Multiple Choice Questions

 60. The accounting process begins with: 

A. Analysis of business transactions and source documents.
B. Preparing financial statements and other reports.
C. Summarizing the recorded effect of business transactions.
D. Presentation of financial information to decision-makers.
E. Preparation of the trial balance.
61. A sales invoice: 
A. Is a type of source document.
B. Is used by sellers to record the sale.
C. Is used by buyers to record purchases.
D. Gives rise to an entry in the accounting process.
E. All of these. 
62. Source documents include all of the following except: 
A. Sales tickets.
B. Ledgers.
C. Checks.
D. Purchase orders.
E. Bank statements.
63. Source documents: 
A. Include the ledger.
B. Are the sources of accounting information.
C. Must be in electronic form.
D. Are based on accounting entries.
E. Include the chart of accounts.
64. Various types of documents and other papers that companies use when they conduct their
business: 
A. Are called source documents.
B. Can include sales tickets.
C. Are the source of information for recording accounting entries.
D. Can be in electronic form.
E. All of these.
65. A record of the increases and decreases in a specific asset, liability, equity, revenue, or
expense is a(n): 
A. Journal.
B. Posting.
C. Trial balance.
D. Account.
E. Chart of accounts.
66. An account used to record the owner's investments in the business is called a(n): 
A. Withdrawals account.
B. Capital account.
C. Revenue account.
D. Expense account.
E. Liability account.
67. The account used to record the transfers of assets from a business to its owner is: 
A. A revenue account.
B. The owner's withdrawals account.
C. The owner's capital account.
D. An expense account.
E. A liability account.
68. Which of the following statements is correct? 
A. When a future expense is paid in advance, the payment is normally recorded in a liability
account called Prepaid Expense.
B. Promises of future payment are called accounts receivable.
C. Increases and decreases in cash are always recorded in the owner's capital account.
D. An account called Land is commonly used to record increases and decreases in both the
land and buildings owned by a business.
E. Accrued liabilities include accounts receivable.
69. Unearned revenues are: 
A. Revenues that have been earned and received in cash.
B. Revenues that have been earned but not yet collected in cash.
C. Liabilities created when a customer pays in advance for products or services before the
revenue is earned.
D. Recorded as an asset in the accounting records.
E. Increases to owners' capital.
70. Prepaid expenses are: 
A. Payments made for products and services that do not ever expire.
B. Classified as liabilities on the balance sheet.
C. Decreases in equity.
D. Assets that represent prepayments of future expenses.
E. Promises of payments by customers.
71. A written promise to pay a definite sum of money on a specified future date is a(n): 
A. Unearned revenue.
B. Prepaid expense.
C. Credit account.
D. Note payable.
E. Account receivable.
72. A collection of all accounts and their balances used by a business is called a: 
A. Journal.
B. Book of original entry.
C. General Journal.
D. Balance column journal.
E. Ledger.
73. A ledger is: 
A. A record containing increases and decreases in a specific asset, liability, equity, revenue,
or expense item.
B. A journal in which transactions are first recorded.
C. A collection of documents that describe transactions and events entering the accounting
process.
D. A list of all accounts with their debit balances at a point in time.
E. A record containing all accounts and their balances used by a company.
74. A list of all accounts and the identification number assigned to each account used by a
company is called a: 
A. Source document.
B. Journal.
C. Trial balance.
D. Chart of accounts.
E. General Journal.
75. The numbering system used in a company's chart of accounts: 
A. Is the same for all companies.
B. Is determined by generally accepted accounting principles.
C. Depends on the source documents used in the accounting process.
D. Typically begins with balance sheet accounts.
E. Typically begins with income statement accounts. 
76. A debit is: 
A. An increase in an account.
B. The right-hand side of a T-account.
C. A decrease in an account.
D. The left-hand side of a T-account.
E. An increase to a liability account. 
77. The right side of a T-account is a(n): 
