Accounting Principles and Concepts

Front

A transaction recorded in a journal is not considered a permanent record.

Back

False

Answer explanation

The statement is false because transactions recorded in a journal are indeed considered permanent records. They are essential for maintaining accurate financial records and are used for future reference.

Front

A balance sheet reports financial information for a period of time.

Back

False

Answer explanation

A balance sheet reports financial information at a specific point in time, not over a period. Therefore, the statement is false.

Front

The source document for an electronic funds transfer is a memorandum.

Back

True

Answer explanation

True. A memorandum serves as the source document for an electronic funds transfer, providing the necessary details for the transaction.

Front

Is the drawing account a permanent account?

Back

False

Answer explanation

The drawing account is not a permanent account; it is a temporary account that is closed at the end of the accounting period. Therefore, the statement is false.

Front

A transaction for the sale of goods or services results in a decrease in owner’s equity.

Back

False

Answer explanation

The statement is false because a sale of goods or services typically increases revenue, which in turn increases owner's equity, not decreases it.

Front

The formula for calculating net income is total revenue minus total expenses.

Back

True

Answer explanation

The statement is true. Net income is indeed calculated by subtracting total expenses from total revenue, which reflects the profit or loss of a business.

Front

If the previous account balance and the current entry posted to an account are both credits, the new account balance is a credit.

Back

True

Answer explanation

When both the previous account balance and the current entry are credits, they add together, resulting in a new balance that is also a credit. Therefore, the statement is true.

Front

Adjusting entries must be posted to the general ledger accounts. True or False?

Back

True

Answer explanation

True. Adjusting entries are necessary to ensure that all financial transactions are accurately reflected in the general ledger accounts, which is essential for preparing accurate financial statements.

Front

Temporary accounts are used to accumulate information until it is transferred to the owner’s capital account. True or False?

Back

True

Answer explanation

True. Temporary accounts, such as revenue and expense accounts, are used to accumulate data for a specific period and are closed at the end of the period, transferring their balances to the owner’s capital account.

Front

If an error is recorded in a journal entry, all of these. True or False?

Back

True

Answer explanation

If an error is recorded in a journal entry, it indicates that the entry is incorrect. Therefore, the statement is true, as all errors must be addressed to maintain accurate financial records.