Acc reviewer

The first step in the accounting cycle is to

• Record transactions in a journal

• Analyze transactions from source documents

• Adjust the general ledger accounts

• Post journal entries to general ledger accounts

analyze transactions from source documents.

This involves reviewing and interpreting source documents (like invoices, receipts, or bank statements) to determine the impact on the financial statements and to identify the necessary journal entries.

All of the following affect the owner's equity account except

• payment of a liability

• original investment

• withdrawal by the owner

• additional investment

payment of a liability.

Here's why:

• Original investment affects owner’s equity as it increases it.

• Withdrawal by the owner (or drawing) decreases owner’s equity.

• Additional investment increases owner’s equity.

Which of the following transactions will not result in the recognition of an expense?

• a cash withdrawal by the owner

• use of machinery during the period

• interest accrued on a bank loan

• expiration of prepaid insurance

is a cash withdrawal by the owner.

Here’s why for each transaction:

• Cash withdrawal by the owner: This transaction involves a reduction in the owner's equity but does not affect expenses. It's considered a drawing or withdrawal, not an expense.

• Use of machinery during the period: This would typically involve recognizing depreciation expense related to the machinery, as the use of the asset over time results in an expense.

• Interest accrued on a bank loan: This transaction recognizes interest expense, as it represents the cost of borrowing funds.

• Expiration of prepaid insurance: This would result in recognizing insurance expense as the prepaid insurance is consumed over time.

Over a period of time, if total assets increase by Php 270,000 and total liabilities increase by Php 70,000, then owner's equity will be increased by

	Php 270,000
	Php 200,000
	Php 340,000
	Php 70,000

Therefore, the owner's equity will be increased by Php 200,000.

Change in Owner’s Equity=Php270,000−Php70,000

Credits are used to record

• increases in expense

• decreases in owner's equity

• increases in income

• decreases in liabilities

Credits are used to record:

• Increases in income

Here’s how credits typically affect various accounts:

• Increases in income: Credit entries increase revenue accounts, which are part of the equity section of the balance sheet.

The accounting equation

• is used to determine the amount of liabilities owed

• is used to determine the amount of income earned during the period

• shows the claims on the entity's assets by both the creditors and the owner

• shows the claims on the owner's equity by the creditors

shows the claims on the entity's assets by both the creditors and the owner.

The accounting equation is:

Assets = Liabilities + Owner’s Equity

This equation illustrates how assets are financed by liabilities (creditors' claims) and owner's equity (owner's claims). It provides a snapshot of the financial position of the entity by showing the relationship between what the company owns (assets) and how those assets are financed (through liabilities and owner's equity).

Which of the following transactions results in an increase in expenses?

• purchase of office equipment on credit

• payment on accounts payable

• repayment of principal of bank loan

• cost of employee salaries

cost of employee salaries

• Cost of employee salaries: This transaction directly increases expenses because salaries are an operational cost that reduces profit.

Thus, the cost of employee salaries is the transaction that results in an increase in expenses.

Which of the following accounts has a normal debit balance?

unexpired insurance

mortgage payable

earned art revenues

unearned art revenues

unexpired insurance

Here’s why for each account:

• Unexpired insurance: This is an asset account, and asset accounts typically have a normal debit balance. Unexpired insurance represents the portion of prepaid insurance that has not yet been used.

Which of the following transactions results in the recognition of an expense?

payment of the principal of a loan

payment on accounts payable

withdrawal of cash by the owner

expiration of usefulness of equipment during the accounting period

expiration of usefulness of equipment during the accounting period

• Expiration of usefulness of equipment during the accounting period: This involves recognizing depreciation expense, which reflects the cost of using the equipment over time. Depreciation is recorded as an expense.

Thus, the expiration of the usefulness of equipment during the accounting period results in the recognition of an expense.

