Review of the Accounting Process

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True / False Questions

• Owners' equity can be expressed as assets minus liabilities.

True False

• Debits increase asset accounts and decrease liability accounts.

True False

• Balance sheet accounts are referred to as temporary accounts because their balances are always

changing.

True False

• After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is

the preparation of financial statements.

True False

• Adjusting journal entries are recorded at the end of any period when financial statements are

prepared.

True False

• Accruals occur when the cash flow precedes either revenue or expense recognition.

True False

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• The adjusted trial balance contains only permanent accounts.

True False

• The income statement summarizes the operating activity of a firm at a particular point in time.

True False

• The balance sheet can be considered a change or flow statement.

True False

• The statement of cash flows summarizes transactions that caused cash to change during a

reporting period.

True False

• The statement of shareholders' equity discloses the changes in the temporary shareholders' equity

accounts.

True False

• The post-closing trial balance contains only permanent accounts.

True False

• The closing process brings all temporary accounts to a zero balance and updates the balance in

the retained earnings account.

True False

• A reversing entry at the beginning of a period for salaries would include a debit to salaries

expense.

True False

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• The sale of merchandise on account would be recorded in a sales journal.

True False

• The payment of cash to a supplier would be recorded in a purchases journal.

True False

Multiple Choice Questions

17. The accounting equation can be stated as:

A. A + L - OE = 0.

B. A - L + OE = 0.

C. -A + L - OE = 0.

D. A - L - OE = 0.

18. Examples of external transactions include all of the following except:

• Paying employee salaries.

• Purchasing equipment.

• Depreciating equipment.

• Collecting a receivable.

19. Examples of internal transactions include all of the following except:

• Writing off an uncollectible account.

• Recording the expiration of prepaid insurance.

• Recording unpaid salaries.

• Paying salaries to company employees.

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• XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal

entry to record this transaction would include a:

• Debit to investments.

• Credit to retained earnings.

• Credit to capital stock.

• Credit to revenue.

21. Incurring an expense for advertising on account would be recorded by:

• Debiting liabilities.

• Crediting assets.

• Debiting an expense.

• Debiting assets.

22. A sale on account would be recorded by:

• Debiting revenue.

• Crediting assets.

• Crediting liabilities.

• Debiting assets.

• Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary

Parker Co.'s journal entry to record this transaction would include a:

• Debit to investments.

• Credit to retained earnings.

• Credit to capital stock.

• Debit to expense.