A. Debit.
B. Increase.
C. Credit.
D. Decrease.
E. Account balance.
78. Which of the following statements is incorrect? 
A. The normal balance of accounts receivable is a debit.
B. The normal balance of owner's withdrawals is a debit.
C. The normal balance of unearned revenues is a credit.
D. The normal balance of an expense account is a credit.
E. The normal balance of the owner's capital account is a credit.
79. A credit is used to record: 
A. A decrease in an expense account.
B. A decrease in an asset account.
C. An increase in an unearned revenue account.
D. An increase in a revenue account.
E. All of these.
80. A simple account form widely used in accounting as a tool to understand how debits and
credits affect an account balance is called a: 
A. Withdrawals account.
B. Capital account.
C. Drawing account.
D. T-account.
E. Balance column sheet.
81. Which of the following statements is correct? 
A. The left side of a T-account is the credit side.
B. Debits decrease asset and expense accounts, and increase liability, equity, and revenue
accounts.
C. The left side of a T-account is the debit side.
D. Credits increase asset and expense accounts, and decrease liability, equity, and revenue
accounts.
E. In certain circumstances the total amount debited need not equal the total amount credited
for a particular transaction.
82. An account balance is: 
A. The total of the credit side of the account.
B. The total of the debit side of the account.
C. The difference between the total debits and total credits for an account including the
beginning balance.
D. Assets = liabilities + equity.
E. Always a credit.
83. Of the following accounts, the one that normally has a credit balance is: 
A. Cash.
B. Office Equipment.
C. Sales Salaries Payable.
D. Owner, Withdrawals.
E. Sales Salaries Expense.
84. A debit is used to record: 
A. A decrease in an asset account.
B. A decrease in an expense account.
C. An increase in a revenue account.
D. An increase in the balance of an owner's capital account.
E. An increase in the balance of the owner's withdrawals account.
85. A credit entry: 
A. Increases asset and expense accounts, and decreases liability, owner's capital, and revenue
accounts.
B. Is always a decrease in an account.
C. Decreases asset and expense accounts, and increases liability, owner's capital, and revenue
accounts.
D. Is recorded on the left side of a T-account.
E. Is always an increase in an account.
86. Double-entry accounting is an accounting system: 
A. That records each transaction twice.
B. That records the effects of transactions and other events in at least two accounts with equal
debits and credits.
C. In which each transaction affects and is recorded in two or more accounts but that could
include two debits and no credits.
D. That may only be used if T-accounts are used.
E. That insures that errors never occur.
87. Rocky Industries received its telephone bill in the amount of $300, and immediately paid
it. Rocky's general journal entry to record this transaction will include a 
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.
E. Debit to Accounts Payable for $300.
88. Management Services, Inc. provides services to clients. On May 1, a client prepaid
Management Services $60,000 for 6-months services in advance. Management Services'
general journal entry to record this transaction will include a 
A. Debit to Unearned Management Fees for $60,000.
B. Credit to Management Fees Earned for $60,000.
C. Credit to Cash for $60,000.
D. Credit to Unearned Management Fees for $60,000.
E. Debit to Management Fees Earned for $60,000.
89. Wisconsin Rentals purchased office supplies on credit. The general journal entry made by
Wisconsin Rentals will include a: 
A. Debit to Accounts Payable.
B. Debit to Accounts Receivable.
C. Credit to Cash.
D. Credit to Accounts Payable.
E. Credit to Wisconsin Rentals, Capital.
90. An asset created by prepayment of an expense is: 
A. Recorded as a debit to an unearned revenue account.
B. Recorded as a debit to a prepaid expense account.
C. Recorded as a credit to an unearned revenue account.
D. Recorded as a credit to a prepaid expense account.
E. Not recorded in the accounting records until the earnings process is complete.
91. Robert Haddon contributed $70,000 in cash and land worth $130,000 to open a new
business, RH Consulting. Which of the following general journal entries will RH Consulting
make to record this transaction? 