Another way of stating the accounting equation is

Assets - Liabilities = Owner's Equity

Assets = Liabilities - Owner's Equity 

Assets + Liabilities = Owner's Equity

Assets = Owner's Equity - Liabilities

Another way of stating the accounting equation is:

Assets - Liabilities = Owner's Equity

Which of the following accounts is decreased with a debit?

owner's withdrawal

notes payable

cash

interest expense

The account that is decreased with a debit is:

notes payable

Here’s a breakdown of how debits and credits affect different types of accounts:

• Owner's withdrawal: This account is an equity account and increases with a debit. Since it decreases owner's equity, it is decreased with a credit.

• Notes payable: This is a liability account. Liabilities decrease with a debit and increase with a credit.

• Cash: This is an asset account. Assets increase with a debit and decrease with a credit.

• Interest expense: This is an expense account. Expenses increase with a debit and decrease with a credit.

So, notes payable is the account that is decreased with a debit.

The debit and credit analysis of a transaction normally takes place

When the trial balance is prepared

When the entry is posted to the ledger

At some other point in the accounting cycle

Before an entry is recorded in a journal

Before an entry is recorded in a journal

Here’s how it works in the accounting process:

• Before an entry is recorded in a journal: The debit and credit analysis is performed to determine the impact of a transaction on the accounts involved. This analysis ensures that each transaction is recorded with the correct debits and credits before the journal entry is made.

• When the trial balance is prepared: The trial balance is prepared after journal entries are posted to the ledger, and it is used to verify that total debits equal total credits in the ledger.

• When the entry is posted to the ledger: Posting to the ledger follows the recording of the journal entry. The debit and credit analysis is done beforehand to ensure accuracy.

• At some other point in the accounting cycle: Debit and credit analysis specifically happens before recording journal entries, not generally at other points in the cycle.

So, the debit and credit analysis occurs before recording the entry in the journal.

When collections are made on Accounts Receivable,

total assets remain the same

total assets decrease

owner's equity increases

total assets increase

total assets remain the same

Here's the reasoning:

• Accounts Receivable is an asset account. When a collection is made, cash (another asset account) increases, and Accounts Receivable decreases by the same amount.

When an entity acquires computer equipment for cash,

an asset is increased and a liability is decreased

one asset is increased while another is decreased

one asset is increased and another is also increased

assets and owner's equity are increased

one asset is increased while another is decreased

Here’s the breakdown:

• One asset is increased: The computer equipment (a new asset) is added to the books.

• Another asset is decreased: Cash (an existing asset) is reduced to pay for the equipment.

In this transaction, the total value of assets remains the same, but the composition of assets changes: the computer equipment increases, and cash decreases by the same amount.

So, the correct answer is that one asset is increased while another is decreased.

Which of the following describes the classification and normal balance of the Service Revenue account?

revenue, credit

revenue, debit

liability, credit

contra-equity, credit

revenue, credit

Here’s why:

• Revenue: Service Revenue represents income earned from providing services and is categorized as a revenue account.

• Credit: Revenue accounts typically have a normal credit balance. When revenue is earned, it is recorded as a credit, which increases the revenue account.

So, the Service Revenue account is classified as a revenue account and has a normal credit balance.

Which of the following events does not result in the recording of an expense?

payment of salaries

receipt of a bill from the telephone company

owner withdrawal of cash

purchase of gasoline for fill up of a company car

owner withdrawal of cash

Here’s why:

• Payment of salaries: This results in an expense because salaries are a cost of doing business and reduce the company's profit.

• Receipt of a bill from the telephone company: This represents a liability for the cost of telephone services, which will be recorded as an expense when the bill is recognized.

• Owner withdrawal of cash: This transaction is considered a drawing or distribution and affects the owner’s equity but does not impact expenses.

• Purchase of gasoline for fill-up of a company car: This is an operational expense related to the cost of running the vehicle and will be recorded as an expense.

So, the owner withdrawal of cash does not result in the recording of an expense.

