to Supplies and a credit to Accounts Payable.
• a debit to Supplies Expense and a credit to Accounts Receivable.
• none of these.

ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Analytic STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Application

• A business buys office equipment for cash. What effect will this transaction have on the accounts?
• Debit an asset account and credit an expense account
• Debit an asset account and credit an asset account
• Debit an expense account and credit an asset account
• Debit a liability account and credit an asset account

• None of these

ANS: B PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Analytic STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Application

• The receipt of cash on account from a customer should be recorded as
• a debit to Cash and a credit to Accounts Payable.
• a debit to Cash and a credit to Income from Services.
• a debit to Cash and a credit to Accounts Receivable.
• a debit to Cash and a credit to the Capital account.
• none of these.

ANS: C PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Analytic STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Application

• The asset that a business enterprise creates when it maintains accounts for its charge customers is
• Accounts Payable.
• Drawing.
• Accounts Receivable.
• Capital.
• none of these.

ANS: C PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: GAAP KEY: Bloom's: Comprehension

• Which of the following entries records the withdrawal of cash for personal use by D. Bill, the owner of

a business?

• Debit Cash and credit D. Bill, Drawing
• Debit Cash and credit Salary Expense
• Debit Salary Expense and credit Cash
• Debit D. Bill, Drawing and credit Cash
• None of these

ANS: D PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: AACSB: Analytic STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Application

• A trial balance is
• a listing of all the assets, liabilities, and owner's equity accounts that have balances.
• a listing of all the accounts that have zero balances.
• a listing of all the revenue and expense accounts that have balances.
• all of these.
• none of these.

ANS: A PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-5 NAT: AACSB: Reflective Thinking STA: AICPA-FN: Measurement|ACBSP: Recording Transactions KEY: Bloom's: Knowledge