Accounting Practice (T/F)

A set made from study resources for FBLA Accounting 1 competition.

A sole proprietorship is a business entity owned by two or more people

False

The purpose of accounting is to provide financial information about a business entity

True

The owners of a partnership business are known as stockholders

False

The Financial Accounting Standards Board (FASB) is responsible for the development of standards for business and not-for-profit organizations

True

Each business follows accounting rules (or principles) that are specific to its particular needs

False

Public accountants provide services to clients for a fee

True

The three most common forms of business organization are the sole proprietorship, the partnership, and the not-for-profit organization

False

Profit is one measure of business success

True

The Internal Revenue Service (IRS) has little effect on the accounting practices of business

False

Passing a test on accounting theory and practices is required for one to become a certified public accountant

True

Employees should have no particular interest in financial information about the business where they work

False

Accounting information is reported in dollar amounts, regardless of inflation

True

If a business spends more money to operate than it earns from the sale of goods and services, it is operating at a profit

False

When using the basic accounting equation, the accountant must make sure that the total assets always equal the total of the liabilities and the owner's equity

True

Changes in owner's equity can result from revenue and expenses

True

When cash is collected from accounts receivable, there is no change in the total amount of the assets

True

When cash is paid to a creditor, the company's liabilities increase

False

The property that a business owns is referred to as its liabilities

False

Revenue decreases owner's equity

False

Expenses decrease owner's equity

True

Property rights are the financial claims to property

True

The word payable indicates that an account is a liability

True

The basic accounting equation can be expressed as assets - liabilities = owner's equity and still be correct

True

The companies or individuals to whom amounts are owed are called investors

False

When the owner invests cash in a business, assets and revenue increase

False

The money an owner withdraws from the business is considered to be an expense

False

Increases in assets are recorded on the left side of a T account

True

Increases in assets and expenses are both recorded with debits

True

The balance of any account is decreased by crediting the account

False

When an owner invests in a business, the capital account is debited

False

Revenue and expense accounts are used by accountants to summarize changes in owner's equity during an accounting period

True

Debit is the word used in referring to the left side of asset accounts and to the right side of liability and owner's equity accounts

False

The T account allows increases and decreases to be separated and recorded on different sides

True

Accountants keep separate records for each asset, liability, and owner's equity item

True

Increases in liabilities are recorded on the debit side of the account

False

A reduction in the equity of the owner is recorded by making a debit entry in the owner's capital account

True

All payable accounts are decreased by a debit entry

True

Any cash payments made by a business are recorded as a debit entry in the cash account

False

Revenue accounts are increased by crediting them

True

When transactions are entered in a general journal, the asset accounts are listed first, followed by the liability and owner's equity accounts

False

When a transaction is entered in a general journal, the first account name is indented about a half-inch from the left margin of the description column

False

Account names are written in the general journal exactly as they appear in the chart of accounts

True

For every transaction recorded in the general journal, the year, month, and day on which the event occurred must be entered in the date column

False

A journal entry can have no more than one account to be debited and one account to be credited

False

When a transaction is journalized, the total of the debit amounts must equal the total of the credit amounts

True

A source document or explanation should be included in each entry made in the general journal

True

Transactions entered into the general journal are listed in alphabetical order

False

The general journal is one example of a special journal

False

In a chart of accounts, the accounts of a business are listed in alphabetical order

False

The sales journal is used for recording both cash sales and credit sales

False

The use of a sales journal eliminates repetition in posting individual entries to the accounts receivable account

True

A sales return or sales allowance is recorded in the sales journal

False

The balance of the sales returns and allowances account is subtracted the balance of the accounts receivable account in the assets section of the balance sheet

False

For a merchandising business, bankcard sales are like cash sales

True

The individual amounts in the accounts receivable debit column of the sales journal should be posted to the accounts receivable subsidiary ledger, and the column total should be posted to the accounts receivable account in the general ledger

True

In a business that uses special journals, every transaction involving the receipt of cash should be recorded in the cash receipts journal

True

The individual amounts in the sales credit column of the cash receipts journal are posted to the accounts receivable subsidiary ledger

False

As proof of accuracy, the accountant prepares a list of all customers' accounts in the accounts receivable subsidiary ledger and compares the total of the balances with the balance of the accounts receivable account in the general ledger

True

When a customer returns good on which sales tax was charged, the business gives the customer credit for the cost of the goods and the sales tax

True

The entry to record the payment of an invoice within the discount period would include a debit to the purchases discount account

False

The individual amounts in the accounts payable debit column of the cash payments journal are posted to the accounts payable subsidiary ledger

True

To record a cash purchases of merchandise, the accountant would debit purchases and credit the cash account

True

The purchase requisition is the form sent to a supplier to order goods

False

The purchases account is reported as an asset on the balance sheet

False

Cash purchases of merchandise are not recorded in the purchases journal

True

The purchases journal is used to record the purchase of any item on account

True

Accounts such as transportation in and purchases returns and allowances are deducted from purchases to determine net purchases

False

A transaction recorded in the cash payments journal will always include a credit to the cash account

True

Purchases discount is a contra account of the merchandise account

True

Payments made to creditors are recorded in the cash payments journal

True

Purchases returns and allowance transactions are recorded in the purchases journal

False

When an accounts payable subsidiary ledger is used, a debit or credit to accounts payable in a general journal entry requires two postings

True

A ledger is sometimes referred to as a record of original entry

False

Transactions are recorded in either a journal or a ledger, but not in both

False

An amount debited to cash in a journal entry should be posted as a credit to the cash account in the ledger

False

The pages in the general ledger are usually organized so that the asset accounts come first

True

The first money column in a ledger account is used to record debit balance amounts

False

The process of transferring data from a journal to a ledger is known as posting

True

An explanation or source document should be entered in each ledger account for every posting

False

The number of the journal page is recorded in the posting reference column of a ledger account

True

Accounts in the accounts payable subsidiary ledger are arranged in chronological order

False

Posting to the accounts receivable subsidiary ledger is done at the end of the fiscal period

False

Posting is always done from left to right

True

After all postings have been made, the total of the balances in the accounts receivable subsidiary ledger should equal the balance of the accounts receivable account in the general ledger

True

If a journal entry that contains an error has already been posted, a correcting entry should be journalized and posted

True

Correcting entries are always recorded in the general journal when special journals are used

True

Errors in journals are never erased because erasures look suspicious

True

A correcting entry must be recorded for any type of error in the accounting records

False

An error involving only subsidiary ledger accounts does not require a correcting entry

False

If an error is discovered after an entry has been posted, a correcting entry must be made that is the exact opposite of the previous incorrect entry

False

A transposition error results when a decimal point in an amount is moved by mistake

False

A trial balance is prepared to ensure that there are no errors in the general ledger

False

If a journal entry was never posted to the general ledger accounts, the trial balance could still balance

True

An error in recording the date of a business transaction does not require a correcting entry

True

When a correcting entry is posted to the ledger accounts, the words "correcting entry" are written in the explanation column of the ledger accounts

True

Errors are often discovered by customers when checking their monthly statements

True

An error in computing sales tax will never be discovered

False

A trial balance is prepared before journal entries are posted

False

If the debit and credits columns of a trial balance are equal, it is not necessary to prepare a balance sheet

False

If a journal entry is mistakenly posted to the general ledger twice, the trial balance will be out of balance

False