Multiple Choice Questions

Chapter 02 - The Accounting Information System 2-1 Chapter 02 The Accounting Information System

Multiple Choice Questions

• Which of the following is not part of measuring external transactions?
• Using source documents to analyze accounts affected.
• Recording transactions.
• Making payments on all amounts owed.
• Analyzing transactions for their effect on the accounting equation.

2. External events include all of the following except:

• Paying employees' salaries.
• Purchasing equipment.
• Using office supplies.
• Collecting an account receivable.

• Which step in the process of measuring external transactions involves assessing the

equality of total debits and total credits?

• Use source documents to determine accounts affected by the transaction.
• Prepare a trial balance.
• Analyze the impact of the transaction on the accounting equation.
• Post the transaction to the T-account in the general ledger.

• For each transaction recorded in an accounting system, the basic equation that must be

maintained at all times is:

• Assets = Liabilities + Stockholders' Equity.
• Cash Increases = Cash Decreases.
• Revenues = Expenses + Dividends.
• Assets = Liabilities.

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Chapter 02 - The Accounting Information System 2-2

5. The following amounts are reported in the ledger of Mariah Company:

What is the balance in the Common Stock account?

A. $44,000.

B. $32,000.

C. $48,000.

D. $42,000.

• When a company incurs workers' salaries but does not pay them, how will the basic

accounting equation be affected?

• Stockholders' equity decreases.
• Revenues decrease.
• Expenses decrease.
• Liabilities decrease.

• When cash payments are made to stockholders, what is the effect on the company's

accounts?

• Cash decreases and dividends increase.
• Cash increases and dividends decrease.
• Cash decreases and common stock decreases.
• Cash increases and common stock increases.

• Which of the following is not an asset account?
• Supplies.
• Accounts Payable.
• Equipment.
• Accounts Receivable.

Chapter 02 - The Accounting Information System 2-3

9. An account receivable can best be defined as:

• A payment to the owners.
• A sale of goods and services.
• A resource owned by the company.
• An amount owed by the company.

10. Receiving assets from customers before services are performed results in:

• Prepaid Assets.
• Service Revenue.
• Unearned Revenues.
• Accounts Receivable.

• When the company pays stockholders a dividend, what is the effect on the accounting

equation for that company?

• Decrease stockholders' equity and increase assets.
• Increase liabilities and increase assets.
• Decrease assets and decrease liabilities.
• Decrease assets and decrease stockholders' equity.

• Pumpkin Inc. sold $500 in pumpkins to a customer on account on January 1. On January

11 Pumpkin collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the collection of cash?

• No net effect to the accounting equation.
• Decrease assets and increase liabilities.
• Increase assets and increase liabilities.
• Decrease assets and decrease liabilities.

• A company receives a $50,000 cash deposit from a customer on October 15 but will not

provide services until November 20. Which of the following statements is true?

• The company records service revenue on October 15.
• The company records cash collection November 20.
• The company records an unearned revenue on October 15.
• The company records nothing on October 15.

Chapter 02 - The Accounting Information System 2-4

• Which of the following would increase assets and increase liabilities?
• Provide services to customers on account.
• Purchase office supplies on account.
• Pay dividends to stockholders.
• Received a utility bill but do not pay for it.

15. Receiving cash from an account receivable:

• Increases a revenue and decreases an asset.
• Decreases a liability and increases an asset.
• Increases an asset and increases a revenue.
• Increases one asset and decreases another asset.

• An expense has what effect on the accounting equation?
• Decrease liabilities.
• Decrease stockholders' equity.
• Increase assets.
• No effect.

• A revenue has what effect on the accounting equation?
• Increase liabilities.
• Decrease assets.
• Increase stockholders' equity.
• No effect.

• Investments by stockholders have what effect on the accounting equation?
• Assets increase and liabilities increase.
• Expenses increase and liabilities increase.
• Assets increase and revenues increase.
• Assets increase and stockholders' equity increases.