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Financial Accounting 5ce Chapter 2 – Recording Business Transactions © 2015 Pearson Canada Inc. 2-1 Chapter 2 Recording Business Transactions 2.1 Describe common types of accounts There are no questions in this section.

2.2 Record the impact f business transactions on the accounting equation

1) All of the following accounts would be considered assets except for:

• Cash
• Common Shares
• Prepaid Expenses
• Notes Receivable

Answer: B

Diff: 2 Type: MC

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2) The payment of an amount owed to a creditor would:

• increase assets
• increase liabilities
• decrease net income
• decrease liabilities

Answer: D

Diff: 2 Type: MC

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3) When a company performs a service and immediately collects the cash from the customer, which of the following would occur?

• Net income would increase.
• Expenses would decrease.
• Assets would decrease.
• Shareholders' equity would decrease.

Answer: A

Diff: 2 Type: MC

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4) Purchasing supplies and paying cash for them would:

• increase total assets
• decrease total assets
• have no effect on total assets
• increase total liabilities and shareholders' equity

Answer: C

Diff: 2 Type: MC

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Financial Accounting 5ce Chapter 2 – Recording Business Transactions © 2015 Pearson Canada Inc. 2-2

5) Paying a utility bill when received would:

• increase expenses
• increase liabilities
• increase owners' equity
• decrease revenues

Answer: A

Diff: 2 Type: MC

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6) Borrowing money from the bank by signing a note payable would:

• increase shareholders' equity
• increase net income
• decrease liabilities
• have no effect on shareholders' equity

Answer: D

Diff: 2 Type: MC

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7) Receiving a payment from a customer on account would:

• have no effect on shareholders' equity
• increase net income
• increase shareholders' equity
• increase liabilities

Answer: A

Diff: 2 Type: MC

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8) The purchase of land for cash would:

• increase total assets
• decrease shareholders' equity
• increase the total debits on the trial balance
• not affect the total of debits or credits on the trial balance

Answer: D

Diff: 3 Type: MC

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9) An owner investment of a building, valued at $100,000 with an $80,000 outstanding mortgage,

transferring this asset into the business would:

• increase assets by $20,000
• increase assets by $80,000
• increase shareholders' equity by $20,000
• increase shareholders' equity by $100,000

Answer: C

Diff: 3 Type: MC

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Financial Accounting 5ce Chapter 2 – Recording Business Transactions © 2015 Pearson Canada Inc. 2-3

10) Performing services on account would:

• increase assets and liabilities
• increase assets and decrease shareholders' equity
• increase revenue and decrease shareholders' equity
• increase net income and shareholders' equity

Answer: D

Diff: 3 Type: MC

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11) The collection of cash from a customer on account would:

• increase net income and shareholders' equity
• increase assets and decrease liabilities
• increase assets and increase net income
• have no effect on net income or shareholders' equity

Answer: D

Diff: 3 Type: MC

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12) Dividends paid to the shareholders when declared will:

• increase assets and decrease liabilities
• decrease assets and increase liabilities
• have no effect on shareholders' equity
• decrease assets and decrease shareholders' equity

Answer: D

Diff: 3 Type: MC

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13) What type of account is Prepaid Rent?

• a liability
• an expense
• shareholders' equity
• an asset

Answer: D

Diff: 2 Type: MC

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14) The costs of operating a business are usually called:

• expenses
• liabilities
• assets
• revenues

Answer: A

Diff: 1 Type: MC

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Financial Accounting 5ce Chapter 2 – Recording Business Transactions © 2015 Pearson Canada Inc. 2-4

15) Note payable, accounts payable, and salary payable are all examples of:

• assets
• revenue
• expenses
• liabilities

Answer: D

Diff: 1 Type: MC

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16) Which of the following business events may not be recorded in a company's general ledger?

• The company paid each of its employees a Christmas bonus.
• The company issued 100 shares of common stock.
• The company purchased two acres of land for future plant expansion.
• A lawsuit has been filed by one of the company's customers (against the company).

Answer: D

Diff: 2 Type: MC

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17) The payment of salaries to employees when earned would:

• increase assets
• increase net income
• increase liabilities
• decrease shareholders' equity

Answer: D

Diff: 2 Type: MC

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18) A transaction involving the cash purchase of equipment will decrease one asset account and increase another asset account.

Answer: TRUE

Diff: 2 Type: TF

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19) A balance sheet is organized in order of the accounting equation, with liabilities first, followed by assets and shareholders' equity.

Answer: FALSE

Diff: 1 Type: TF

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20) A balance sheet is a required financial statement that reports the financial position of the company as of a given day in time.

Answer: TRUE

Diff: 2 Type: TF

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