College Accounting Debits and Credits Analyzing Recording Business Transactions.docx

College Accounting: A Practical Approach Debits and Credits: Analyzing and Recording Business Transactions 2.1 Setting up and organizing a chart of accounts. 1) A chart of accounts A) is set up in alphabetical order. B) includes account balances. C) is a listing of all the accounts used by a company. D) All of the above are correct. Answer: C 2) Accounts Payable had a normal starting balance of $750. There were debit postings of $600 and credit postings of $350 during the month. The ending balance is A) $500 credit. B) $1,000 debit. C) $500 debit. D) $1,000 credit. Answer: A 3) The beginning balance in the Computers account was $2,500. The company purchased an additional $500 worth of computers. The balance in the account is A) debit of $2,000. B) credit of $3,000. C) debit of $3,000. D) credit of $2,000. Answer: C 4) The chart of accounts A) is a numbered list of all of the business' accounts. B) allows accounts to be located quickly. C) can be expanded as the business grows. D) All of the above are correct. Answer: A 5) Cash increases on the debit side of the account. Answer: TRUE 6) Revenues are recorded when earned. Answer: TRUE 7) A chart of accounts is a listing of the accounts and their ending balances. Answer: FALSE 8) Revenue increases on the debit side of the account. Answer: FALSE 9) Accounts Payable increases on the credit side of the account. Answer: TRUE 10) Withdrawals increases on the debit side of the account. Answer: TRUE 11) Selected accounts from the ledger of Thomas Company appear below. For each account, indicate the following: a. In the first column at right, indicate the type of each account using the following abbreviations: Asset - A Revenue - R None of the above - N Liability - L Expense - E b. In the second column, indicate the normal balance of the account by inserting a Dr. or Cr. Account Type of Account Normal Balance 1. Office Supplies ________ ________ 2. Accounts Receivable ________ ________ 3. Fees Earned ________ ________ 4. Thomas, Withdrawals ________ ________ 5. Accounts Payable ________ ________ 6. Salaries Expense ________ ________ 7. Thomas, Capital ________ ________ 8. Accounts Receivable ________ ________ 9. Equipment ________ ________ 10. Telephone Expense ________ ________ Answer: Account Type of Normal Account Balance 1. Office Supplies A Dr 2. Accounts Receivable A Dr 3. Fees Earned R Cr 4. Thomas, Withdrawals N Dr 5. Accounts Payable L Cr 6. Salaries Expense E Dr 7. Thomas, Capital N Cr 8. Accounts Receivable A Dr 9. Equipment A Dr 10. Telephone Expense E Dr 12) Explain the difference between expenses and withdrawals. Answer: A withdrawal is used for recording the owner's withdrawal of company assets for personal use, and not related to the business. Expenses are costs the company incurs in carrying on operations in its effort to create revenue. 13) Why is Revenue increased on the Credit side? (Explain as it pertains to the expanded accounting equation and its relationship to Owner's Equity.) Answer: Revenue is an increase to owner's equity; Capital is increased on the credit side, 1. 2.2 Recording transactions in T accounts according to the rules of debit and credit. 1) An accounting device used to record increases and decreases in individual assets, liabilities, capital, revenue, expenses, and withdrawals is a(n) A) chart of accounts. B) account. C) trial balance. D) footing. Answer: B 2) A compound entry is A) a transaction involving more than one debit and/or credit. B) used to prepare the trial balance. C) the same as the chart of accounts. D) found on the income statement. Answer: A 3) What device is used to record the increases and decreases caused by business transactions to individual assets, liabilities, and owner's equity? A) Chart of accounts B) Account C) Trial Balance D) Footings Answer: B 4) A formal account that has columns for date, explanation, post reference, debit, and credit is called the A) T account. B) standard account form. C) ledger. D) chart of accounts. Answer: B 5) A ledger A) is a group of accounts and their balances. B) can replace the financial statements. C) is the same as a chart of accounts. D) None of these answers are correct. Answer: A 6) The left side of any account is the A) debit side. B) credit side. C) ending balance. D) footings. Answer: A 7) The right side of any account is the A) debit side. B) credit side. C) ending balance. D) footings. Answer: B 8) The side that increases the account balance, by the rules of debit and credit, is said to be the A) debit side. B) credit side. C) normal balance. D) None of these answers are correct. Answer: C 9) The Accounts Payable account is A) a revenue, and it has a normal debit balance. B) an expense, and it has a normal credit balance. C) a liability, and it has a normal debit balance. D) a liability, and it has a normal credit balance. Answer: D 10) An account that would be increased by a credit is A) Cash. B) Accounts Receivable. C) Utilities Expense. D) Accounts