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Exam 2: Accounting for Business Transactions

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Question 1

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The right side of a T-account is a(n) :

A) Debit.
B) Increase.
C) Credit.
D) Decrease.
E) Account balance.

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Question 2

Multiple Choice

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Identify the correct formula below used to calculate the debt ratio.

A) Total Equity/Total Liabilities.
B) Total Liabilities/Total Equity.
C) Total Liabilities/Total Assets.
D) Total Assets/Total Liabilities.
E) Total Equity/Total Assets.

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Question 3

True/False

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Crediting an expense account decreases it.

BBB Company sends a $2,500 invoice to a customer for catering services it provided during the month. Set up the necessary T-accounts below and show how this transaction would be recorded directly in those accounts.

Unearned revenues are generally:

For each of the accounts in the following table (1) identify the type of account as an asset, liability, equity, revenue, or expense, and (2) identify the normal balance of the account. Account Type Normal Balance a. Wages Expense b. Accounts Receivable c. Commissions Earned d. Salaries Payable e. Common Stock f. Unearned Advertising Revenue g. Salaries Expense h. Magazine Subscription Revenue i. Dividends j. Prepaid Insurance

Transactions are recorded first in the ledger and then transferred to the journal.

Identify the statement below that is correct.

A debit:

Smiles Entertainment had the following accounts and balances at December 31: $\begin{array} { | l | r | r | } \hline \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { Cash } & \$ 10,000 & \\\hline \text { Acoounts Receivable } & 2,000 & \\\hline \text { Prepaid Insurance } & 2,400 & \\\hline \text { Supplies } & 1,000 & \\\hline \text { Acoounts Payable } & & \$ 5,000 \\\hline \text { Common Stock } & & 4,900 \\\hline \text { Service Revenue } & & 7,000 \\\hline \text { Salaries Expense } &500 & \\\hline \text { Utilities Expense } & 1,000\\\hline \text { Totals } & \$ 16,900 & \$ 16,900 \\\hline\end{array}$ Using the information in the table, calculate the company's reported net income for the period.

The same four basic financial statements are prepared by both U.S. GAAP and IFRS.

You increase the Service Revenue account on the ___________ side of its account.

Identify the account below that is classified as an asset account:

A revenue account normally has a debit balance.

Asset accounts normally have debit balances and revenue accounts normally have credit balances.

Describe what source documents are and the purpose they serve in a business.

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

A more structured format that is similar to a T-account in that it has columns for debits and credits, but that is different in that it has columns for transaction date, explanation, and the account balance is the _____________________.

Unearned revenue is classified as a(an) _______________ on a business's balance sheet.

The general journal is known as the book of final entry because financial statements are prepared from it.