CHAPTER 3: THE ACCOUNTING INFORMATION SYSTEM

Adjusting entries are necessary to

• obtain a proper matching of revenue and expense.

• achieve an accurate statement of assets and equities.

• adjust assets and liabilities to their fair market value.

Debit always means

• right side of an account

• increase

• decrease

• none of these

Nominal accounts are also called

• temporary accounts

• permanent accounts

• real accounts

• none of these

To compute interest expense for an adjusting entry, the formula is principal X rate X a fraction. The numerator and denominator of the fraction are:

• Length of time note has been outstanding 12 months

• Length of note 12 months

• Length of time until note matures Length of note

• Length of time note has been outstanding Length of note

When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.

• accrued

• prepaid

• unearned

• cash

Maintaining a set of accounting records is

• optional

• required by the Internal Revenue Service

• required by the Foreign Corrupt Practices Act

• required by the Internal Revenue Service and the Foreign Corrupt Practices Act

A journal entry to record the sale of inventory on account will include a

• debit to inventory

• debit to accounts receivable

• debit to sales

• credit to cost of goods sold

At the time a company prepays a cost

• it debits an asset account to show the service or benefit it will receive in the future

• it debits an expense account to match the expense against revenues earned

• its credits a liability account to show the obligation to pay for the service in the future

• more than one of the above

A general journal

• chronologically lists transactions and other events, expressed in terms of debits and credits

• contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts

• lists all the increases and decreases in each account in one place

• contains only adjusting entries

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the

• ledger

• account

• trial balance

• none of these