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

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

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

Expiration of prepaid insurance

An accrued revenue can best be described as an amount

collected and not currently matched with expenses.

collected and currently matched with expenses.

not collected and currently matched with expenses.

not collected and not currently matched with expenses.

Adjusting entries that should be reversed include those for prepaid or unearned items that

create an asset or a liability account.

create an asset or a liability account and were originally entered in a revenue or expense account.

were originally entered in a revenue or expense account.

were originally entered in an asset or liability account.

The double-entry accounting system means

Each transaction is recorded with two journal entries

The dual effect of each transaction is recorded with a debit and a credit

Each item is recorded in a journal entry, then in a general ledger account

Adjustments are often prepared

after the balance sheet date, but dated as of the balance sheet date

after the balance sheet date, and dated after the balance sheet date

before the balance sheet date, but dated as of the balance sheet date

before the balance sheet date, and dated after the balance sheet date

Adjusting entries that should be reversed include

those that debit an asset or credit a liability.

When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expenses?

Add beginning accrued liabilities.

Subtract ending prepaid expense.

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

The event or item can be measured objectively in financial terms

The event or item is relevant and reliable

The event or item is an element

Unearned revenue on the books of one company is likely to be

an unearned revenue on the books of the company that made the advance payment

a prepaid expense on the books of the company that made the advance payment

an accrued expense on the books of the company that made the advance payment

an accrued revenue on the books of the company that made the advance payment

Under the cash basis of accounting, revenues are recorded

when they are earned and realized.

when they are earned and realizable.

External events do not include

using buildings and machinery in operations

interaction between an entity and its environment

a change in the price of a good or service that an entity buys or sells, a flood or earthquake

improvement in technology by a competitor

The debit and credit analysis of a transaction normally takes place

before an entry is recorded in a journal

when the entry is posted to the ledger

when the trial balance is prepared

at some other point in the accounting cycle

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

The decline of its fair market value

Both the original cost of the asset and its useful life.

proves that debits and credits are equal in the ledger

supplies a listing of open accounts and their balances that are used in preparing financial statements

is normally prepared three times in the accounting cycle

When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue?

Add ending accounts receivable.

Subtract beginning unearned service revenue.

Subtract ending accounts receivable.

An unearned revenue can best be described as an amount

collected and not currently matched with expenses.

collected and currently matched with expenses.

not collected and currently matched with expenses.

not collected and not currently matched with expenses.

Which of the following would not be a correct form for an adjusting entry?

A debit to a revenue and a credit to a liability

A debit to an expense and a credit to a liability

A debit to a liability and a credit to a revenue

A debit to an asset and a credit to a liability

How do these prepaid expenses expire?

Through use and consumption with the passage of time

With the passage of time through use and consumption

With the passage of time with the passage of time

Through use and consumption through use and consumption

If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

a liability account and an expense account.

a liability account and an asset account.

an asset or contra asset account and an expense account.

a receivable account and a revenue account.

When a corporation pays a note payable and interest,

they will debit notes payable and interest expense

the account notes payable will be increased

the account interest expense will be decreased

Reversing entries are

normally prepared for prepaid, accrued, and estimated items.

necessary to achieve a proper matching of revenue and expense.

desirable to exercise consistency and establish standardized procedures.

Which of the following is a real (permanent) account?

Both Goodwill and Accounts Receivable

A trial balance may prove that debits and credits are equal, but

an amount could be entered in the wrong account

a transaction could have been entered twice

a transaction could have been omitted

A prepaid expense can best be described as an amount

paid and not currently matched with revenues.

paid and currently matched with revenues.

not paid and currently matched with revenues.

not paid and not currently matched with revenues.

If the inventory account at the end of the year is understated, the effect will be to

overstate the cost of goods sold.

overstate the gross profit on sales.

overstate the goods available for sale.

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

To aid management in cash-flow analysis

To match the costs of production with revenues as earned

To reduce the federal income tax liability

To adhere to the accounting constraint of conservatism

An accrued expense can best be described as an amount

not paid and currently matched with earnings.

paid and currently matched with earnings.

paid and not currently matched with earnings.

not paid and not currently matched with earnings.

Which of the following is not an internal event?

Dividend declaration and subsequent payment

Using raw materials in the production process

All of these are internal transactions

CHAPTER 3: THE ACCOUNTING INFORMATION SYSTEM

Authored by NORMAN SAMERA

Financial Education

12th Grade

CHAPTER 3: THE ACCOUNTING INFORMATION SYSTEM

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

debit to inventory

debit to accounts receivable

debit to sales

credit to cost of goods sold

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CHAPTER 3: THE ACCOUNTING INFORMATION SYSTEM

Adjusting entries are necessary to

Debit always means

Nominal accounts are also called

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:

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

Maintaining a set of accounting records is

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

At the time a company prepays a cost

A general journal

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

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