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Chapter 02
Review of the Accounting Process
True / False Questions
1. Owners' equity can be expressed as assets minus liabilities.
True False
2. Debits increase asset accounts and decrease liability accounts.
True False
3. Balance sheet accounts are referred to as temporary accounts because their balances
are always changing.
True False
4. After an unadjusted trial balance is prepared, the next step in the accounting
processing cycle is the preparation of financial statements.
True False
5. Adjusting journal entries are required to comply with the realization and matching
principles.
True False
6. Accruals occur when the cash flow precedes either revenue or expense recognition.
True False
7. The adjusted trial balance contains only permanent accounts.
True False
8. The income statement summarizes the operating activity of a firm at a particular
point in time.
True False
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9. The balance sheet can be considered a change or flow statement.
True False
10. The statement of cash flows summarizes transactions that caused cash to change
during a reporting period.
True False
11. The statement of shareholders' equity discloses the changes in the temporary
shareholders' equity accounts.
True False
12. The post-closing trial balance contains only permanent accounts.
True False
13. The closing process brings all temporary accounts to a zero balance and updates the
balance in the retained earnings account.
True False
14. A reversing entry at the beginning of a period for salaries would include a debit to
salaries expense.
True False
15. The sale of merchandise on account would be recorded in a sales journal.
True False
16. The payment of cash to a supplier would be recorded in a purchases journal.
True False
Multiple Choice Questions
, Full file at http://testbankscafe.eu/Test-Bank-for-Intermediate-Accounting-7th-Edition-Spiceland,-Sepe,-Nelson
17. The accounting equation can be stated as:
A. A + L - OE =
0.
B. A - L + OE =
0.
C. -A + L - OE =
0.
D. A - L - OE =
0.
18. Examples of external transactions include all of the following except:
A. Paying employees
salaries.
B. Purchasing
equipment.
C. Depreciating
equipment.
D. Collecting a
receivable.
19. Examples of internal transactions include all of the following except:
A. Writing off an uncollectible
account.
B. Recording the expiration of prepaid
insurance.
C. Recording unpaid
wages.
D. Paying wages to company
employees.
20. XYZ Corporation receives $100,000 from investors for issuing them shares of its stock.
XYZ's journal entry to record this transaction would include a:
A. Debit to
investments.
B. Credit to retained
earnings.
C. Credit to capital
stock.
D. Credit to
revenue.
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