Ch02 Analyzing Transactions PDF

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Chapter 2 Analyzing Transactions OBJECTIVES

Obj 1 Obj 2 Obj 3 Obj 4

Describe the characteristics of an account and record transactions using a chart of accounts. Describe and illustrate the posting of journal entries to accounts. Prepare an unadjusted trial balance and explain how it can be used to discover errors. Discover and correct errors in recording transactions.

QUESTION GRID

True / False No Objec. tive 1 02-01 2 02-01

Difficulty Easy Easy

No . 28 29

Objective 02-01 02-01

Difficulty Moderate Moderate

No . 55 56

3

02-01

Moderate

30

02-01

Moderate

57

4

02-01

Moderate

31

02-01

Easy

58

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01

Easy Moderate Moderate Moderate Moderate Moderate Moderate Difficult Easy Easy Easy Easy Easy Moderate Moderate

32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01

Easy Easy Easy Easy Easy Moderate Moderate Moderate Difficult Moderate Easy Easy Moderate Moderate Moderate

59 60 61 62 63 64 65 66 67 68 69 70 71 72 73

20 21 22 23 24

02-01 02-01 02-01 02-01 02-01

Easy Easy Easy Easy Easy

47 48 49 50 51

02-01 02-01 02-01 02-01 02-01

Moderate Easy Easy Easy Easy

74 75 76 77 78

58

Objective 02-01 02-01|0202 02-01|0202 02-01|0202 02-02 02-02 02-02 02-02 02-02 02-02 02-02 02-02 02-03 02-03 02-03 02-03 02-03 02-03 02-03|0204 02-04 02-04 02-04 02-04 02-04

Difficulty Easy Moderate Moderate Moderate Easy Easy Easy Moderate Moderate Moderate Moderate Moderate Easy Difficult Moderate Difficult Moderate Moderate Difficult Moderate Moderate Moderate Moderate Difficult

59  Chapter 2/Analyzing Transactions

Easy Easy Moderate

52 53 54

02-01 02-01 02-01

Moderate Difficult Easy

79

02-04

Matching No Objec. tive 1 02-04 2 02-04 3 02-04

Difficulty Difficult Difficult Difficult

No . 4 5 6

Objective 02-04 02-04 02-04

Difficulty Difficult Difficult Difficult

No . 7 8

Objective 02-04 02-04

Difficulty Difficult Difficult

Multiple Choice No Objec. tive 1 02-01 2 02-01 3 02-01 4 02-01 5 02-01 6 02-01 7 02-01 8 02-01 9 02-01 10 02-01 11 02-01 12 02-01 13 02-01 14 02-01 15 02-01 16 02-01 17 02-01 18 02-01 19 02-01 20 02-01 21 02-01 22 02-01 23 02-01 24 02-01

Difficulty Easy Easy Moderate Moderate Easy Easy Moderate Moderate Difficult Moderate Moderate Easy Easy Moderate Moderate Moderate Moderate Difficult Easy Easy Easy Easy Easy Easy

No . 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

Objective 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01

Difficulty Moderate Moderate Moderate Moderate Moderate Difficult Difficult Difficult Easy Moderate Moderate Moderate Moderate Moderate Difficult Easy Moderate Easy Moderate Difficult Moderate Difficult Moderate Difficult

No . 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 10 0 10 1 10 2 10 3 10

Objective 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-01 02-02 02-02 02-02 02-02 02-02 02-02 02-02 02-02 02-02 02-02

Difficulty Easy Difficult Moderate Moderate Moderate Moderate Moderate Difficult Moderate Moderate Moderate Difficult Moderate Moderate Easy Moderate Moderate Difficult Difficult Moderate Moderate Difficult Difficult Difficult

02-03

Difficult

02-03

Moderate

02-03

Difficult

02-03

Moderate

25 26 27

02-01 02-01 02-01

25

02-01

Easy

63

02-01

Moderate

26

02-01

Easy

64

02-01

Difficult

27

02-01

Difficult

65

02-01

Moderate

28

02-01

Difficult

66

02-01

Difficult

Moderate

Chapter 2/Analyzing Transactions  60

29

02-01

Moderate

67

02-01

Difficult

30

02-01

Difficult

68

02-01

Easy

31

02-01

Moderate

69

02-01

Easy

32

02-01

Difficult

70

02-01

Moderate

33

02-01

Difficult

71

02-01

Moderate

34

02-01

Difficult

72

02-01

Moderate

35

02-01

Difficult

73

02-01

Moderate

36

02-01

Difficult

74

02-01

Moderate

37 38

02-01 02-01

Easy Moderate

75 76

02-01 02-01

Moderate Moderate

Exercise/Other No Objec. tive 1 02-01 2 02-01 3 02-01 4 02-01 5 02-01 6 02-01 7 02-01

