Accounting for Service Companies: Multiple Choice Questions

What is the primary characteristic of a service company?

• It sells tangible goods.

• It transforms raw materials into finished products.

• It provides intangible benefits to customers.

• It maintains a high level of inventory for sale.

• It does not require a ledger.

Which of the following is an example of a service company?

• A. A grocery store

• B. A car dealership

• C. A law firm

• D. A toy manufacturer

• E. A clothing boutique

The accounting equation is defined as:

• Assets = Liabilities - Equity

• Assets + Liabilities = Equity

• Assets = Liabilities + Equity

• Equity = Assets + Liabilities

• Assets = Revenue - Expenses

When a company performs a service and receives cash immediately, which accounts are affected?

What happens to the accounting equation when a company purchases equipment on credit?

• Assets increase and Equity increases.

• Assets decrease and Liabilities increase.

• Assets increase and Liabilities increase.

• Liabilities increase and Equity decreases.

• No change to the equation.

The "normative" balance of an Asset account is a:

• Credit

• Debit

• Neutral

• Negative

• Zero

Which of the following is a liability account?

• Prepaid Insurance

• Accrued Revenue

• Unearned Revenue

• Owner’s Capital

• Accounts Receivable

A journal entry that involves more than two accounts is called a:

• A simple entry

• A compound entry

• A complex entry

• A multiple entry

The process of transferring information from the journal to the ledger is called:

• Journalizing

• Summarizing

• Posting

• Balancing

• Analyzing

The document that lists all accounts and their balances at a given time is the:

• Balance Sheet

• Income Statement

• Trial Balance

• General Journal

• Statement of Cash Flows