Payable. Answer: D 11) An account is said to have a debit balance if A) the footing of the debits exceeds the footing of the credits. B) there are more entries on the debit side than on the credit side. C) its normal balance is debit without regard to the amounts or number of entries on the debit side. D) the last entry of the accounting period was posted on the debit side. Answer: A 12) A debit may signify a(n) A) increase in asset accounts. B) increase in liability accounts. C) increase in the capital account. D) decrease in expense accounts. Answer: A 13) A credit may signify a(n) A) increase in assets. B) decrease in liabilities. C) increase in capital. D) increase in withdrawals. Answer: C 14) Which of the following types of accounts has a normal credit balance? A) Withdrawals B) Assets C) Expenses D) Revenues Answer: D 15) Which of the following types of accounts has a normal debit balance? A) Withdrawals B) Assets C) Expenses D) All of these answers are correct. Answer: D 16) When recording transactions in two or more accounts and the totals of the debits and credits are equal, it is called A) debiting. B) crediting. C) posting. D) double-entry bookkeeping. Answer: D 17) Which of the following groups of accounts have a normal debit balance? A) Revenue, liabilities, and capital B) Assets, capital, and withdrawals C) Liabilities, expenses, and assets D) Assets, expenses, and withdrawals Answer: D 18) The ledger is A) a group of accounts that records data from business transactions. B) a tool used to make sure that all accounts have normal balances. C) a chronological record of the day's transactions. D) a tool used to ensure that debits equal credits. Answer: A 19) Which of the following accounts would be increased by a debit? A) Cash B) Accounts Payable C) Capital D) Fees Earned Answer: A 20) What is the proper entry to show the owner making an investment in the company? A) A credit to Cash and a debit to Capital B) A debit to Cash and a credit to Capital C) A debit to Cash and a credit to Revenue D) A credit to Cash and a debit to Revenue Answer: B 21) Which of the following entries would be used to record the billing of fees earned? A) Debit Accounts Receivable and credit Rental Fees B) Credit Cash and credit Rental Fees C) Debit Cash and credit Rental Fees D) Debit Cash and debit Rental Fees Answer: A 22) Which of the statements of the rules of debit and credit is true? A) Decrease Accounts Receivable with a credit and the normal balance is a credit. B) Increase Accounts Payable with a credit and the normal balance is a credit. C) Increase Capital with a debit and the normal balance is a debit. D) Decrease Cash with a debit and the normal balance is a debit. Answer: B 23) Which of the following entries records the investment of cash by John, owner of a sole proprietorship? A) Debit John, Capital; credit Cash B) Debit Cash; credit John, Withdrawals C) Debit John, Withdrawals; credit Cash D) Debit Cash; credit John, Capital Answer: D 24) Dennis, owner of Dennis' Golf Center, withdrew $700 in cash from the business. Record the transaction by A) debiting Dennis, Withdrawals, $700; crediting Cash, $700. B) debiting Accounts Receivable, $700; crediting Cash, $700. C) debiting Expense, $700; crediting Cash, $700. D) debiting Dennis, Withdrawals, $700; crediting Dennis, Capital, $700. Answer: A 25) The entry to record Tom's payment of a home telephone bill is A) debit Telephone Expense; credit Accounts Payable. B) debit Tom's Withdrawals; credit Cash. C) debit Telephone Expense; credit Cash. D) debit Tom's Withdrawals; credit Accounts Payable. Answer: B 26) Extreme Home bought painting equipment on account for $2,200. The entry would include: A) debit to Supplies Expense, $2,200; credit to Cash, $2,200. B) debit to Equipment, $2,200; credit to Cash, $2,200. C) debit to Equipment, $2,200; credit to Accounts Payable, $2,200. D) debit to Supplies Expense, $2,200; credit to Accounts Payable, $2,200. Answer: C 27) The owner of Wolverines R Us paid his personal MasterCard bill using a company cheque. The correct entry to record the transaction is A) credit Cash; debit Capital. B) credit Cash; debit Supplies Expense. C) credit Cash; debit Withdrawals. D) credit Cash; debit Accounts Receivable. Answer: C 28) Carrie flew to San Francisco on a business trip. The purchase price of the ticket was $379 and it was bought on account. The entry to record the transaction is: A) debit Accounts Payable, $379; credit Travel Expense, $379. B) debit Capital, $379; credit Accounts Payable, $379. C) debit Travel Expense, $379; credit Accounts Payable, $379. D) debit Travel Expense, $379; credit Cash, $379. Answer: C 29) The Accounts Receivable account has total debit postings of $1,700 and credit postings of $900. The balance of the account is A) $800 debit. B) $800 credit. C) $2,600 credit. D) $2,600 debit. Answer: A 30) The Accounts Payable account has total debit postings of $800 and credit postings of $1,400. The balance is A) $2,200 debit. B) $600 credit. C) $2,200 credit. D) $600 