A credit entry decreases the balance of

owner's equity

liabilities

income

assets

assets

Here's how credits affect different types of accounts:

• Assets: A credit entry decreases the balance of asset accounts. For example, if cash is credited, the cash balance decreases.

• Owner's Equity: A credit entry increases owner’s equity accounts, such as capital contributions or retained earnings.

• Liabilities: A credit entry increases liability accounts. For example, if accounts payable is credited, the liability balance increases.

• Income: A credit entry increases income accounts (revenue), as revenue accounts normally have a credit balance.

Thus, a credit entry decreases the balance of asset accounts.

When the proprietor withdraws cash or other assets, the withdrawal account is

not affected

credited

debited and credited

debited

debited

Here's why:

• Withdrawals (or drawings) by the proprietor decrease the owner’s equity in the business. To record this decrease, the withdrawal account is debited.

This entry reflects that the assets of the business are reduced and the owner's equity is decreased. For example, if the proprietor withdraws cash, the Cash account is credited, and the Withdrawals account is debited.

The normal balance of an account is on the

plus side

left side

credit side

debit side

plus side

Here's how the normal balance of accounts works:

• Assets: Have a normal debit balance. Increases are recorded on the debit side, and decreases are recorded on the credit side.

• Liabilities: Have a normal credit balance. Increases are recorded on the credit side, and decreases are recorded on the debit side.

• Owner's Equity: Has a normal credit balance. Increases are recorded on the credit side, and decreases are recorded on the debit side.

• Revenues: Have a normal credit balance. Increases are recorded on the credit side, and decreases are recorded on the debit side.

• Expenses: Have a normal debit balance. Increases are recorded on the debit side, and decreases are recorded on the credit side.

Thus, the term "plus side" refers to the side where increases are recorded for the normal balance of each type of account. For assets and expenses, it's the debit side; for liabilities, revenues, and owner’s equity, it's the credit side.

Which of the following is a business event that is not considered a recordable transaction?

a company pays an employee for work performed

a customer inquires about the availability of a service

a company receives a product previously ordered

a customer purchases a service

a customer inquires about the availability of a service

Here’s why:

• A company pays an employee for work performed: This is a recordable transaction as it involves a payment of cash and recognition of an expense (wages).

• A customer inquires about the availability of a service: This is not a recordable transaction because it does not involve a financial exchange or impact on the financial statements. It is merely an inquiry.

• A company receives a product previously ordered: This is a recordable transaction as it involves receiving inventory (an asset) and potentially recognizing a liability if it was received on credit.

• A customer purchases a service: This is a recordable transaction as it involves earning revenue and possibly receiving cash or accounts receivable.

Therefore, a customer inquiring about the availability of a service does not constitute a recordable transaction.

Which of the following accounts will not affect owner's equity?

revenues

owner's withdrawals

land

advertising expense

land

Here’s how each account affects owner's equity:

• Revenues: Increase owner's equity because they contribute to the net income of the business, which is part of owner's equity.

• Owner's withdrawals: Decrease owner's equity as they represent distributions of equity to the owner.

• Advertising expense: Decreases owner's equity because it reduces net income, which in turn reduces the owner's equity.

• Land: This is an asset account and does not directly affect owner's equity. It affects the asset side of the balance sheet but does not change the owner's equity unless it is sold or depreciated, which could then affect the equity indirectly.

Thus, the land account itself does not directly affect owner's equity.

An account has two sides called the

asset and liability

income and expense

debit and credit

journal and ledger

debit and credit

Here’s what each term refers to:

• Debit: The left side of an account. Increases in assets and expenses are recorded on the debit side, and decreases in liabilities, equity, and revenues are recorded on the debit side.

• Credit: The right side of an account. Increases in liabilities, equity, and revenues are recorded on the credit side, and decreases in assets and expenses are recorded on the credit side.

The other terms (asset and liability, income and expense, journal and ledger) refer to different aspects of accounting but are not the two sides of an account.

