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Chapter 2—The Accounting Information System
TRUE/FALSE
- The time-period assumption assumes that a company prepares its financial statements every month.
ANS: F PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- Because it tends to provide the most reliable measure of activity, all assets are reported on the balance
sheet at their fair market values.
ANS: F PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- The term used to refer to an asset's original cost is book value.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- The going concern assumption infers that a company will continue to operate into the future.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- A company in the process of liquidation is considered to be under the going concern assumption.
ANS: F PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- The International Accounting Standards Board (IASB) was created in order to develop worldwide
accounting standards that are required for all financial statements, regardless of the country where the financial statements were prepared.
ANS: F PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1 NAT: BUSPROG: Communication STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.
- The initial step in the recording process is sometimes referred to as journalizing.
ANS: T PTS: 1 DIF: Difficulty: Moderate Cornerstones of Financial Accounting 3rd Edition Rich Test Bank Visit TestBankDeal.com to get complete for all chapters
OBJ: LO: 2-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- The issuance of common stock increases a company's assets and stockholders’ equity.
ANS: T PTS: 1 DIF: Difficulty: Moderate REF: CS2-1 OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Analysis NOT: 1 min.
- The payment of a dividend increases both cash and stockholders' equity of the distributing entity.
ANS: F PTS: 1 DIF: Difficulty: Moderate REF: CS2-1 OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Analysis NOT: 1 min.
- According to the historical cost principle, assets are always carried at their current market value.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- An accounting transaction may impact only one financial statement or multiple statements.
ANS: T PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- The accounting equation must balance before and after every accounting transaction.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- A chart of accounts is prepared to determine whether the books have gotten out of balance.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- GAAP has established a universal chart of accounts that is applicable to all businesses in the United
States.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- A T-account for Cash cannot contain any credits.
ANS: F PTS: 1 DIF: Difficulty: Easy REF: CS2-2 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- A debit entry increases assets and revenue accounts.
ANS: F PTS: 1 DIF: Difficulty: Easy REF: CS2-2 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- The dividends account has a normal debit balance.
ANS: T PTS: 1 DIF: Difficulty: Easy REF: CS2-3 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- Under the double-entry system of accounting, every transaction is entered in at least two accounts on
opposite sides of a T-account.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- Under the double-entry system of accounting, a debit is always a negative entry.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- Income statement accounts have normal credit balances.
ANS: F PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- Only events that can be measured with sufficient reliability will be recognized in the accounting
system.
ANS: T PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.
- The general ledger is an example of a book of original entry.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-5 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.
- The general ledger is often used for the initial recording of repetitive transactions.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.
- A trial balance is the listing of each active account and its corresponding debit or credit balance at a
particular point in time.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-7 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.
- Even though a trial balance reveals that the debits equal the credits, there still may be errors in the
company’s books.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-7 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.
- The purchase of office supplies from a supplier is an example of an external event.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- The conservatism principle is concerned with the possibility of understating assets or income.
ANS: F PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- A full disclosure policy stipulates that all information that would make a difference to financial
statement users should be revealed.
ANS: T PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.
- If a company performed services for credit, then the debit side of the journal entry would be to
Accounts Payable and the credit would be to Service Revenue.
ANS: F PTS: 1 DIF: Difficulty: Moderate REF: CS2-4 OBJ: LO: 2-5 NAT: BUSPROG: Communication
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