The answer to Financial Accounting Multiple Choice Questions

1. The requirement that only transaction data capable of being expressed in terms of money be included in the accounting records relates to the
a. cost principle.
b. monetary unit assumption.
c. economic entity assumption.
d. both a and b above.

2. A financial statement that reports accounting data at a specific date is the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.

3. Which of the following presents key aspects of the process of accounting in the correct chronological order?
a. Communicating, recording, and identifying
b. Recording, identifying, and communicating
c. Recording, totaling, and identifying
d. Identifying, recording, and communicating

4. The process of transferring transaction effects into the appropriate accounts is referred to as
a. closing.
b. journalizing.
c. recording.
d. posting.

5. Transactions are initially recorded in the
a. general ledger.
b. trial balance.
c. general journal.
d. balance sheet.

6. For which of the following accounts is the normal balance a debit?
a. Rent Payable
b. Unearned Rent Revenue
c. Rent Revenue
d. Prepaid Rent

7. Which of the following is false with regard to a general journal?
a. It tracks the increases and decreases in an individual account.
b. It provides a chronological record of transactions.
c. It discloses in one place the complete effect of a transaction.
d. It helps to prevent errors since the debit and credit amounts in an individual entry can be readily compared.

8. Financial statements combining the operations of Sears and J. C. Penney would violate the
a. monetary unit assumption.
b. economic entity assumption.
c. cost principle.
d. both a and c above.

9. A debit will reduce _______________, but increase ______________.
a. accounts receivable; accounts payable
b. revenues; accounts payable
c. accounts payable; common stock
d. common stock; prepaid insurance

10. Which of the following entries made to record the payment of $200 on account will cause the trial balance to be out of balance?
a. No entry is recorded.
b. Cash is debited for $200 and Service Revenue is credited for $200.
c. Cash is debited for $20 and Accounts Payable is credited for $20.
d. Both Cash and Accounts Payable are credited for $200.

11. Although a separate legal entity, the transactions of the following still must be kept separate from the personal activities of the owners for accounting purposes:
a. Proprietorship.
b. Partnership.
c. Corporation.
d. Both a and b above.

12. The Retained Earnings column had a beginning total of $30,000 and an ending total of $50,000. If $10,000 of dividends were paid during the period, net income must have been
a. $20,000.
b. $40,000.
c. $10,000.
d. $30,000.

13. The matching principle states that
a. revenues should be matched with assets when they are recorded.
b. revenues should be matched with the periods when cash is collected from customers.
c. recorded values of assets should match their purchase prices.
d. none of the above.

Solution Summary

This solution is comprised of a detailed explanation to answer the financial accounting multiple choice questions.