debit. Answer: B 31) Office Supplies had a normal starting balance of $75. There were debit postings of $90 and credit postings of $70 during the month. The ending balance is A) $55 debit. B) $55 credit. C) $95 debit. D) $95 credit. Answer: C 32) Accounts Receivable has a normal balance of $1,000. After collecting $700, the balance in the account is A) debit $300. B) debit $1,700. C) credit $300. D) credit $1,700. Answer: A 33) The beginning balance in Cash was $3,500. Additional cash of $1,000 was received. Cheques were written totaling $1,500. The cash balance is A) $2,000. B) $6,000. C) $4,500. D) $3,000. Answer: D 34) A credit to an asset account was posted to the Capital account. This error would cause A) assets to be overstated. B) liabilities to be overstated. C) Capital to be understated. D) Both A and C are correct. Answer: A 35) A credit to a liability account was posted to an expense account. This error would cause A) assets to be overstated. B) liabilities to be overstated. C) expenses to be overstated. D) None of the above are correct. Answer: D 36) A debit to an expense account was posted to a revenue account. This error would cause A) assets to be overstated. B) liabilities to be overstated. C) revenue to be understated. D) None of the above are correct. Answer: C 37) A credit to an asset account was posted to a revenue account. This error would cause A) assets to be overstated. B) revenue to be overstated. C) expenses to be overstated. D) Both A and C are correct. Answer: D 38) A debit to a liability account was posted to the Capital account. This error would cause A) assets to be overstated. B) liabilities to be overstated. C) Capital to be overstated. D) None of the above are correct. Answer: B 39) A debit to an asset account was posted to an expense account. This error would cause A) liabilities to be overstated. B) expenses to be overstated. C) assets to be understated D) Both B and C are correct. Answer: D 40) A debit to a liability account was posted to a revenue account. This error would cause A) revenues to be understated. B) liabilities to be understated. C) Capital to be overstated. D) None of the above are correct. Answer: A 41) A debit to an asset account was posted to a liability account. This error would cause A) assets to be understated. B) liabilities to be overstated. C) Capital to be overstated. D) None of the above are correct. Answer: A 42) A credit to an asset account was posted to a liability account. This error would cause A) assets to be understated. B) liabilities to be overstated. C) Capital to be understated. D) None of the above are correct. Answer: B 43) The business incurred an expense and paid it immediately. To record this, A) an expense is debited and a liability is credited. B) an expense is debited and an asset is credited. C) an expense is debited and Capital is credited. D) None of these are correct. Answer: B 44) The business provided services to a cash customer. To record this, A) an asset is debited and a liability is credited. B) an asset is debited and a revenue is credited. C) an expense is debited and Capital is credited. D) None of these are correct. Answer: B 45) The owner invested personal equipment in the business. To record this transaction, A) debit Equipment and credit Accounts Payable. B) debit Accounts Payable and credit Equipment. C) debit Equipment and credit Capital. D) credit Equipment and debit Capital. Answer: C 46) Which of the following errors would cause the trial balance to be out of balance? A) An entry is posted twice B) An entry is not posted at all C) A debit is entered as $100 and the credit is entered at $1,000 D) None of these answers are correct. Answer: C 47) The business bought supplies on account. To record this, A) an expense is debited and a liability is credited. B) an asset is debited and an asset is credited. C) an asset is debited and a liability is credited. D) None of these are correct. Answer: C 48) A liability would be credited and an expense debited if A) the business paid a creditor. B) the business incurred an expense and did not pay the expense immediately. C) the business bought supplies on account. D) the business bought supplies for cash. Answer: B 49) One asset would be debited and another credited if A) the business provided services to a cash customer. B) the business paid a creditor. C) the business bought supplies paying cash. D) the business provided services to a credit customer. Answer: C 50) An asset would be debited and a liability credited if A) the business bought supplies for cash. B) the business incurred an expense and paid it. C) the business incurred an expense and did not pay for the expense immediately. D) the business bought equipment on account. Answer: D 51) What would be the effect on accounts if the business provided services to a customer on account? A) An asset would be debited and an expense credited. B) Capital would be debited and revenue credited. C) An asset would be debited and revenue credited. D) An asset would be debited and Capital