Which of the following is not considered a book of original entry?

General Journal

Purchases Journal

General Ledger

Sales Journal

General Ledger

Here’s the reasoning:

• General Journal: This is a book of original entry where all transactions are first recorded in chronological order before being posted to the respective accounts in the ledger.

• Purchases Journal: This is a specialized book of original entry used to record all credit purchases of inventory or supplies.

• Sales Journal: This is a specialized book of original entry used to record all credit sales of goods or services.

• General Ledger: This is not a book of original entry. Instead, it is a collection of all the accounts used to record transactions after they have been initially recorded in the books of original entry (such as the General Journal and specialized journals). The General Ledger contains the balances of each account and is used for the final recording and summarizing of transactions.

So, the General Ledger is not considered a book of original entry.

A transaction in which six months' rent is paid in advance results in a credit to Cash and a debit to

Rent Revenue

Rent Receivable

Prepaid Rent

Rent Expense

Prepaid Rent

Here’s why:

• Prepaid Rent: This is an asset account. When you pay rent in advance, you are acquiring a right to use property in the future. This future benefit is recorded as an asset called Prepaid Rent. You debit Prepaid Rent to increase this asset account.

• Rent Revenue: This account represents income earned from renting out property. It is not affected by the payment of rent in advance.

• Rent Receivable: This account represents amounts due from others for rent. It is not relevant to the advance payment of rent.

• Rent Expense: This account represents the cost of rent for the current period. Since the rent is paid in advance, it will be recorded as an asset and expensed in the future periods as it is used.

Thus, the correct entry for paying six months' rent in advance is a credit to Cash and a debit to Prepaid Rent.

Payment on a portion of Accounts Payable will

not affect owner's equity

increase total liabilities

decrease profit

not affect total assets

not affect owner's equity

Here’s why:

• Not affect owner's equity: Payment on Accounts Payable involves settling a liability. This transaction impacts the Cash account (an asset) and the Accounts Payable account (a liability), but it does not directly affect owner’s equity. Owner's equity is affected by revenues, expenses, and withdrawals, not by the payment of liabilities.

• Increase total liabilities: This is incorrect because paying on Accounts Payable decreases the liability, not increases it.

• Decrease profit: This is incorrect because paying off Accounts Payable does not directly impact profit. Profit is affected by revenues and expenses, not by the payment of liabilities.

• Not affect total assets: This is incorrect because while the total amount of assets (cash) decreases, the total assets remain unchanged overall. The decrease in one asset (cash) is offset by the decrease in a liability (Accounts Payable).

So, payment on a portion of Accounts Payable does not affect owner’s equity.

When a company has performed a service but has not yet received payment, it

makes no entry until the cash is received

debits Service Revenues and credits Accounts Receivable

debits Accounts Receivable and credits Service Revenues

debits Service Revenues and credits Accounts Payable

debits Accounts Receivable and credits Service Revenues

Here’s the explanation:

• Debits Accounts Receivable: This increases the Accounts Receivable account, reflecting that the company is owed money by the customer.

• Credits Service Revenues: This increases the Service Revenues account, recognizing the revenue earned from providing the service.

This entry records the revenue earned and acknowledges the receivable amount due from the customer. The company will later receive the payment, at which point the Cash account will be debited and Accounts Receivable will be credited to reflect the receipt of cash.

Which of the following accounts is increased with a credit?

revenues

owner's withdrawal

supplies

supplies expense

revenues

Here’s why:

• Revenues: Revenue accounts have a normal credit balance. Therefore, credits increase revenue accounts.

• Owner's withdrawal: This account (also known as drawings) decreases owner's equity and has a normal debit balance. Credits would decrease this account.

• Supplies: Supplies is an asset account, and asset accounts have a normal debit balance. Credits decrease asset accounts.

• Supplies expense: Expense accounts also have a normal debit balance. Credits would decrease expense accounts.

So, among the options provided, revenues are the accounts increased with a credit.