A. 

B. 

C. 

D. 

E. 
 
92. A liability created by the receipt of cash from customers in payment for products or
services that have not yet been delivered to the customers is: 
A. Recorded as a debit to an unearned revenue account.
B. Recorded as a debit to a prepaid expense account.
C. Recorded as a credit to an unearned revenue account.
D. Recorded as a credit to a prepaid expense account.
E. Not recorded in the accounting records until the earnings process is complete.
93. On September 30, the Cash account of Value Company had a normal balance of $5,000.
During September, the account was debited for a total of $12,200 and credited for a total of
$11,500. What was the balance in the Cash account at the beginning of September? 
A. A $0 balance.
B. A $4,300 debit balance.
C. A $4,300 credit balance.
D. A $5,700 debit balance.
E. A $5,700 credit balance.
94. On April 30, Holden Company had an Accounts Receivable balance of $18,000. During
the month of May, total credits to Accounts Receivable were $52,000 from customer
payments. The May 31 Accounts Receivable balance was $13,000. What was the amount of
credit sales during May? 
A. $ 5,000.
B. $47,000.
C. $52,000.
D. $57,000.
E. $32,000.
95. During the month of February, Hoffer Company had cash receipts of $7,500 and cash
disbursements of $8,600. The February 28 cash balance was $1,800. What was the January
31 beginning cash balance? 
A. $700.
B. $1,100.
C. $2,900.
D. $0.
E. $4,300.
96.  The following transactions occurred during July:
1. Received $900 cash for services provided to a customer during July.
2. Received $2,200 cash investment from Barbara Hanson, the owner of the business.
3. Received $750 from a customer in partial payment of his account receivable which arose
from sales in June.
4. Provided services to a customer on credit, $375.
5. Borrowed $6,000 from the bank by signing a promissory note.
6. Received $1,250 cash from a customer for services to be rendered next year.
What was the amount of revenue for July?  
A.  $ 900.
B.  $ 1,275.
C.  $ 2,525.
D.  $ 3,275.
E.  $11,100.
97. If Tim Jones, the owner of Jones Hardware proprietorship, uses cash of the business to
purchase a family automobile, the business should record this use of cash with an entry to: 
A. Debit Salary Expense and credit Cash.
B. Debit Tim Jones, Salary and credit Cash.
C. Debit Cash and credit Tim Jones, Withdrawals.
D. Debit Tim Jones, Withdrawals and credit Cash.
E. Debit Automobiles and credit Cash.
98.  Zed Bennett opened an art gallery and as a dealer completed these transactions:
1. Started the gallery, Artery, by investing $40,000 cash and equipment valued at $18,000.
2. Purchased $70 of office supplies on credit.
3. Paid $1,200 cash for the receptionist's salary.
4. Sold a painting for an artist and collected a $4,500 cash commission on the sale.
5. Completed an art appraisal and billed the client $200.
What was the balance of the cash account after these transactions were posted?  
A.  $12,230.
B.  $12,430.
C.  $43,300.
D.  $43,430.
E.  $61,430.
99. At the beginning of January of the current year, Thomas Law Center's ledger reflected a
normal balance of $52,000 for accounts receivable. During January, the company collected
$14,800 from customers on account and provided additional services to customers on account
totaling $12,500. Additionally, during January one customer paid Thomas $5,000 for services
to be provided in the future. At the end of January, the balance in the accounts receivable
account should be: 
A. $54,700.
B. $49,700.
C. $2,300.
D. $54,300.
E. $49,300.
100. During the month of March, Cooley Computer Services made purchases on account
totaling $43,500. Also during the month of March, Cooley was paid $8,000 by a customer for
services to be provided in the future and paid $36,900 of cash on its accounts payable
balance. If the balance in the accounts payable account at the beginning of March was
$77,300, what is the balance in accounts payable at the end of March? 
A. $83,900.
B. $91,900.
C. $6,600.
D. $75,900.
E. $4,900.
101. On January 1 of the current year, Bob's Lawn Care Service reported owner's capital
totaling $122,500. During the current year, total revenues were $96,000 while total expenses
were $85,500. Also, during the current year Bob withdrew $20,000 from the company. No
other changes in equity occurred during the year. If, on December 31 of the current year, total
assets are $196,000, the change in owner's capital during the year was: 
A. A decrease of $9,500.
B. An increase of $9,500.
C. An increase of $30,500.
D. A decrease of $30,500
E. Impossible to determine from the information provided.
102.  Andrea Conaway opened Wonderland Photography on January 1 of the current year.
During January, the following transactions occurred and were recorded in the company's
books:
1. Conaway invested $13,500 cash in the business.
2. Conaway contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.