credited. Answer: C 52) What would be the effect on accounts if the business provided services to a customer collecting cash? A) An asset would be debited and an expense credited. B) Capital would be debited and revenue credited. C) An asset would be debited and revenue credited. D) An asset would be debited and Capital credited. Answer: C 53) What would be the effect on accounts if the owner withdrew cash? A) An asset would be debited and an expense credited. B) Withdrawals would be debited and an asset credited. C) An asset would be debited and a revenue credited. D) An asset would be debited and Capital credited. Answer: B 54) What would be the effect on accounts if the business purchased office supplies for cash? A) An asset would be debited and an expense credited. B) Capital would be debited and revenue credited. C) An asset would be debited and revenue credited. D) An asset would be debited and an asset credited. Answer: D 55) What would be the effect on accounts if the business received the telephone bill but did not pay it immediately? A) An expense would be debited and a liability credited. B) Capital would be debited and revenue credited. C) An expense would be debited and an asset credited. D) An asset would be debited and Capital credited. Answer: A 56) An account that would be increased by a debit is A) Cash. B) Fees Earned. C) Capital. D) Accounts Payable. Answer: A 57) Which of the following groups of accounts have a normal credit balance? A) Revenue, liabilities, and capital B) Assets, capital, and withdrawals C) Liabilities, expenses, and assets D) Assets, expenses, and withdrawals Answer: A 58) What device is used to record the increases and decreases caused by business transactions to individual assets, liabilities, and owner's equity? A) Chart of accounts B) Account C) Trial Balance D) Footings Answer: B 59) A term used for obtaining the balance of an account is A) adding. B) crediting. C) debiting. D) footing. Answer: D 60) The Office Supplies account is A) a revenue, and it has a normal debit balance. B) an expense, and it has a normal credit balance. C) an asset, and it has a normal debit balance. D) an asset, and it has a normal credit balance. Answer: C 61) A transaction that has more than one debit and one credit is called a A) chart of accounts. B) compound entry. C) ledger. D) credit entry. Answer: B 62) The first step in analyzing a transaction is A) to decide if the accounts are increasing or decreasing. B) to decide to which categories the accounts belong. C) to decide where the amounts belong. D) to decide which accounts are affected. Answer: D 63) The normal balance of an account is A) debit. B) credit. C) the side that decreases. D) the side that increases. Answer: D 64) When a computer is bought on account, the result is A) an increase in the asset Computer and an increase in the liability Accounts Payable. B) an increase in the asset Computer and a decrease in the liability Accounts Payable. C) a decrease in the asset Computer and an increase in the liability Accounts Payable. D) a decrease in the asset Computer and a decrease in the liability Accounts Payable. Answer: A 65) Accounts Payable had a normal starting balance of $600. There were debit postings of $350 and credit postings of $200 during the month. The ending balance is A) $750 credit. B) $750 debit. C) $450 debit. D) $450 credit. Answer: D 66) The beginning balance in Cash was $400. Additional cash of $800 was received. Cheques were written for $700. The Cash balance is A) $900. B) $500. C) $700. D) $800. Answer: B 67) Given the following list of accounts with normal balances, what are the trial balance totals of the debits and credits? Cash $500 Accounts Receivable 100 Capital 200 Withdrawals 100 Service Fees 700 Rent Expense 200 A) $800 debit, $1,000 credit B) $800 debit, $800 credit C) $1,000 debit, $1,000 credit D) $900 debit, $900 credit Answer: D 68) Cash is debited when the business makes a payment for utilities. Answer: FALSE 69) Debits must always equal credits. Answer: TRUE 70) The debit side of all accounts increases the balance and the credit side decreases all accounts. Answer: FALSE 71) The debit side is always the right side of the account. Answer: FALSE 72) A transaction that involves more than one credit or more than one debit is called a compound entry. Answer: TRUE 73) The side of an account that increases the balance is always the same as the normal balance side. Answer: TRUE 74) Double-entry accounting requires transactions to affect two or more accounts, and the total of the debits and credits must equal. Answer: TRUE 75) The credit side is always the right side of the account. Answer: TRUE 76) A T account is used for demonstration purposes. Answer: TRUE 77) At least two accounts are affected in every transaction. Answer: TRUE 78) Withdrawals increase on the debit side of the account. Answer: TRUE 79) After deciding which accounts are affected, the next step in analyzing a transaction is to determine to which categories the accounts belong. Answer: TRUE 