Difficulty Moderate Moderate Moderate Moderate Moderate Moderate Difficult

No . 8 9 10 11 12 13 14

Objective 02-01 02-01 02-01 02-01 02-01 02-01 02-02

Difficulty Difficult Easy Easy Difficult Easy Easy Easy

Problem No Objec. tive 1 02-01 2 02-01 3 02-01 4 02-01 5 02-01 6 02-01

Difficulty Moderate Moderate Difficult Moderate Difficult Difficult

No . 7 8 9 10 11 12

Objective 02-01 02-01 02-01 02-01 02-02 02-01|0203

Chapter 2—Analyzing Transactions TRUE/FALSE

Difficulty Moderate Moderate Difficult Moderate Difficult Difficult

4 10 5 10 6 10 7 10 8 10 9 11 0 11 1 11 2

No . 15 16 17 18 19

No . 13 14 15 16

02-04

Difficult

02-04

Difficult

02-04

Moderate

02-04

Difficult

02-04

Difficult

02-04

Moderate

02-04

Difficult

02-04

Moderate

Objective 02-03 02-04 02-04 02-04 02-04

Difficulty Easy Easy Moderate Difficult Moderate

Objective 02-03 02-03 02-04 03-04

Difficulty Moderate Easy Difficult Difficult

61  Chapter 2/Analyzing Transactions

1.

Accounts are records of increases and decreases in individual financial statement items.

ANS: T

DIF:

Easy

OBJ: 02-01

2. A chart of accounts is a listing of accounts that make up the journal. ANS: F DIF: Easy OBJ: 02-01 3. The chart of accounts should be the same for each business. ANS: F DIF: Moderate OBJ: 02-01 4. Accounts payable are accounts that you expect will be paid to you. ANS: F DIF: Moderate OBJ: 02-01 5. Consuming goods and services in the process of generating revenues results in expenses. ANS: T DIF: Easy OBJ: 02-01 6. Prepaid expenses are an example of an expense. ANS: F DIF: Moderate OBJ: 02-01 7. Unearned Revenues are an example of a liability. ANS: T DIF: Moderate OBJ: 02-01 8. Dividends are an example of an expense. ANS: F DIF: Moderate OBJ: 02-01 9. Accounts in the ledger are usually maintained in alphabetical order. ANS: F DIF: Moderate OBJ: 02-01 10. Depending on the account title, the right side of the account is referred to as the credit side. ANS: F DIF: Moderate OBJ: 02-01 11. To determine the balance in an account, always subtract credits from debits. ANS: F DIF: Moderate OBJ: 02-01 12. Unless the transaction is compound, the dollar amount of the debits for each transaction is equal to the dollar amount of the credits for that transaction, and thus the term double-entry bookkeeping. ANS: F DIF: Difficult OBJ: 02-01 13. The double-entry accounting system records each transaction twice. ANS: F DIF: Easy OBJ: 02-01 14. The increase side of all accounts is the normal balance. ANS: T DIF: Easy OBJ: 02-01 15. The journal is the book of original entry. ANS: T DIF: Easy OBJ: 02-01

Chapter 2/Analyzing Transactions  62

16. The process of recording a transaction in the journal is called journalizing. ANS: T DIF: Easy OBJ: 02-01 17. Journalizing is the process of entering amounts in the ledger. ANS: F DIF: Easy OBJ: 02-01 18. Transactions are listed in the journal chronologically. ANS: T DIF: Moderate OBJ: 02-01 19. Journalizing transactions using the double-entry bookkeeping system will eliminate fraud. ANS: F DIF: Moderate OBJ: 02-01 20. Liability accounts are increased by debits. ANS: F DIF: Easy OBJ: 02-01 21. Expense accounts are increased by credits. ANS: F DIF: Easy OBJ: 02-01 22. Revenue accounts are increased by credits. ANS: T DIF: Easy OBJ: 02-01 23. The normal balance of a capital stock account is a debit. ANS: F DIF: Easy OBJ: 02-01 24. The normal balance of the dividend account is a debit. ANS: T DIF: Easy OBJ: 02-01 25. The normal balance of an expense account is a credit. ANS: F DIF: Easy OBJ: 02-01 26. The normal balance of revenue accounts is a credit. ANS: T DIF: Easy OBJ: 02-01 27. Dividends decrease stockholders’ equity and are listed on the income statement as a deduction from revenue. ANS: F DIF: Moderate OBJ: 02-01 28. For a month's transactions for a typical medium-sized business, the salary expense account is likely to have only credit entries. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement

63  Chapter 2/Analyzing Transactions

29. For a month's transactions for a typical medium-sized business, the accounts payable account is likely to have only credit entries. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 30. When a business receives a bill from the utility company, no entry should be made until the invoice is paid. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 31. An account has three parts to it; a title, an increase side, and a decrease side. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 32. The T account got its name because it resembles the letter “T” ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 33. The right hand side of a T account is known as a debit and the left hand side is known as a credit. ANS: F DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 34. A debit is abbreviated as Db and a credit is abbreviated as Cr. ANS: F DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 35. Debiting the cash account, will increase the account. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 36. A credit to the cash account will increase the account. ANS: F DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 37. The cash account will always be debited. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 38. The recording of cash receipts to the cash account will be done by debiting the account. ANS: T DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 2/Analyzing Transactions  64