Based on this information, the balance in the cash account at the end of January would be:  
A.  $41,450.
B.  $12,225
C.  $18,700.
D.  $15,250.
E.  $13,500.
103. Based on the information included in Question #102, the balance in the Andrea
Conaway, Capital account reported on the Statement of Owner's Equity at the end of the
month would be: 
A. $31,400.
B. $39,200.
C. $31,150.
D. $40,175.
E. $30,875.
104. The debt ratio is used: 
A. To measure the relation of equity to expenses.
B. To reflect the risk associated with a company's debts.
C. Only by banks when a business applies for a loan.
D. To determine how much debt a firm should pay off.
E. All of these. 
105. Which of the following is the formula used to calculate the debt ratio? 
A. Total Equity/Total Liabilities.
B. Total Liabilities/Total Equity.
C. Total Liabilities/Total Assets.
D. Total Assets/Total Liabilities.
E. Total Equity/Total Assets.
106. Which of the following statements is incorrect? 
A. Higher financial leverage involves higher risk.
B. Risk is higher if a company has more liabilities.
C. Risk is higher if a company has higher assets.
D. The debt ratio is one measure of financial risk.
E. Lower financial leverage involves lower risk.
107. Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity
is $315 million. Calculate the debt ratio. 
A. 38.6%.
B. 13.4%.
C. 34.9%.
D. 25.9%.
E. 14.9%.
$110 million/$425 million = 25.9%
108. Stride Rite has total assets of $385 million. Its total liabilities are $100 million and its
equity is $285 million. Calculate its debt ratio. 
A. 35.1%.
B. 26.0%.
C. 38.5%.
D. 28.5%.
E. 58.8%.
$100 million/$385 million = 26.0%
 109. Which of the following statements describing the debt ratio is false? 
A. It is of use to both internal and external users of accounting information.
B. A relatively high ratio is always desirable.
C. The dividing line for a high and low ratio varies from industry to industry.
D. Many factors such as a company's age, stability, profitability and cash flow influence the
determination of what would be interpreted as a high versus a low ratio.
E. The ratio might be used to help determine if a company is capable of increasing its income
by obtaining further debt. 
110. At the end of the current year, Norman Company reported total liabilities of $300,000
and total equity of $100,000. The company's debt ratio on the last year-end was: 
A. 300%.
B. 33.3%
C. 75.0%.
D. $400,000.
E. Cannot be determined from the information provided.
111. At the beginning of the current year, Taunton Company's total assets were $248,000 and
its total liabilities were $175,000. During the year, the company reported total revenues of
$93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other
changes in owner's capital during the year and total assets at the end of the year were
$260,000. Taunton Company's debt ratio at the end of the current year is: 
A. 70.6%.
B. 67.3%.
C. 32.7%.
D. 48.6%.
E. Cannot be determined from the information provided.
112. The process of transferring general journal information to the ledger is: 
A. Double-entry accounting.
B. Posting.
C. Balancing an account.
D. Journalizing.
E. Not required unless debits do not equal credits.
113. A column in journals and ledger accounts used to cross reference journal and ledger
entries is the: 
A. Account balance column.
B. Debit column.
C. Posting reference column.
D. Credit column.
E. Description column. 
114. The record in which transactions are first recorded is the: 
A. Account balance.
B. Ledger.
C. Journal.
D. Trial balance.
E. Cash account.
115. The general journal provides a place for recording: 
A. The transaction date.
B. The names of the accounts involved.
C. The amount of each debit and credit.
D. An explanation of the transaction.
E. All of these.
116. A balance column ledger account is: 
A. An account entered on the balance sheet.
B. An account with debit and credit columns for posting entries and another column for
showing the balance of the account after each entry is posted.
C. Another name for the withdrawals account.
D. An account used to record the transfers of assets from a business to its owner.
E. A simple form of account that is widely used in accounting to illustrate the debits and
credits required in recording a transaction.
117. A general journal is: 
A. A ledger in which amounts are posted from a balance column account.
B. Not required if T-accounts are used.
C. A complete record of any transaction and the place from which transaction amounts are
posted to the ledger accounts.
D. Not necessary in electronic accounting systems.
E. A book of final entry because financial statements are prepared from it.
118. A record in which the effects of transactions are first recorded and from which
transaction amounts are posted to the ledger is a(n): 
A. Account.
B. Trial balance.
C. Journal.
D. T-account.
E. Balance column account.
119. A company had the following accounts and balances year-end:

