Since 1977

THEORY OF ACCOUNTS TIP QUEZON CITY

ToA.1828 – Accounting Process MAY 2016
REVIEW QUESTIONS

1. Which of the following steps in the accounting cycle a. Proves that debits and credits are equal in the
are listed in a logical order? ledger.
a. Post the closing entries, take a post-closing trial b. Supplies a listing of open accounts and their
balance, and journalize the closing entries. balances that are used in preparing financial
b. Post the journal entries to the general ledger statements.
accounts, prepare a worksheet, and then take a c. Is normally prepared three times in the accounting
trial balance. cycle.
c. Take a trial balance, prepare a worksheet, then d. All of these.
prepare financial statements.
d. Prepare the income statement, prepare the balance 11. Making insurance payments in advance is an example
sheet and then prepare a trial balance. of:
a. An accrued receivable transaction.
2. The debit and credit analysis of a transaction normally b. An accrued liability transaction.
takes place c. An unearned revenue transaction.
a. Before an entry is recorded in a journal. d. A prepaid expense transaction.
b. When the entry is posted to the ledger.
c. When the trial balance is prepared. 12. Recording revenue earned from a customer, but not
d. At some other point in the accounting cycle. yet collected, is an example of:
a. A prepaid expense transaction.
3. The accounting equation can be stated as: b. An unearned revenue transaction.
a. A + L-OE = 0. c. An accrued liability transaction.
b. A-L + OE = 0. d. An accrued receivable transaction.
c. -A + L-OE = 0.
d. A-L-OE = 0. 13. Prepayments occur when:
a. Cash flow precedes expense recognition.
4. Which of the following accounts has a debit balance?  b. Sales are delayed pending credit approval.
a. Accounts payable. c. Customers are unable to pay the full amount due
b. Accrued taxes. when goods are delivered.
c. Accumulated depreciation. d. Manufactured goods await quality control
d. Bad debt expense. inspections.

5. An example of a contra account is:  14. Failure to record the unexpired portion of insurance
a. Depreciation expense. premium paid would
b. Accounts receivable. a. Understate expense
c. Sales revenue. b. Understate profit
d. Accumulated depreciation. c. Overstate owner’s equity
d. Overstate total liabilities
6. A sale on account would be recorded by: 
a. Debiting revenue. 15. Failure to record the unearned portion of rent received
b. Crediting assets. in advance would
c. Crediting liabilities. a. Understate income
d. Debiting assets. b. Understate profit
c. Overstate owner’s equity
7. Entries in the purchase journal are posted to the d. Overstate total liabilities
a. Accounts receivable ledger and the accounts
payable ledger. 16. Which of the following would most likely be found in an
b. General ledger only. adjusting entry?
c. General ledger and the accounts payable ledger. a. Prepaid expenses
d. General ledger and the accounts receivable ledger. b. Accounts receivable
c. Cash dividend paid
8. At the date of purchase of a service which is not d. Sales on account
immediately used up, the cost of such unused service
is a(n): 17. Why are certain costs of doing business capitalized
a. Revenue c. Liability when incurred and then depreciated or amortized over
b. Asset d. Expense subsequent accounting cycles?
a. To reduce the income tax liability
9. Incurring an expense for advertising on account would b. To aid management in cash-flow analysis
be recorded by: c. To match the costs of production with revenues as
a. Debiting liabilities. earned
b. Crediting assets. d. To adhere to the accounting constraint of
c. Debiting an expense. conservatism
d. Debiting assets.
18. X Company prepares reversing entries. Which of the
following adjustments will be reversed by X?
10. A trial balance a. The entry to record depreciation expense.

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EXCEL PROFESSIONAL SERVICES, INC.

b. The entry to provide uncollectible accounts financial position retained earnings is increased by a
expense. credit.
c. The entry to record the earned portion of rent
received in advance. Second statement: Both a corporation and a
d. The entry to record the unused supplies at the end proprietorship commonly use the share capital
of the accounting period. account.
a. True, True c. False, True
19. Choose the correct statement. b. True, False d. False, False
a. No adjusting entries should be necessary for the
inventory account if the periodic inventory system 25. First statement: In general, debits refer to increases
is used. in account balances, and credits refer to decreases.
b. Examples of accrued expenses include wages
payable and depreciation expense. Second statement: All liability and equity accounts are
c. Accrued items are those for which recognition of increased on the credit side and decreased on the debit
the related revenue or expense occurs in an side.
accounting period after the entity pays or receives a. True, True c. False, True
cash, respectively. b. True, False d. False, False
d. A worksheet is not a part of the basic accounting
records of the entity. 26. First statement: The first step in the accounting cycle
is the journalizing of transactions and selected other
20. Which of the following statements is false? events.
a. Depreciation expense, bad debt expense, and
warranty expense are estimated expense because Second statement: Basic steps in the recording
they all depend upon future events. process include transferring the journal information to
b. The balance sheet is also called the statement of the appropriate account in the statement of financial
financial position. position.
c. Depreciation expense and accrued revenues are a. True, True c. False, True
example of deferred items. b. True, False d. False, False
d. When a company records reversing entries,
adjusting entries for deferred expenses recorded 27. First statement: The trial balance uncovers any errors
initially as assets upon payment of cash generally in journalizing and posting prior to preparation of the
are not reversed. statement of financial position.