39. The recording of cash payments to the cash account will be done by entering the amount as a credit. ANS: T DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 40. The balance of the account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together. ANS: F DIF: Difficult OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 41. Assets are owned by creditors or stockholders. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 42. Liabilities are debts owned by the business entity. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 43. The accounts payable account is listed in the chart of accounts as an asset. ANS: F DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 44. A capital stock account represents the amount of investments less dividends made by the owner. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 45. Revenues is the difference between cash receipts and cash payments. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 46. Expenses are assets that no longer have a value to the company. ANS: T DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 47. Retained earnings will be reduced by the amount in the dividend account. ANS: T DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 48. The journal includes both debit and credit accounts for each transaction. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement

65  Chapter 2/Analyzing Transactions

49. A transaction that is recorded in the journal is called a journal entry. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 50. Assets are increased with debits and decrease with credits. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 51. Liabilities are increase with debits and decrease with credits. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 52. Debits will increase Unearned Revenues and Revenues. ANS: F DIF: Moderate OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 53. Recording a credit to all stockholders’ equity accounts will increase the account. ANS: F DIF: Difficult OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 54. Journal entries can have more than two accounts as long as the debits equal the credits. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 55. Normal balances are the side that increases the account balance. ANS: T DIF: Easy OBJ: 02-01 NAT: AACSB Analytic | AICPA FN-Measurement 56. When an stockholder invests assets in the business, the capital account increases due to revenue being earned. ANS: F DIF: Moderate OBJ: 02-01 | 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 57. When an accounts payable account is paid in cash, the stockholders' equity in the business decreases. ANS: F DIF: Moderate OBJ: 02-01 | 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 58. When an account receivable is collected in cash, the total assets of the business increase. ANS: F DIF: Moderate OBJ: 02-01 | 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 59. The process of transferring the data from the journal to the ledger accounts is posting. ANS: T DIF: Easy OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 2/Analyzing Transactions  66

60. The post reference notation used in the ledger is the account number. ANS: F DIF: Easy OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 61. The post reference notation used in the journal is the page number. ANS: F DIF: Easy OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 62. A notation in the post reference column of the general journal indicates that the amount has been posted to the ledger. ANS: T DIF: Moderate OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 63. The order of the flow of accounting data is (1) record in the ledger, (2) record in the journal, (3) prepare the financial statements. ANS: F DIF: Moderate OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 64. The process of transferring the debits and credits from the journal entries to the accounts is known as “updating the accounts”. ANS: F DIF: Moderate OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 65. Businesses may use several special journals in their accounting systems. ANS: T DIF: Moderate OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 66. Once journal entries are posted to accounts, each account will show a new balance after each entry. ANS: T DIF: Moderate OBJ: 02-02 NAT: AACSB Analytic | AICPA FN-Measurement 67. A group of related accounts that make up a complete unit is called a trial balance. ANS: F DIF: Easy OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement 68. A trial balance determines the accuracy of the numbers. ANS: F DIF: Difficult OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement 69. Even when a trial balance is in balance, there may be errors in the individual accounts. ANS: T DIF: Moderate OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement

67  Chapter 2/Analyzing Transactions

70. The totals at the bottom of the trial balance and the totals at the bottom of the balance sheet both show equality and balancing, and therefore should be equal. ANS: F DIF: Difficult OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement 71. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet. ANS: F DIF: Moderate OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement 72. If the trial balance is in balance, it can be assumed that all journal entries were posted corrected and no errors were made. ANS: F DIF: Moderate OBJ: 02-03 NAT: AACSB Analytic | AICPA FN-Measurement 73. Posting a part of a transaction to the wrong account will cause the trial balance totals to be unequal. ANS: F DIF: Difficult OBJ: 02-03 | 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 74. The erroneous arrangement of digits, such as writing $45 as $54, is called a slide. ANS: F DIF: Moderate OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 75. Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial balance to be out of balance. ANS: F DIF: Moderate OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 76. Posting a transaction twice will cause the trial balance totals to be equal. ANS: T DIF: Moderate OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 77. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $75 as $750, is called a transposition. ANS: F DIF: Moderate OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 78. The materiality concept implies that if an error is large enough or could effect the decisions of its users, a correction is absolutely necessary. ANS: T DIF: Difficult OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 79. A correction entry is required for all errors that are discovered. ANS: F DIF: Moderate OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 2/Analyzing Transactions  68

MATCHING Several types of errors can be made during the journalizing and posting process. Match the following with their best description. a. Trial balance preparation errors b. Account balance errors c. Posting errors 1. 2. 3. 4. 5.

Balance incorrectly computed. Debit or credit posting omitted. Wrong amount posted to an account. Column incorrectly added. Balance entered in wrong column of account.

6. 7. 8.

Amount incorrectly entered on trial balance. Balance entered in wrong column or omitted. Debit posted as credit, or vice versa.

1. ANS: B DIF: Difficult OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 2. ANS: C DIF: Difficult OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 3. ANS: C DIF: Difficult OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 4. ANS: A DIF: Difficult OBJ: 02-04 NAT: AACSB Analytic | AICPA FN-Measurement 5. ANS: B DIF: Difficult OBJ: 02-04 NAT...