80) Equipment is an example of a liability. Answer: FALSE 81) A compound entry is when more than one transaction occurs. Answer: FALSE 82) When the owner invests computer equipment in the business, cash is increased. Answer: FALSE 83) Accounts Receivable indicates amounts owed to us by our clients or customers. Answer: TRUE 84) Accounts Payable indicates monies owed to us by our clients or customers. Answer: FALSE 85) Expenses are recorded when paid. Answer: FALSE 86) Accounts Payable is an asset account that is increased on the credit side. Answer: FALSE 87) The Supplies account is increased by a debit. Answer: TRUE 88) Each part of a business transaction is recorded in the accounting equation under a specific account. Answer: TRUE 89) Revenue has a normal credit balance, and increases are recorded on the credit side. Answer: TRUE 90) When cash is increased, the Cash account is debited. Answer: FALSE 91) A credit means the right-side of an account and a decrease for all accounts. Answer: FALSE 92) A debit means the left-hand side of an account and an increase for all accounts. Answer: FALSE 93) Accounts Payable indicates amounts owed to us by our suppliers. Answer: FALSE 94) Identify the normal balance for each of the following accounts by placing a Dr. (debit) or a Cr. (credit) in the space provided. ________ 1. Computer ________ 2. M. Bryant, Withdrawals ________ 3. M. Bryant, Capital ________ 4. Legal Fees ________ 5. Cash ________ 6. Accounts Receivable ________ 7. Accounts Payable ________ 8. Rent Expense ________ 9. Office Equipment ________ 10. Supplies Answer: 1. Dr. 2. Dr. 3. Cr. 4. Cr. 5. Dr. 6. Dr. 7. Cr. 8. Dr. 9. Dr. 10. Dr. 95) Identify whether a debit or credit would be correct for each of the following account changes. Use a Dr. (debit) or Cr. (credit) in the space provided. ________ 1. Increase Delivery Van ________ 2. Decrease Accounts Receivable ________ 3. Decrease Accounts Payable ________ 4. Increase Salaries Expense ________ 5. Increase Service Fees ________ 6. Decrease Cash ________ 7. Increase S. McCrae, Capital ________ 8. Increase S. McCrae, Withdrawals ________ 9. Increase Rent Expense ________ 10. Decrease Equipment Answer: 1. Dr. 2. Cr. 3. Dr. 4. Dr. 5. Cr. 6. Cr. 7. Cr. 8. Dr. 9. Dr. 10. Cr. 96) Below is a chart of accounts. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 111 Cash 312 R. Andrews, Withdrawals 112 Accounts Receivable 411 Service Fees 121 Office Equipment 511 Salaries Expense 211 Accounts Payable 512 Rent Expense 311 R. Andrews, Capital 513 Advertising Expense Debit Credit Transaction ______ ______ 1. Purchased office equipment on account. ______ ______ 2. Paid salaries for the week. ______ ______ 3. Invested additional cash in the business. ______ ______ 4. Received cash for services performed. ______ ______ 5. Billed a client on account for services performed. ______ ______ 6. Paid accounts payable. ______ ______ 7. Collected accounts receivable. ______ ______ 8. Withdrew cash for personal use. ______ ______ 9. Paid advertising expense. ______ ______ 10. Paid rent expense for the month. Answer: 121, 211 511, 111 111, 311 111, 411 112, 411 211, 111 111, 112 312, 111 513, 111 512, 111 97) A chart of accounts is below. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 111 Cash 312 C. Webster, Withdrawals 112 Accounts Receivable 411 Delivery Fees Earned 121 Delivery Equipment 511 Salaries Expense 211 Accounts Payable 512 Rent Expense 311 C. Webster, Capital 513 Advertising Expense 514 Gas Expense Debit Credit Transaction ______ ______ 1. Invested cash in the business. ______ ______ 2. Received cash for delivery services performed. ______ ______ 3. Billed a customer for services performed. ______ ______ 4. Paid accounts payable. ______ ______ 5. Collected accounts receivable. ______ ______ 6. Withdrew cash for personal use. ______ ______ 7. Paid advertising expense. ______ ______ 8. Paid rent expense for the month. ______ ______ 9. Purchased delivery equipment on account. ______ ______ 10. Paid salaries for the week. Answer: 111, 311 111, 411 112, 411 211, 111 111, 112 312, 111 513, 111 512, 111 121, 211 511, 111 98) The following transactions occurred during June for Campus Cycle Shop. Record the transactions below in the T accounts. Place the letter of the transaction next to the entry. Foot and calculate the ending balances of the T accounts where appropriate. a. Tyler invested $6,500 in the bike service from his personal savings account. b. Bought office equipment for cash, $900. c. Performed bike service for a customer on account, $1,000. d. Company cell phone bill received, but not paid, $80. e. Collected $300 from customer in transaction c. f. Tyler withdrew $100 for personal use. Answer: For each of the following identify – in Column 1 the category to which the account belongs, in Column 2 the normal balance for the account, and in Column 3 the financial statement that the account appears upon. Column 1 Column 2 Column 3 99) Gas Expense ____________ ____________ ____________ Answer: Gas Expense: expense debit income