A business buys office equipment for cash. What effect will this transaction have on the accounts?

debit an asset account and credit an expense account

debit an asset account and credit an asset account

debit a liability account and credit an asset account

debit an expense account and credit an asset account

debit an asset account and credit an asset account

Here’s why:

• Debit an asset account: Office equipment is an asset, so the Office Equipment account (an asset) is debited to increase its balance.

• Credit an asset account: Cash (another asset) is credited to decrease its balance because cash is used to pay for the office equipment.

The transaction involves increasing one asset (office equipment) and decreasing another asset (cash), so the correct entry is to debit the Office Equipment account and credit the Cash account.

What functions do accounting journals serve in the accounting process?

Reporting

Summarizing

Classifying

Recording

Recording

Here’s how accounting journals function:

• Recording: Journals are the first place where financial transactions are recorded. They capture transactions in chronological order, detailing the accounts affected and the amounts debited and credited.

The other functions are:

• Reporting: This is typically done through financial statements and reports, which summarize the information recorded in the journals and ledgers.

• Summarizing: This function is handled by the general ledger and financial statements, where data from journals is summarized.

• Classifying: This is done in the general ledger where transactions recorded in journals are classified into specific accounts.

So, accounting journals are primarily used for recording transactions.

Which of the following accounts is increased with a debit?

legal revenues

owner's capital

rent payable

owner's withdrawal

owner's withdrawal

Here’s why:

• Legal Revenues: Revenue accounts typically have a normal credit balance. Credits increase revenues, while debits decrease them.

• Owner's Capital: This is an equity account with a normal credit balance. Credits increase owner's capital, while debits decrease it.

• Rent Payable: This is a liability account with a normal credit balance. Credits increase liabilities, while debits decrease them.

• Owner's Withdrawal: This account represents distributions or withdrawals by the owner and has a normal debit balance. Debits increase this account, which reduces owner's equity.

So, owner's withdrawal is the account that is increased with a debit.

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called

Trial Balance

Ledger

Account

Journal

Journal

Here’s a brief overview of each term:

• Journal: This is the primary book of original entry where all transactions are first recorded in chronological order before being posted to the ledger. It captures the essential details of each transaction, including the accounts affected and the amounts.

• Trial Balance: This is a report that lists all the ledger accounts and their balances to verify that total debits equal total credits. It is used to ensure the accuracy of the recording process but is not where transactions are initially recorded.

• Ledger: This is a collection of all accounts used by the business. It is where the journal entries are posted after the transactions are initially recorded in the journal. It provides a detailed record of each account’s activity and balance.

• Account: This refers to a specific record within the ledger that tracks changes to a particular type of asset, liability, equity, revenue, or expense.

So, the correct answer is Journal, as it is the record where transactions are initially recorded.

Which of the following entries records the withdrawal of cash for personal use by Rosenda Huerto, the owner of a business?

debit Cash and credit Salary Expense

debit Huerto, Withdrawals and credit Cash

debit Salary Expense and credit Cash

debit Cash and credit Huerto, Withdraw,

debit Huerto, Withdrawals and credit Cash

Here’s the reasoning:

• Debit Huerto, Withdrawals: This account (also known as Owner’s Withdrawals or Drawings) represents a reduction in the owner's equity. Debiting this account records the amount withdrawn by the owner.

• Credit Cash: This reduces the Cash account, reflecting the outflow of cash from the business for personal use.

The other options are not correct for the following reasons:

• Debit Cash and credit Salary Expense: This entry would incorrectly suggest that cash is increasing and that an expense is being recorded, which is not applicable for owner withdrawals.

• Debit Salary Expense and credit Cash: This would record a salary expense and is not appropriate for recording owner withdrawals.

• Debit Cash and credit Huerto, Withdraw: This would incorrectly suggest that cash is increasing and would not appropriately reflect the reduction in owner’s equity.

