True/False
Indicate whether the
statement is true or false.
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1.
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Reports and financial records of the business are kept separate from the
personal records of the partners.
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2.
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When a business requires the skills of more than one person and needs more
capital than one owner can provide, it should be organized as a proprietorship.
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3.
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The main difference between a service business and a merchandising business is
the journal used to record transactions.
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4.
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When a business keeps its accounting records on the assumption that it will make
money and continue in business indefinitely, it is applying the Consistent Reporting accounting
concept.
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5.
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A business in which two or more persons combine their assets and skills is a
partnership.
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6.
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The selling price of merchandise must be greater than the cost of merchandise
for a business to make a profit.
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7.
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Accounts related to the cost of merchandise are kept in the Revenue division in
the general ledger chart of accounts.
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8.
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The purchases account is increased by a credit and decreased by a debit.
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9.
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The cost account Purchases is used only to record the selling price of the
merchandise sold.
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10.
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The cost account Purchases is a permanent account.
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11.
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The source document for a cash purchase is a memorandum describing the
merchandise purchased.
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12.
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To apply the historical cost accounting concept, merchandise purchased for sale
should be recorded at its actual value even if a special sale price is granted.
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13.
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A cash purchase transaction decreases the balance of the cash account.
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14.
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The purchase invoice number assigned by the vendor should be used as the source
document number in the journal entry.
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15.
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A purchase invoice dated August 3 is received on August 5 and terms of sale are
20 days. Payment must be made by August 25.
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16.
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A purchase invoice usually lists only the total cost of the merchandise.
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17.
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A purchase on account transaction increases the purchases account balance and
increases the accounts payable account balance.
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18.
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The total of the purchases journal is verified by re-adding the column in
reverse order.
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19.
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A journal amount column that is not headed with an account title is a general
amount column.
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20.
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The source document for a cash purchase of merchandise is a memorandum
describing the merchandise purchased.
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21.
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A cash payment on account transaction increases the accounts payable account
balance and decreases the cash account balance.
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22.
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The source document for buying supplies on account is the memorandum with its
attached invoice.
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23.
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Buying supplies on account increases the supplies account balance and increases
the accounts payable account balance.
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24.
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A partner might take merchandise out of the business for personal use.
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25.
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If an accounting error is discovered, a memorandum is prepared describing the
correction to be made.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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26.
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Keeping the reports and financial records of a business separate from the
personal records of the partners is an application of the accounting concept ____.
a. | Going Concern | c. | Historical Cost | b. | Business Entity | d. | Objective
Evidence |
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27.
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A business expecting to make money and continue in business indefinitely is
applying the accounting concept ____.
a. | Business Entity | c. | Objective Evidence | b. | Going Concern | d. | Historical Cost |
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28.
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A journal used to record only one kind of transaction ____.
a. | is a special journal | b. | is a general journal | c. | must be used by all
businesses | d. | increases the time required to journalize
transactions |
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29.
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The price a business pays for goods it purchases to sell is ____.
a. | cost of goods sold | c. | markup | b. | cost of merchandise | d. | cost of sales |
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30.
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The amount added to the cost of merchandise to establish the selling price is
____.
a. | cost of goods sold | c. | cost of sales | b. | cost of merchandise | d. | markup |
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31.
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The purchases account is classified as ____.
a. | an expense account | c. | a liability account | b. | an asset account | d. | a cost account |
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32.
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Recording the actual amount paid for merchandise or other items bought is an
application of the accounting concept ____.
a. | Business Entity | c. | Historical Cost | b. | Objective Evidence | d. | Going Concern |
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33.
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A purchases journal is used to journalize ____.
a. | all purchase transactions | b. | all transactions | c. | all purchase of
merchandise on account transactions | d. | adjusting
entries |
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34.
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A journal amount column headed with an account title is a ____.
a. | general amount column | c. | general credit column | b. | general debit
column | d. | special amount
column |
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35.
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Writing an account title in the Account Title column of a journal is not
necessary if the journal has ____.
a. | a Cash Debit column | c. | a Source Doc. column | b. | a Post Ref. column | d. | special amount
columns |
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36.
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A form describing goods sold, the quantity, and the price is ____.
a. | a check | c. | an invoice | b. | a receipt | d. | a memorandum |
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37.
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The source document for recording a purchase on account transaction is a
____.
a. | purchase invoice | c. | memorandum | b. | sales invoice | d. | check |
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38.
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An agreement between a buyer and a seller about payment for merchandise is the
____.
a. | purchase invoice | c. | sales invoice | b. | correcting entry | d. | terms of sale |
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39.
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The entry to journalize a purchase of merchandise on account is ____.
a. | debit Accounts Payable; credit Merchandise | b. | debit Accounts
Payable; credit Purchases | c. | debit Purchases; credit Accounts
Payable | d. | debit Purchases; credit Merchandise |
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40.
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A liability account that summarizes the amounts owed to all vendors is titled
____.
a. | Accounts Payable | c. | Sales | b. | Accounts Receivable | d. | Purchases |
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41.
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A cash payments journal is used to journalize ____.
a. | all cash transactions | c. | adjusting entries | b. | only cash payment
transactions | d. | closing
entries |
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42.
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Supplies bought for use in a business are recorded in the ____.
a. | supplies expense account | c. | supplies
account | b. | purchases account | d. | cash account |
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43.
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The entry to journalize buying supplies for cash is ____.
a. | debit Supplies; credit Cash | c. | debit Purchases; credit
Cash | b. | debit Accounts Payable; credit Supplies | d. | debit Purchases; credit
Supplies |
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44.
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The entry to journalize payment to replenish a petty cash fund is ____.
a. | debit Cash; credit Petty Cash | b. | debit Petty Cash; credit
Cash | c. | debit the appropriate expense and other accounts; credit Cash | d. | debit the
appropriate expense and other accounts; credit Petty Cash |
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45.
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Assets taken out of a business for the personal use of an owner ____.
a. | must be in the form of cash | b. | are usually cash or
merchandise | c. | should be recorded as credits to the partners' drawing
accounts | d. | should be recorded as debits to the partners' capital
accounts |
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46.
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The source document for a cash withdrawal by a partner is a ____.
a. | check | c. | purchase invoice | b. | receipt | d. | memorandum |
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47.
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When two account titles are written on one line of the general journal,
____.
a. | only one account is posted | b. | neither account is posted | c. | a diagonal line is
placed in the Post. Ref. column | d. | only the totals are
posted |
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48.
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When merchandise is withdrawn by a partner, the ____.
a. | source document for the transaction is a check | b. | balance of the
purchases account is increased | c. | other partner must also take an equal amount of
merchandise out of the business for personal use | d. | transaction will increase the balance of the
drawing account and decrease the balance of the purchases account |
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49.
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The entry to journalize a withdrawal of merchandise by a partner is ____.
a. | debit Supplies; credit Drawing | c. | debit Purchases; credit
Drawing | b. | debit Accounts Payable; credit Supplies | d. | debit Drawing; credit
Purchases |
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50.
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The equality of debits and credits for the general journal is ____.
a. | checked at the end of the month | c. | checked after each entry is
recorded | b. | not checked | d. | checked every week |
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