statement 100) Automobile ____________ ____________ ____________ Answer: Automobile: asset debit balance sheet 101) Cleaning Equipment ____________ ____________ ____________ Answer: Cleaning Equipment: asset debit balance sheet 102) Cleaning Expense ____________ ____________ ____________ Answer: Cleaning Expense: expense debit income statement 103) Cleaning Fees Earned ____________ ____________ ____________ Answer: Cleaning Fees Earned: revenue credit income statement 104) Salaries Expense ____________ ____________ ____________ Answer: Salaries Expense: expense debit income statement 105) Installation Fees Earned ____________ ____________ ____________ Answer: Installation Fees Earned: revenue credit income statement 106) Lawn Care Fees Earned ____________ ____________ ____________ Answer: Lawn Care Fees Earned: revenue creditt income statement 107) Office Supplies ____________ ____________ ____________ Answer: Office Supplies: asset debit balance sheet 108) Identify the normal balance for each of the following accounts by using a Dr. (debit) or a Cr. (credit). __________ 1. Salaries Expense __________ 2. R. Johns, Withdrawals __________ 3. R. Johns, Capital __________ 4. Accounting Fees __________ 5. Cash __________ 6. Accounts Receivable __________ 7. Accounts Payable __________ 8. Rent Expense __________ 9. Equipment __________ 10. Advertising Expense Answer: 1. Dr. 2. Dr. 3. Cr. 4. Cr. 5. Dr. 6. Dr. 7. Cr. 8. Dr. 9. Dr. 10. Dr. 109) Identify whether a debit or credit would be correct for each of the following account changes. Use a Dr. (debit) or Cr. (credit). ____Dr___ 0. Increase Cash __________ 1. Increase Equipment __________ 2. Decrease Accounts Receivable __________ 3. Decrease in Accounts Payable __________ 4. Increase in Salaries Expense __________ 5. Increase in Service Fees __________ 6. Decrease in Cash __________ 7. Increase J. Russell, Capital __________ 8. Increase J. Russell, Withdrawals __________ 9. Increase Rent Expense __________ 10. Decrease Equipment Answer: 1. Dr. 2. Cr. 3. Dr. 4. Dr. 5. Cr. 6. Cr. 7. Cr. 8. Dr. 9. Dr. 10. Cr. 110) Below is a chart of accounts. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 1100 Cash 3200 M. Martin, Withdrawals 1120 Accounts Receivable 4100 Legal Fees 1210 Computer Equipment 5110 Salaries Expense 2100 Accounts Payable 5120 Rent Expense 3100 M. Martin, Capital 5130 Advertising Expense Debit Credit Transaction __________ __________ 1. Purchased computer equipment on account. __________ __________ 2. Paid salaries for the week. __________ __________ 3. Invested additional cash in the business. __________ __________ 4. Received cash for services performed. __________ __________ 5. Billed a client on account for services performed. __________ __________ 6. Paid accounts payable. __________ __________ 7. Collected accounts receivable. __________ __________ 8. Withdrew cash for personal use. __________ __________ 9. Paid advertising expense. __________ __________ 10. Paid rent expense for the month. Answer: 1. 1210, 2100 2. 5110, 1100 3. 1100, 3100 4. 1100, 4100 5. 1120, 4100 6. 2100, 1100 7. 1100, 1120 8. 3200, 1100 9. 5130, 1100 10. 5120, 1100 111) The following transactions occurred during January for Cindy's Designer Service: a. Cindy invested $5,000 in the design service from her personal savings account. b. Bought office equipment for cash, $1,000. c. Performed designer service for a customer on account, $800. d. Telephone expense due but unpaid, $80. e. Collected $100 from customer in transaction c. f. Cindy withdrew $70 for personal use. Required: 1. Record the above transactions in the following T accounts. (Place the letter of the transaction next to the entry.) 2. Foot the T accounts where appropriate. Answer: 112) A chart of accounts is below. Following is a series of transactions. Indicate for each transaction the accounts that should be debited and credited by inserting the proper account number in the space provided. 111 Cash 312 M. Tharp, Withdrawals 112 Accounts Receivable 411 Delivery Fees Earned 121 Delivery Equipment 511 Salaries Expense 211 Accounts Payable 512 Rent Expense 311 M. Tharp, Capital 513 Advertising Expense 514 Gas Expense Debit Credit Transaction __________ __________ 1. Invested cash in the business. __________ __________ 2. Received cash for delivery services performed. __________ __________ 3. Billed a customer for services performed. __________ __________ 4. Paid accounts payable. __________ __________ 5. Collected accounts receivable. __________ __________ 6. Withdrew cash for personal use. __________ __________ 7. Paid advertising expense. __________ __________ 8. Paid rent expense for the month. __________ __________ 9. Purchased delivery equipment on account. __________ __________ 10. Paid salaries for the week. Answer: 1. 111, 311 2. 111, 411 3. 112, 411 4. 211, 111 5. 111, 112 6. 312, 111 7. 513, 111 8. 512, 111 9. 121, 211 10. 