So, the correct entry to record the withdrawal of cash by the owner is to debit Huerto, Withdrawals and credit Cash.

When a T-account has several items on both sides, the balance of the account is written

on the side with the greatest number of items

on the side with the least number of items

on the side with the larger total

on the side with the smaller total

on the side with the larger total

Here’s how it works:

• The balance of the account is calculated by subtracting the smaller total from the larger total. The balance is then recorded on the side with the larger total.

• Debit side: If the debits exceed the credits, the balance is a debit and is recorded on the debit side.

• Credit side: If the credits exceed the debits, the balance is a credit and is recorded on the credit side.

So, the balance of a T-account is always written on the side that has the larger total, reflecting whether the account has a debit or credit balance.

What functions do general ledgers serve in the accounting process?

Classifying

Summarizing

Recording

Reporting

Classifying

Here’s how each function relates to general ledgers:

• Classifying: The general ledger is where all the journal entries are posted. It classifies and organizes these entries into specific accounts. Each account in the general ledger tracks transactions and balances for a particular type of asset, liability, equity, revenue, or expense.

The other functions are:

• Recording: This function is handled by the journal, where transactions are first recorded in chronological order.

• Summarizing: The general ledger does contribute to summarizing financial information, but its primary role is classification. Summarization is often performed in financial statements and reports based on the information in the general ledger.

• Reporting: This function involves preparing financial statements and other reports based on the summarized data from the general ledger.

So, while the general ledger does contribute to summarizing and reporting, its primary role is to classify and organize transactions into specific accounts.

Posting refers to the process of transferring information from

Journals to general ledger accounts

General ledger accounts to journal

Journals to source documents

Source documents to journals

Journals to general ledger accounts

Here’s what each term means in this context:

• Journals to general ledger accounts: Posting involves taking the information recorded in the journal entries (which is in chronological order) and transferring it to the respective accounts in the general ledger. This process helps to classify and summarize the transactions in individual accounts.

A subsidiary ledger is

A listing of accounts of a subsidiary

A listing of the components of account balances

A listing of account balances just before closing entries are prepared

A backup system to protect against record destruction

A listing of the components of account balances

Here’s what a subsidiary ledger is and its role:

• A listing of the components of account balances: A subsidiary ledger provides detailed information for a specific account type that is summarized in the general ledger. For example, the Accounts Receivable subsidiary ledger contains individual customer accounts and their balances, which collectively make up the total Accounts Receivable balance in the general ledger.

Which of the following statements regarding a trial balance is incorrect?

A trial balance helps to minimize errors within an identifiable time period

A trial balance proves that no errors of any kind have been made in the accounts during the accounting period

A trial balance is a test of the equality of the debit and credit balances in the ledger

A trial balance is a list of all of the open accounts in the ledger with their balances as of a given date

A trial balance proves that no errors of any kind have been made in the accounts during the accounting period

A trial balance proves that no errors of any kind have been made in the accounts during the accounting period: This is incorrect. While a trial balance can help identify some errors, such as transposition errors or incorrect account postings, it does not guarantee that no errors have been made. Errors such as those involving equal debits and credits that are offsetting or errors of omission can still occur and would not be detected by the trial balance alone.

So, the trial balance does not prove that no errors of any kind have been made; it only verifies that the total debits and credits are equal.

A control device that helps to minimize and localize accounting errors is known as

Trial balance

Worksheet

Chart of accounts

Subsidiary ledger

Trial balance

• Trial Balance: is a tool used during the accounting period to organize and summarize financial data. It helps in identifying and correcting errors before finalizing the financial statements. It can help in minimizing and localizing errors by allowing adjustments and ensuring that all account balances are correctly stated.

An unadjusted trial balance

Proves that no errors have been made in the accounting records

Provides information that is helpful when making adjusting entries

Is a summary taken directly from the general journal

Usually contains the account balances that should appear in the financial statements

Provides information that is helpful when making adjusting entries