1. Which of the following steps in the accounting cycle are listed in logical order?

a. Post the closing entries, take a post-closing trial balance, and journalize the closing entries.
b. Post the journal entries to the general ledger account, prepare a worksheet, and then take a trial
balance.
c. Take a trial balance, prepare a worksheet, then prepare financial statements.
d. Prepare the income statement, prepare the balance sheet and then prepare a trial balance.

2. The debit and credit analysis of the transaction normally takes place.
a. Before an entry is recorded in a journal.
b. When the entry is posted to the ledger.
c. When the trial balance is prepared.
d. At some other point in the accounting cycle.

3. The accounting equation can be started as:

a. A + L – OE = 0
b. A – L + OE = 0
c. -A + L – OE = 0
d. A-L-OE=0

4. Which of the following accounts has a debit balance?

a. Accounts payable
b. Accrued taxes
c. Accumulated depreciation
d. Bad debts expense

5. An example of a contra account is:

a. Depreciation expense
b. Accounts receivable
c. Sales revenue
d. Accumulated depreciation

6. A sale on account would be recorded by

a. Debiting revenue
b. Crediting assets
c. Crediting liabilities
d. Debiting assets

7. Entries in the purchase journal are posted to the

a. Accounts receivable ledger and the accounts payable ledger
b. General ledger only
c. General ledger and the accounts payable ledger
d. General ledger and the accounts receivable ledger

8. At the date of purchase of a service which is not immediately used up, the cost of such unused service is a(n):
a. Revenue
b. Asset
c. Liability
d. Expense
9. Incurring an expense for advertising on account would be recorded by:
a. Debiting liabilities
b. Crediting assets
c. Debiting an expense
d. Debiting assets

10. A trial balance

a. Proves that debits and credits are equal in the ledger
b. Supplies a listing of open accounts and their balances that are used in preparing financial statements.
c. Is normally prepared three times in the accounting cycle.
d. All of these

11. Making insurance payments in advance is an example of:

a. An accrued receivable transaction.
b. An accrued liability transaction
c. An unearned revenue transaction
d. A prepaid expense transaction

12. Recording revenue earned from a customer, but not yet collected, is an example of:
a. A prepaid expense transaction.
b. An unearned revenue transaction.
c. An accrued liability transaction.
d. An accrued receivable transaction.

13. Prepayments occur when:

a. Cash flow precedes expense recognition.
b. Sales are delayed pending credit approval.
c. Customers are unable to pay the full amount due when goods are delivered.
d. Manufactured goods await quality control inspections.

14. Failure to record the unexpired portion of insurance premium paid would
a. understate expense
b. understate profit
c. overstates owner’s equity
d. overstates liabilities

15. Failure to record the unearned portion of rent received in advance would
a. understate income
b. understate profit
c. overstates owner’s equity
d. overstates total liabilities

16. Which of the following would most likely be found in an adjusting entry?
a. Prepaid expense
b. Accounts receivable
c. Cash dividend paid
d. Sales on account
17. Why are certain cost of doing business capitalized when incurred and then depreciated or amortized over
subsequent accounting cycle
a. To reduce the income tax liability
b. To aid management in cash flow analysis
c. To match the cost of production with revenue as earned.
d. To adhere to the accounting constraint of conservatism.

18. X Company prepares reversing entries. Which of the following adjustments will be reversed by X?
a. the entry to record the depreciation expense.
b. the entry to provide uncollectible accounts expense.
c. The entry to record the earned portion of rent received in advance.
d. The entry to record the unused supplies at the end of the accounting period.

19. Choose the correct statement

a. No adjusting entries should be necessary for the inventory account if the periodic inventory system is
used.
b. Example of accrued expenses include wages payable and depreciation expense.
c. Accrued items are those for which recognition of the related revenue or expense occurs in an
accounting period after the entity pays or receives cash, respectively.
d. A worksheet is not a part of the basic accounting records of the entity.

20. Which of the statement is false?

a. Depreciation expense, bad debts expense, and warranty expense are estimated expense because they
all depend upon future events.
b. The balance sheet is also called the statement of financial position.
c. Depreciation expense and accrued revenues are example of deferred items.
d. When a company records reversing entries, adjusting entries for deferred expenses recorded initially
as assets upon payment of cash generally are not reverse.

21. First statement. A ledger is where the company initially records transactions and selected other events.
Second statement: Normal (temporary) accounts are revenues, expense, and dividend accounts and are
periodically closed.
a. True, True c. False, True
b. True, False d. False, False

22. First statement.: The dividends account is considered a real account.

Second statement: The “book of original entry” is also known as the journal.
a. True, True c. False, True
b. True, False d. False, False

23. First statement: On the income statement, debits are used to increase account balances, whereas on the
statement of financial position, credits are used to increase account balances.
Second statement: The rules for debit and credit and the normal balance of share capital ordinary are the
same as for liabilities.
a. True, True c. False, True
b. True, False d. False, False
24. First statement: On the income statement, revenues are increased by a debit whereas on the statement of
financial position retained earnings is increased by credit.
Second statement: Both a corporation and a proprietorship commonly use the share capital account.
a. True, True c. False, True
b. True, False d. False, False

25. First statement: In general, debits refer to increases in account balances, and credits refer to decreases.
Second statement: All liability and equity accounts are increased on the credit side and decreased on the
debit side.
a. True, True c. False, True
b. True, False d. False, False

26. First statement: The first step in the accounting cycle is the journalizing of transactions and selected other
events.
Second statement: Basic steps in the recording process include transferring the journal information to the
appropriate account in the statement of financial position.
a. True, True c. False, True
b. True, False d. False, False

27. First statement: The trial balance uncovers any errors in journalizing and posting prior to preparation of the
statement of financial position.
Second statement: The trial balance is a listing of all the accounts and their balances in the order the
accounts appear on the statement of financial position.
a. True, True c. False, True
b. True, False d. False, False

28. First statement: Our purpose of a trial balance is to prove that debits and credits of an equal amount are in
the general ledger.
Second statement: A general journal chronologically lists transactions and other events, expressed in terms
of debits and credits to accounts.
a. True, True c. False, True
b. True, False d. False, False

29. First statement: An adjusted trial balance that shows equal debit and credit columnar totals proves the
accuracy of the adjusting entries.
Second statement: Reversing entries are made at the end of the accounting cycle to correct errors in the
original recording of transactions.
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
ANSWERS:

1. C 11. D 21. C

2. A 12. D 22. C

3. D 13. A 23. C

4. D 14. B 24. C

5. D 15. C 25. D

6. D 16. A 26. D

7. C 17. C 27. D

8. B 18. D 28. A

9. C 19. D 29. D

10. D 20. C 30. B