ACCOUNTING CHAPTER 1 TEST

account

a record that summarizes all the information pertaining to a single item in the accounting equation

accounting equation

an equation showing the relationship among assets, liabilities, and owners’ equity

asset

anything of value that is owned

controlling account

an account in a general ledger that summarizes all accounts in a subsidiary ledger

double entry accounting

the recording of debit and credit parts of a transaction

equities

financial rights to the assets of a business

file maintenance

the procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current

general ledger

a ledger that contains all accounts needed to prepare financial statements

journal

a form for recording transactions in chronological order

ledger

a group of accounts

liability

an amount owed by a business

owners’ equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

source documents

business papers from which information is obtained for a journal entry

special journal

a journal used to record only one kind of transaction

stockholders’ equity

the owners’ equity in a corporation

subsidiary ledger

a ledger that is summarized in a single general ledger account

cash discount

a deduction that a vendor allows on the invoice amount to encourage prompt payment

contra account

an account that reduces a related account on a financial statement

debit memorandum

a form prepared by the customer showing the price deduction taken by the customer for a return or an allowance

departmental accounting system

an accounting system showing accounting information for two or more departments

merchandising business

a business that purchases and sells goods

petty cash

a business that purchases and sells goods

posting

transferring transaction information from a journal entry to a ledger account

purchases discount

a cash discount taken on merchandise purchased on account

true or false: The accounting equation may be stated as assets = owners’ equity.

false

true or false: A business with many daily transactions may use special journals.

true

true or false: Owners’ equity accounts have normal credit balances

true

true or false: A liability account has a normal debit balance

false

true or false: Revenue accounts have normal credit balances

true

true or false: Expense accounts have normal credit balances

false

true or false: increases in asset accounts are recording on the credit side

false

true or false: increases in liability accounts are recorded on the credit side

true

true or false: increased in owners’ equity accounts are recorded on the debit side

false

true or false: decreases in revenue accounts are recorded on the credit side

false

true or false: decreases in expense accounts are recorded on the credit side?

true

true or false: in departmental accounting system, gross profit is calculated for each department

true

true or false: a departmental purchases journal should contain a purchases debit column for each department

true

true or false: individual amounts in the Accounts Payable Credit column of the purchases journal are posted at the end of each month

false

true or false: when a customer returns merchandise for credit, the customer issues a debit memorandum for the amount of the return

true

true or false: using a check as the source document for a cash payment transaction is an application of the accounting concept Objective Evidence

true

true or false: a purchases discount is usually stated as a percentage

true

true or false: a discount is calculated on the original purchase price, even if a purchase return or allowance has been granted

false

true or false: replenishing the petty cash fund increases the Petty Cash account balance

false

true or false: amounts in the general debit and general credit columns of a cash payments journal are posted individually

true