21. First statement: A ledger is where the company Second statement: The trial balance is a listing of all
initially records transactions and selected other events. the accounts and their balances in the order the
accounts appear on the statement of financial position.
Second statement: Nominal (temporary) accounts are a. True, True c. False, True
revenue, expense, and dividend accounts and are b. True, False d. False, False
periodically closed.
a. True, True c. False, True 28. First statement: One purpose of a trial balance is to
b. True, False d. False, False prove that debits and credits of an equal amount are in
the general ledger.
22. First statement: The dividends account is considered a
real account. Second statement: A general journal chronologically
lists transactions and other events, expressed in terms
Second statement: The "book of original entry" is also of debits and credits to accounts.
known as the journal. a. True, True c. False, True
a. True, True c. False, True b. True, False d. False, False
b. True, False d. False, False
29. First statement: An adjusted trial balance that shows
23. First statement: On the income statement, debits are equal debit and credit columnar totals proves the
used to increase account balances, whereas on the accuracy of the adjusting entries.
statement of financial position, credits are used to
increase account balances. Second statement: Reversing entries are made at the
end of the accounting cycle to correct errors in the
Second statement: The rules for debit and credit and original recording of transactions.
the normal balance of Share Capital–Ordinary are the a. True, True c. False, True
same as for liabilities. b. True, False d. False, False
a. True, True c. False, True
b. True, False d. False, False 30. First statement: Each adjusting entry affects one
statement of financial position account and one income
statement account.

Second statement: The accrual basis recognizes

revenue when earned and expenses in the period when
cash is paid.
a. True, True c. False, True
b. True, False d. False, False

24. First statement: On the income statement, revenues - now do the DIY drill -
are increased by a debit whereas on the statement of

DO-IT-YOURSELF (DIY) DRILL

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EXCEL PROFESSIONAL SERVICES, INC.

1. Factors that shape an accounting information system 10. Basic steps in the recording process include all of the
include the following except
a. Nature of the business. a. Transfer the journal information to the appropriate
b. Size of the firm. account in the statement of financial postion.
c. Volume of data to be handled. b. Analyze each transaction for its effect on the
d. All of these. accounts.
c. Enter the transaction information in a journal.
2. An accounting record where a company initially records d. All of the choices are corrrect regarding the basic
transactions and selected other events is called the steps in the recording process.
a. Ledger. c. Trial balance.
b. Account. d. Journal. 11. The trial balance
a. Proves that debits are greater than credits when
3. Which of the following is a nominal (temporary) the company has net income.
account? b. Uncovers any errors in journalizing and posting
a. Unearned Revenue prior to preparation of the statement of financial
b. Salary Expense position.
c. Inventory c. Is useful in preparing the statement of financial
d. Retained Earnings position.
d. All of the choices are correct.
4. Under International Financial Reporting Standards
(IFRS) real accounts include all of the following except 12. The trial balance will not balance when a company
a. Dividends a. Fails to journalize a transaction.
b. Assets b. Omits posting a correct journal entry.
c. Liabilities c. Posts a journal entry twice.
d. Equity d. Debits two statement of financial position accounts
and no income statement accounts.
5. Which of the following statement is true regarding
debits and credits? 13. Adjusting entries
a. On the income statement, debits are used to a. Are often prepared after the statement of financial
increase account balances, whereas on the position date, but dated as of the statement of
statement of financial position, credits are used to financial position date.
increase account balances. b. Are necessary to enable the financial statements to
b. Before adjustments, debits will not equal credits in conform to International Financial Reporting
the trial balance. Standard (IFRS).
c. The rules for debit and credit and the normal c. Include both accruals and deferrals.
balance of Share Capital–Ordinary are the same as d. All of the choices are correct regarding adjusting
for liabilities. entries.
d. On the income statement, revenues are increased
by debit whereas on the statement of financial 14. A document prepared to prove the equality of debits
position retained earnings is increased by a credit. and credits after all adjustments have been prepared is
the
6. Debit always means a. Adjusted statement of financial position.
a. Right side of an account. b. Adjusted trial balance.
b. Increase. c. Adjusted financial statements.
c. Decrease. d. Post-closing trial balance.
d. None of these.
15. Which of the following statements best describes the
7. The double-entry accounting system means purpose of closing entries?
a. Each transaction is recorded with two journal a. To facilitate posting and taking a trial balance.
entries. b. To determine the amount of net income or net loss
b. Each item is recorded in a journal entry, then in a for the period.
general ledger account. c. To reduce the balances of temporary accounts to
c. The dual effect of each transaction is recorded with zero so that they may be used to accumulate the
a debit and a credit. revenues, expenses and dividends of the next
d. More than one of the above. period.
d. To complete the record of various transactions that
8. The accounting equation must remain in balance were started in a prior period.
a. Throughout each step in the accounting cycle.
b. Only when journal entries are recorded. 16. A reversing entry should never be made for an
c. Only at the time the trial balance is prepared. adjusting entry that
d. Only when formal financial statements are a. Accrues unrecorded revenue.
prepared. b. Adjusts expired costs from an asset account to an
expense account.
9. An optional step in the accounting cycle is the c. Accrues unrecorded expenses.
preparation of d. Adjusts unexpired costs from an expense account
a. Adjusting entries. to an asset account.
b. Closing entries.
c. A statement of cash flows.
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d. A post-closing trial balance.  - end of ToA.1828 - 

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