Raya High Institute

Accounting Studies

Lecture 3

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Dr. Sabri El-Segini

Emeritus Professor of Accounting

True or False

• A trial balance is simply a list of all accounts and their balances at a point in time T

• The normal balance for any account is always the side of the account (debit or credit) where increases are recorded T

• A journal is the first place where transactions are recorded in the accounting system T

• Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process F

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• The cost and fair market value of an asset are the same at the time of acquisition T
• The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods F
• A partnership must have more than one owner T
• The basic accounting equation states that Assets = Liabilities + Owner’s Equity T
• The basic accounting equation states that Assets = Liabilities F
• The purchase of store equipment for cash reduces the owner's equity by an equal amount F
• The purchase of store equipment for cash or on account does not affect the owner's equity.

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• At the time an asset is acquired, cost and fair value should be the same T

• The normal balance of all accounts is a debit. F

• A debit to an account indicates an increase in that account F

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Multiple Choice Questions (MCQs)

�Rose Company purchases equipment for $1,200 and supplies for $400 from Sally Co. for $1,600 cash. The entry for this transaction will include a�

credit to Equipment $1,200 and a credit to Supplies $400.

credit to Accounts Payable for $1,600

debit to Cash for $1,600

debit to Equipment $1,200 and a debit to Supplies $400 and credit Cash $1,600.

Kamal withdraws $300 cash from his business for personal use. The entry for this transaction will include a debit of $300 to�

Owner's Salary Expense.

Kamal, Capital.

Salaries Expense.

Kamal, Drawing.

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�On October 3, Mohamad, a carpenter, received a cash payment for services rendered to a client. What is the journal entry?�

Debit to service revenue and credit to Mohamad, Capital.

Debit to cash and credit to Accounts Receivable.

Debit to revenue and credit to Cash.

Debit to cash and Credit to service revenue.

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�On January 14, Omar Industries purchased supplies of $500 on account. The entry to record the purchase will include�

a debit to Supplies and a credit to Accounts Payable

a debit to Supplies and a credit to Cash

a debit to Supplies Expense and a credit to Accounts Receivable

a debit to Accounts Receivable and a credit to Supplies

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An income statement summarizes �

the changes in owner’s drawings for a specific period of time.

reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

reports the assets, liabilities, and stockholders’ equity at a specific date.

presents the revenues and expenses for a specific period of time.

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Transferring entries from journal to ledger account is commonly known as

Recording

Journalizing

Transferring

Posting

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The normal balance of capital account is�

Debit balance

Cash balance

Owner’s equity balance

Credit balance

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What is the effect of rendering service revenue on account?�

• Decrease assets and increase Liabilities
• Increase assets and decrease Liabilities
• Increase assets and decrease Owner’s Equity
• Increase assets and increase Owner’s Equity

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Which of the following financial statements is concerned with the company at a point in time?

Income statement

Retained earnings statement

Statement of cash flows

Balance sheet

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An entry with more than one debit accounts or credit is called

Simple entry

Triple entry

Multiple entry

Compound entry

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Before posting a payment of $5,000, the Accounts Payable of Golden Company had a normal balance of $16,000. The balance after posting this transaction was:

$5,000

$16,000

$21,000

$11,000

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What is the double entry to record a payment of $900 to a supplier for an equipment purchased and recorded last month?

Debit Equipment $900, credit Cash $900

Debit Cash $900, credit Accounts payable $900

Debit Accounts receivable $900, credit. Cash $900.

Debit Accounts payable $900, credit Cash $900

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What is the double entry to record additional cash investment by the owner of $700?

• Debit Cash $700, credit Owner’s equity $700.
• Debit Cash $700, credit Assets $700.
• Debit Owner’s Capital $700, credit Cash $700
• Debit Cash $700, credit Owner’s Capital $700.

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Royal Company owns land that cost $100,000, but the fair value is $190,000. The company continues to report the asset on the balance sheet at $100,000. Which of the following concepts justifies this?

Economic entity assumption

Monetary unit assumption

The fair value principle

The cost principle

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Payment of an account payable affects the components of the accounting equation in the following way.

Decreases assets and increases owner’s equity

Increases assets and decreases liabilities.

Decreases owner’s equity and decreases liabilities.

Decreases assets and decreases liabilities

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Combining the activities of owner with the activities of the business would violate the

cost principle

ethics principle

monetary unit assumption

economic entity assumption

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Double entry accounting states that

accounting takes place over specific time periods.

cost of the purchased items must be written at their cost price.

each transaction must affect more than two accounts.

each transaction must affect equal amount of credit and debit.

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