Accounting 2 Chapter 1

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1 Accounting 2 Chapter 1 True/False Indicate whether the statement is true or false. 1. The petty cash fund is replenished at the mid-point of each fiscal period. 2. Liability accounts have normal credit balances. 3. Amounts in the General Debit and General Credit columns of a cash payments journal are posted individually. 4. Expense accounts have normal debit balances. 5. The accounting equation may be stated as assets = liabilities. 6. An owner's equity account has a normal debit balance. 7. A purchases discount is typically stated as a percentage. 8. A departmental purchases journal should contain a Purchases Debit column for each department. 9. Increases in asset accounts are recorded on the debit side. 10. Increases in liability accounts are recorded on the debit side. 11. Decreases in expense accounts are recorded on the debit side. 12. A merchandising business purchases and sells goods. 13. A purchases journal is proved by adding each column and then proving that the sum of the debit column totals equals the credit column total. 14. A purchases discount increases the net amount of cash paid for a purchase. 15. A ledger is a group of accounts. 16. The total of the subsidiary ledger account balances should equal the balance of the controlling account. 17. A deduction that a vendor allows on the invoice amount to encourage prompt payment is called a cash discount. 18. Invoice terms of 2/10, n/30 mean that the customer may take a 10% discount if the invoice is paid within 2 days. If the discount is not taken, the entire amount of the invoice is due within 30 days. 19. In a departmental accounting system, each department has a separate Purchases Credit column in the purchases journal. 20. Posting involves transferring transaction information from a ledger account to a journal entry. 21. When the petty cash fund is replenished, the credit is to Petty Cash. 22. The two debit columns in the cash payments journal are General Debit and Cash Debit. 23. When merchandise is returned to a vendor, the vendor's account and Accounts Payable are reduced by a credit. 24. Purchases discount accounts are contra cost accounts. 25. Matching expenses with revenue gives a true picture of business operations for an accounting period.

2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. An amount owed by a business is called a(n). A. asset C. equity B. liability D. none of the above 2. An account balance that is opposite the normal balance is called a(n). A. contra balance C. liability B. opposite balance D. none of the above 3. Transferring information from a journal entry to a ledger account is called. A. ordering C. posting B. recording D. none of the above 4. A journal used to record only one kind of transaction is called a(n). A. ledger C. source document B. special journal D. none of the above 5. A record summarizing all the information pertaining to a single item in the accounting equation is called a(n). A. ledger C. journal B. account D. none of the above 6. Anything of value that is owned is called a(n). A. asset C. equity B. liability D. none of the above 7. An account in a general ledger that summarizes all accounts in a subsidiary ledger is called a(n). A. general account C. maintenance account B. special account D. none of the above 8. An amount of cash kept on hand and used for making small payments is called. A. cash on hand C. quick cash B. petty cash D. none of the above 9. A form for recording transactions in chronological order is called a(n). A. journal C. ledger B. special journal D. none of the above 10. A ledger that contains all accounts needed to prepare financial statements is called a(n). A. special ledger C. subsidiary ledger B. general ledger D. none of the above 11. A business that purchases and sells goods is called a(n). A. service business C. selling business B. merchandising business D. none of the above 12. A form prepared by the customer showing the price deduction taken by the customer for returns and allowances is called a(n). A. credit memorandum C. return memorandum B. debit memorandum D. none of the above 13. Information about business transactions is obtained from original business papers called. A. journals C. invoices B. ledgers D. none of the above 14. A deduction that a vendor allows on the invoice amount to encourage prompt payment is called a(n). A. cash discount C. good customer discount B. credit discount D. none of the above

3 15. A departmental purchases journal should contain a Purchases Debit column for. A. recording purchase returns C. each department B. the company as a whole D. administrative purchases

4 Accounting 2 Chapter 1 Answer Section TRUE/FALSE 1. ANS: F PTS: 1 2. ANS: T PTS: 1 3. ANS: T PTS: 1 4. ANS: T PTS: 1 5. ANS: F PTS: 1 6. ANS: F PTS: 1 7. ANS: T PTS: 1 8. ANS: T PTS: 1 9. ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: ANS: T PTS: ANS: F PTS: ANS: F PTS: ANS: F PTS: ANS: F PTS: ANS: F PTS: ANS: F PTS: ANS: T PTS: ANS: T PTS: 1 MULTIPLE CHOICE 1. ANS: B PTS: 1 2. ANS: A PTS: 1 3. ANS: C PTS: 1 4. ANS: B PTS: 1 5. ANS: B PTS: 1 6. ANS: A PTS: 1 7. ANS: D PTS: 1 8. ANS: B PTS: 1 9. ANS: A PTS: ANS: B PTS: ANS: B PTS: ANS: B PTS: ANS: D PTS: 1

5 14. ANS: A PTS: ANS: C PTS: 1

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