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1. In an accrual accounting system,

a. all accounts have normal debit balances.

b. a debit entry is recorded on the left-hand side of an account.

c. liabilities, owner's capital, and dividends all have normal credit balances.

d. revenues are recorded only when cash is received.

2. A common business transaction that would not affect the amount of owners' equity is

a. signing a note payable to purchase equipment.

b. payment of property taxes.

c. billing of customers for services rendered.

d. payment of dividends.

3. Failure to record the expired amount of prepaid rent expense would not

a. understate expense.

b. overstate net income.

c. overstate owners' equity.

d. understate liabilities.

4. On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31:

a. overstates owners' equity.

b. overstates assets.

c. understates net income.

d. overstates both owners equity and assets.

5. A chart of accounts is a

a. subsidiary ledger.

b. listing of all account titles.

c. general ledger.

d. general journal.

6. Which of the following criteria must be met before an event should be recorded for accounting purposes?

a. The event must be an arm's-length transaction.

b. The event must be repeatable in a future period.

c. The event must be measurable in financial terms.

d. The event must be disclosed in the reported footnotes.

7. Adjusting entries normally involve

a. real accounts only.

b. nominal accounts only.

c. real and nominal accounts.

d. liability accounts only.

8. Which of the following is an item that is reportable in the financial records of an enterprise?

a. The value of goodwill earned through business operations

b. The value of human resources

c. Changes in personnel

d. Changes in inventory costing methods

9. The balance in a deferred revenue account represents an amount that is

Earned Collected

a. Yes Yes

b. Yes No

c. No Yes

d. No No

10. The debit and credit analysis of a transaction normally takes place when the

a. entry is posted to a subsidiary ledger.

b. entry is recorded in a journal.

c. trial balance is prepared.

d. financial statements are prepared.

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