True/False
Indicate whether the sentence or statement is true
or false.
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1.
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When
using the fundamental accounting equation, an accountant must make sure that total assets are always
equal to total liabilities and owner's equity.
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2.
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Changes in owner's equity can result from revenue and expenses.
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3.
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When
cash is collected from accounts receivable, the total amount of assets does not change.
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4.
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When
cash is paid to a creditor, the firm's liabilities increase.
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5.
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A
business transaction is a financial event that affects the resources of a business.
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6.
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If
there is an excess of expenses over revenues, the excess represents a profit.
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7.
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Revenue is recorded when cash is collected from charge-account clients.
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8.
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A
withdrawal of funds by the owner for personal use is considered a business expense.
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9.
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The
statement of owner's equity is prepared before the balance sheet so that the ending capital balance
is available.
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10.
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If
assets are $10,000 and liabilities are $2,000, owner's equity is $12,000.
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11.
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The
amount of net income or loss is needed to complete the statement of owner's equity.
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12.
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When
the owner withdraws cash from the business for personal use, the owner's equity is
decreased.
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13.
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A net
loss for the period decreases owner's equity.
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14.
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Expenses increase owner's equity.
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15.
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Increases in assets are recorded on the left side of a T account.
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16.
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When
a transaction is recorded in the ledger accounts, the total dollar amount debited should equal the
total dollar amount credited.
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17.
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Increases in assets and expenses are both recorded with debits.
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18.
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When
an owner invests assets in a business, the capital account is debited.
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19.
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The
balance of any account is decreased by crediting the account.
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20.
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The
normal balance side of an account is the decrease side.
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21.
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The
normal balance side of a liability account is the debit side.
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22.
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Increases in owner's equity are recorded with credits.
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23.
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An
increase in an expense results in an increase in owner's equity.
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24.
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Increases in the owner's drawing account are recorded with debits.
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25.
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The
normal balance side of the owner's drawing account is the credit side.
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26.
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After
transactions for the period have been recorded, a trial balance is prepared to verify the equality of
total debits and credits.
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27.
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A
business transaction affects at least two accounts.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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28.
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Amounts that a business must pay in the future are known as a. | accounts
receivable. | b. | accounts payable. | c. | capital. | d. | expenses. | | |
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29.
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Examples of assets are a. | cash and accounts receivable. | b. | cash and
revenue. | c. | cash and rent expense. | d. | investments by
the owner and revenue. | | |
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30.
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A net
loss results a. | when expenses
are greater than revenue. | b. | when assets are greater than
liabilities. | c. | when revenue is greater than
expenses. | d. | when expenses are greater than
assets. | | |
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31.
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When
the owner invests cash in a business, a. | assets and revenue increase. | b. | assets increase
and owner's equity decreases. | c. | liabilities decrease and owner's equity
increases. | d. | assets and owner's equity increase. | | |
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32.
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When
equipment is purchased on credit, a. | assets and liabilities increase. | b. | assets increase
and liabilities decrease. | c. | assets and owner's equity increase. | d. | assets and
expenses increase. | | |
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33.
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Assets and liabilities are reported on a. | the balance
sheet. | b. | the income statement. | c. | the statement of
owner's equity. | d. | both the balance sheet and the income
statement. | | |
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34.
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The
financial statement that is prepared first is a. | up to the accountant. | b. | the income
statement. | c. | the balance sheet. | d. | the statement of
owner's equity. | | |
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35.
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Supplies purchased for the business are a. | assets. | b. | liabilities. | c. | owner's
equity. | d. | revenue. | | |
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36.
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Debits are used to record a. | increases in assets. | c. | increases in owner's equity. | b. | increases in
revenue. | d. | increases in
liabilities. | | | | |
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37.
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Credits are used to record a. | decreases in assets and owner's equity and increases in
liabilities. | b. | decreases in assets, liabilities, and owner's
equity. | c. | decreases in liabilities and increases in assets and owner's
equity. | d. | increases in liabilities and owner's
equity. | | |
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38.
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A
firm paid cash to apply against a debt. To record this transaction, the accountant
would a. | debit Accounts
Receivable and credit Cash. | b. | debit Accounts Payable and credit
Cash. | c. | debit Cash and credit Accounts
Payable. | d. | credit Cash and credit Accounts
Payable. | | |
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39.
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When
revenue is earned from charge-account sales, the accountant a. | debits a revenue
account and credits the capital account. | b. | debits Accounts Receivable and credits a revenue
account. | c. | debits a revenue account and credits Accounts
Receivable. | d. | debits Cash and credits a revenue
account. | | |
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40.
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When
charge customers pay cash to apply against their accounts, the amount is recorded a. | on the left side
of the Cash account and the right side of the Fees Income account. | b. | on the left side
of the Accounts Payable account and the right side of the Cash account. | c. | on the left side
of the Cash account and the right side of the Accounts Receivable account. | d. | on the left side
of the Cash account and the left side of the Accounts Receivable account. | | |
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41.
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The
total of the figures on the left side of a Cash account is $25,800. The total of the figures on
the right side is $14,100. The balance of this account a. | is $11,700 and
would be recorded on the right side of the account. | b. | is $39,900 and
would be recorded on the left side of the account. | c. | is $39,900 and
would be recorded on the right side of the account. | d. | is $11,700 and
would be recorded on the left side of the account. | | |
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42.
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Which
of the following types of accounts normally have debit balances? a. | assets and
revenue | c. | expenses and
assets | b. | assets, liabilities, and owner's
equity | d. | liabilities and
owner's equity | | | | |
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43.
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Which
of the following groups contain only accounts that normally have credit balances? a. | Accounts
Receivable and Fees Income | c. | Fees Income and
John Smith, Capital | b. | Salaries Expense and Accounts
Payable | d. | Accounts Payable
and Equipment | | | | |
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44.
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If
assets are numbered from 100-199, which of the following accounts would not be given a number in the
100 series? a. | Supplies | c. | Prepaid
Rent | b. | Accounts
Payable | d. | Accounts
Receivable | | | | |
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45.
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Which
of the following accounts is not a permanent account? a. | Cash | c. | Salaries
Expense | b. | Accounts Payable | d. | Thomas Bernard, Capital | | | | |
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