511, 111 113) Explain the difference between expenses and withdrawals. Answer: Withdrawals is a subdivision of owner's equity. It is used for recording the owner's withdrawal of company assets for personal use, and not related to the business. Expenses are costs the company incurs in carrying on operations in its effort to create revenue. Expenses are also a subdivision of owner's equity. 114) Following are the five steps in analyzing business transactions. Apply the five steps in analyzing the following transaction: Paid the monthly telephone expense, $100. 1. Which accounts are affected? 2. To which categories do the accounts belong? 3. Are the accounts increasing or decreasing? How much? 4. What are the debit and credit rules? 5. On what side of the accounts do the amounts belong? Answer: 1. Telephone Expense and Cash 2. Telephone Expense is a subcategory of owner's equity. Cash is an asset. 3. Telephone Expense is increasing $100. Cash is decreasing $100. 4. An increase in an expense account (Telephone Expense) is a debit; a decrease in an asset account (Cash) is a credit. 5. Telephone Expense, left side; Cash, right side 115) Phillip's Photography began business on July 1. Record the transactions in the T accounts. Place the letter of the transaction next to the entry. Foot the T accounts where appropriate. a. Phillip invested $6,000 in his business from his personal savings account. b. Bought photographic equipment on account, $1,200. c. Performed services for a customer on account, $800. d. Utilities expense due but unpaid, $80. e. Collected $100 from customer in transaction c. f. Phillip withdrew $70 for personal use. Answer: 2.3 Preparing a trial balance. 1) Which of the following is not a financial statement? A) Balance sheet B) Income statement C) Statement of owner's equity D) Trial balance Answer: D 2) A list of all the accounts from the ledger with their ending balances is called a A) normal balance. B) trial balance. C) chart of accounts. D) footing. Answer: B 3) Which of the following is prepared first? A) Balance sheet B) Income statement C) Statement of owner's equity D) Trial balance Answer: D 4) Given the following list of accounts with normal balances, what are the trial balance totals of the debits and credits? Cash $1,200 Accounts Receivable 700 Capital 1,900 Withdrawals 500 Service Fees 1,000 Rent Expense 500 A) $2,900 debit, $2,900 credit B) $3,900 debit, $3,900 credit C) $2,000 debit, $2,000 credit D) $1,200 debit, $1,200 credit Answer: A 5) Given the following list of accounts with normal balances, what are the trial balance totals of the debits and credits? Cash $1000 Equipment 500 Accounts Payable 250 Capital 1000 Service Fees 1000 Salaries Expense 750 A) $3,250 debit, $3,250 credit B) $1,125 debit, $1,125 credit C) $4,500 debit, $4,500 credit D) $2,250 debit, $2,250 credit Answer: D 6) The trial balance is prepared from A) the beginning balance in the ledger. B) the transactions during the year. C) ending balances in the ledger. D) a summary of all debit balance accounts. Answer: C 7) The entry to record the Molly Company payment of $300 for repairs just completed to computer equipment it owns would include: A) debit Repair Expense, $300; credit Accounts Payable, $300. B) debit Accounts Payable, $300; credit Cash, $300. C) debit Repair Expense, $300; credit Cash, $300. D) debit Cash, $300; credit Repair Expense, $300. Answer: C 8) Chuck, the owner of Computer Sales Co., paid his personal VISA bill using a company cheque. The correct entry to record the transaction is A) credit Cash, debit Withdrawals. B) credit Cash, debit Supplies Expense. C) credit Cash, debit Capital. D) credit Cash, debit Accounts Receivable. Answer: A 9) The trial balance is a financial statement. Answer: FALSE 10) When preparing a trial balance, it is not necessary to use dollar signs. Answer: TRUE 11) A trial balance is a formal report prepared after the balance sheet. Answer: FALSE 12) Number the following types of accounts (1-6) as they would appear on the Trial Balance. ________ Assets ________ Capital ________ Revenue ________ Liabilities ________ Withdrawals ________ Expenses Answer: _1_ Assets _3_ Capital _5_ Revenue _2_ Liabilities _4_ Withdrawals _6_ Expenses 13) The following is a list of accounts and their balances for Myra's Company for the month ended May 31, 2013. Prepare a trial balance in good form. Cash $1,380 Myra, Withdrawals $980 Accounts Payable 500 Accounts Receivable 1,030 Office Equipment 2,260 Service Fees 1,835 Myra, Capital 3,965 Rent Expense 650 Answer: Myra’s Company Trial Balance May 31, 2013 Debit Credit Cash 1,380 Accounts Receivable 1,030 Office Equipment 2,260 Accounts Payable 500 Myra, Capital 3,965 Myra, Withdrawals 980 Service Fees 1,835 Rent Expense 650 Totals 6,300 6,300 14) The following is a list of accounts and their balances for Benson Company for the month ended June 30, 2014. Prepare a trial balance in good form. Cash $370 Accounts Receivable 1,600 Accounts Payable 770 Advertising Expense 600 Office Equipment 900 Service Fees 2,730 Benson, Capital 1,500 Salaries Expense 630 Benson, Withdrawals 500 Utilities Expense 400 Answer: Benson Company Trial Balance June 30, 2014 Debit Credit Cash 370 Accounts Receivable 1,600 Office Equipment 900 Accounts Payable 770 Benson, Capital 1,500 Benson, Withdrawals 500 Service Fees 2,730 Advertising Expense 600 Salaries Expense 630 Utilities Expense 400 Totals 5,000 5,000 2.4 Preparing financial statements from a trial balance. 