   
If all of the accounts have normal balances, what are the totals for the trial balance? 
A. $ 45,200.
B. $ 67,000.
C. $104,800.
D. $209,600.
E. $186,600. 
120. An accountant has debited an account for $3,500 and credited a liability account for
$2,000. Which of the following would be an incorrect way to complete the recording of this
transaction: 
A. Credit another asset account for $1,500.
B. Credit another liability account for $1,500.
C. Credit an expense account for $1,500.
D. Credit the owner's capital account for $1,500.
E. Debit another asset account for $1,500.
121. A report that lists accounts and their balances, in which the total debit balances should
equal the total credit balances, is called a(n): 
A. Account balance.
B. Trial balance.
C. Ledger.
D. Chart of accounts.
E. General Journal.
122. Which of the following statements is true? 
A. If the trial balance is in balance, it proves that no errors have been made in recording and
posting transactions.
B. The trial balance is a book of original entry.
C. Another name for the trial balance is the chart of accounts.
D. The trial balance is a list of all accounts from the ledger with their balances at a point in
time.
E. The trial balance is another name for the balance sheet as long as debits balance with
credits.
123. While in the process of posting from the journal to the ledger a company failed to post a
$50 debit to the Office Supplies account. The effect of this error will be that: 
A. The Office Supplies account balance will be overstated.
B. The trial balance will not balance.
C. The error will overstate the debits listed in the journal.
D. The total debits in the trial balance will be larger than the total credits.
E. All of these effects will be caused by the error.
124. A $15 credit to Sales was posted as a $150 credit. By what amount is Sales in error? 
A. $150 understated.
B. $135 overstated.
C. $150 overstated.
D. $15 understated.
E. $135 understated.
125. A trial balance taken at year-end showed total credits exceed total debits by $4,950. This
discrepancy could have been caused by: 
A. An error in the general journal where a $4,950 increase in Accounts Receivable was
recorded as an increase in Cash.
B. A net income of $4,950.
C. The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950.
D. The balance of $5,500 in the Office Equipment account being entered on the trial balance
as a debit of $550.
E. An error in the general journal where a $4,950 increase in Accounts Payable was recorded
as a decrease in Accounts Payable.
126. In which of the following situations would the trial balance not balance? 
A. A $1,000 collection of an account receivable was erroneously posted as a debit to
Accounts Receivable and a credit to Cash.
B. The purchase of office supplies on account for $3,250 was erroneously recorded in the
journal as $2,350 debit to Office Supplies and credit to Accounts Payable.
C. A $50 cash receipt for the performance of a service was not recorded at all.
D. The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and
a credit to Cash for $1,200.
E. The cash payment of a $750 account payable was posted as a debit to Accounts Payable
and a debit to Cash for $750.
 127. The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a
$4,700 debit and to Accounts Payable as a $4,700 debit. What effect would this error have on
the trial balance? 
A. The total of the Debit column of the trial balance will exceed the total of the Credit
column by $4,700.
B. The total of the Credit column of the trial balance will exceed the total of the Debit
column by $4,700.
C. The total of the Debit column of the trial balance will exceed the total of the Credit
column by $9,400.
D. The total of the Credit column of the trial balance will exceed the total of the Debit
column by $9,400.
E. The total of the Debit column of the trial balance will equal the total of the Credit column.
128. If the Debit and Credit column totals of a trial balance are equal, then: 
A. All transactions have been recorded correctly.
B. All entries from the journal have been posted to the ledger correctly.
C. All ledger account balances are correct.
D. The total debit entries and total credit entries are equal.
E. The balance sheet would be correct.
 129. Of the following errors, which one by itself will cause the trial balance to be out of
balance? 
A. A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries
Expense.
B. A $100 cash receipt from a customer in payment of his account posted as a $100 debit to
Cash and a $10 credit to Accounts Receivable.
C. A $75 cash receipt from a customer in payment of his account posted as a $75 debit to
Cash and a $75 credit to Cash.
D. A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a
$50 credit to Cash.
E. An $800 prepayment from a customer for services to be rendered in the future was posted
as an $800 debit to Unearned Revenue and an $800 credit to Cash.
 130. A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what
amounts are the accounts under- or overstated as a result of this error? 
A. Office Equipment, understated $130; Fees Earned, overstated $130.
B. Office Equipment, understated $260; Fees Earned, overstated $130.
C. Office Equipment, overstated $130; Fees Earned, overstated $130.
D. Office Equipment, overstated $130; Fees Earned, understated $130.
E. Office Equipment, overstated $260; Fees Earned, understated $130.
 131. Which of the following groups of accounts are not balance sheet accounts? 
A. Assets.
B. Liabilities.
C. Revenues.
D. Equity accounts.
E. All of these are balance sheet accounts.