True False Questions

2-1 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02

The Accounting Cycle: During the Period

True / False Questions

• External transactions are transactions the firm conducts with a separate economic entity, such as

selling products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing money from a bank.

True False

• Internal transactions are events that affect the financial position of the company but do not include

an exchange with a separate economic entity. Examples are using supplies on hand and earning revenues after having received cash in advance from a customer.

True False

• A list of all account names used to record transactions of a company is referred to as a T-account.

True False

• After recording each transaction, total assets must equal total liabilities plus stockholders' equity.

True False

• If a transaction causes total assets of the company to increase by $2,000, then liabilities plus

stockholders' equity also increases by $2,000.

True False

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2-2 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• If a transaction causes total assets of the company to increase by $5,000 and total liabilities to

increase by $3,000, then stockholders' equity increases by $8,000.

True False

• Borrowing cash from the bank causes assets to increase and liabilities to increase.

True False

• Purchasing equipment using cash causes assets to increase.

True False

• Providing services to customers for cash causes stockholders' equity to increase.

True False

• Paying employees' salaries for the current month causes no change to stockholders' equity.

True False

• Paying dividends to its stockholders causes a company's stockholders' equity to decrease.

True False

• Selling common stock for cash causes assets to increase and stockholders' equity to decrease.

True False

• Purchasing office supplies on account causes assets to increase and liabilities to increase.

True False

• Providing services to customers on account causes assets to increase and stockholders' equity to

increase.

True False

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• Receiving cash in advance from a customer for services to be provided in the future causes assets

to increase and stockholders' equity to increase.

True False

• Paying for one year of rent in advance does not affect the accounting equation.

True False

• Purchasing supplies on account increases the balance of the Accounts Receivable account.

True False

• Amounts owed from customers are recorded in the Accounts Receivable account.

True False

• The two components of stockholders' equity are Debits and Credits.

True False

• Revenues have the effect of increasing retained earnings.

True False

• Expenses have the effect of decreasing retained earnings.

True False

• Receiving cash in advance from customers increases the Service Revenue account.

True False

• Deferred Revenue is a liability account.

True False

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• Liability accounts increase with a debit and decrease with a credit.

True False

• Liability accounts increase with a credit and decrease with a debit.

True False

• Common Stock increases with a credit and decreases with a debit.

True False

• Revenue accounts increase with a debit and decrease with a credit.

True False

• Expense accounts increase with a debit and decrease with a credit.

True False

• The Dividends account increases with a credit and decreases with a debit.

True False

• A debit to an account balance always results in the balance increasing.

True False

• A credit to an account balance always results in the balance decreasing.

True False

• A journal provides a chronological record of all transactions affecting a firm.

True False