1) Which type of account would not be reported on the income statement? A) Revenue B) Expenses C) Withdrawals D) None of these answers are correct. Answer: C 2) Accounts Payable would appear on which financial statement? A) Balance sheet B) Income statement C) Owner's equity statement D) None of these answers are correct. Answer: A 3) The left column of a financial statement is often used to A) show debits. B) show credits. C) show totals. D) subtotal numbers. Answer: D 4) The Beginning Capital account would appear on which financial statement? A) Statement of owner's equity B) Balance sheet C) Income statement D) None of these answers are correct. Answer: A 5) The income statement contains A) liabilities. B) revenues. C) assets. D) Both B and C are correct. Answer: B 6) On which financial statement would you find the ending Capital balance? A) Income statement B) Balance Sheet C) Statement of owner's equity D) Both B and C are correct. Answer: D 7) Which of the following is prepared last? A) Balance Sheet B) Income Statement C) Statement of Owner's Equity D) Trial Balance Answer: A 8) Net income or net loss for a period is calculated by the following formula: A) total revenues - total withdrawals. B) total revenues - total expenses - total withdrawals. C) total revenues - total expenses. D) total revenues - total expenses + capital. Answer: C 9) Which type of account would not be reported on the balance sheet? A) Revenue B) Cash C) Accounts Payable D) Accounts Receivable Answer: A 10) What is X-cel Company's net income or net loss if it had Revenue of $1,800, Salary Expense of $500, Utility Expense of $250, and Withdrawals of $1,000 during October? A) $50 net income B) $1,050 net loss C) $1,050 net income D) $50 net loss Answer: C 11) Which type of account would be reported on the income statement? A) Assets B) Expenses C) Withdrawals D) Liabilities Answer: B 12) Net income appears on which of the following financial reports? A) Balance sheet B) Income statement and statement of owner's equity C) Trial balance D) Balance sheet and income statement Answer: B 13) What is the James Long Company's net income or net loss if it had revenue of $1,200, salary expense of $300, utility expense of $500, and withdrawals of $500 during May? A) $400 B) ($100) C) $100 D) $900 Answer: A 14) The financial statements contain debit and credit columns. Answer: FALSE 15) Withdrawals and expenses are reported on the income statement. Answer: FALSE 16) Accounts Receivable appears on the income statement. Answer: FALSE 17) Salaries Expense appears on the balance sheet. Answer: FALSE 18) Debit and credit columns are not used on the financial reports. Answer: TRUE 19) Capital and Expenses are reported on the Statement of Owner's Equity. Answer: FALSE 20) Dollar signs are not used in formal financial reports. Answer: FALSE 21) Cash would be affected by any transaction that involves a withdrawal. Answer: FALSE 22) Determine the ending owner's equity of a business having a beginning owner's equity of $ 9,500, additional investments of $450 withdrawals of $ 1,000, and net income of $ 1,400 $_______________ Answer: $10,350 [ $9,500+ $450- $1,000 + 1,400] 23) Determine the beginning owner's equity of a business having an ending owner's equity of $3,500, additional investments of $500 withdrawals of $400, and net loss of $750. $_______________ Answer: $4,150 [$3,500 - $500 + $400 + $750] 24) Determine the beginning owner's equity of a business having beginning assets of $12,000, ending liabilities of $5,000. During the year the liabilities decreased by $3,000. $_______________ Answer: $4,000 [$12,000 - ($5,000 + $3,000)] 25) Below is the Trial Balance for Benson Company for June 30, 2014. Trial Balance June 30, 2014 Debit Credit Cash 370 Accounts Receivable 1,600 Office Equipment 900 Accounts Payable 770 Benson, Capital 1,500 Benson, Withdrawals 500 Service Fees 2,730 Advertising Expense 600 Salaries Expense 630 Utilities Expense 400 Totals 5,000 5,000 Required: Prepare 1. An Income Statement for the month ended June 30, 2014 2. A Statement of Owner's Equity for the month ended June 30, 2014 3. A Balance Sheet, as of June 30, 2014 Answer: 1. Benson Company Income Statement Month Ended June 30, 2014 Service Fees Revenue $2,730 Expenses: Advertising 600 Salaries 630 Utilities 400 1,630 Net Income $1,100 2. Benson Company Statement of Owner's Equity Month Ended June 30, 2014 Darryl Benson, Capital, June 1, 2014 $1,500 Add Net Income for June 2014 $1,100 Less Withdrawals 500 600 Darryl Benson, Capital, June 30, 2014 $2,100 3. Benson Company Balance Sheet June 30, 2014 Assets Liabilities & Owner's Equity Cash $370 Accounts Payable $770 Accounts Receivable 1,600 Darryl Benson, Capital 2,100 Office Equipment 900 $2,870 $2,870