, Chapter 02
Financial Statements and the Accounting System
True / False Questions
1. The first step to get from transactions and events to financial statements is to identify each
transaction from source documents.
True False
2. Preparation of a trial balance is the first step in processing a financial transaction.
True False
3. Source documents identify and describe business transactions and are the basis for accounting
entries.
True False
4. Items such as sales tickets, bank statements, checks, and purchase orders are examples of a
business's source documents.
True False
5. An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or
expense item.
True False
,6. A customer's promise to pay on credit is classified as an account payable by the seller.
True False
7. Dividends paid to the stockholders are a business expense.
True False
8. The purchase of land and buildings will generally be recorded in the same ledger account.
True False
9. Unearned revenues are classified as liabilities.
True False
10. Cash paid to stockholders by the business of a corporation and used for personal expenses, should
be treated as an expense of the business.
True False
11. When a company provides services for which cash will not be received until some future date, the
company should record the amount charged as accounts receivable.
True False
12. A company's chart of accounts is a list of all the accounts used and includes an identification number
assigned to each account.
True False
13. An account's balance is the difference between the total debits and total credits for the account,
including any beginning balance.
True False
, 14. The right side of an account is called the debit side.
True False
15. In a double-entry accounting system, the total dollar amount debited must always equal the total
dollar amount credited.
True False
16. Increases in liability accounts are recorded as debits.
True False
17. Debits increase asset and expense accounts.
True False
18. Credits always increase account balances.
True False
19. Crediting an expense account decreases it.
True False
20. A revenue account normally has a debit balance.
True False
21. Asset accounts are normally decreased by debits.
True False
22. Debit means increase and credit means decrease for all accounts.
True False
Financial Statements and the Accounting System
True / False Questions
1. The first step to get from transactions and events to financial statements is to identify each
transaction from source documents.
True False
2. Preparation of a trial balance is the first step in processing a financial transaction.
True False
3. Source documents identify and describe business transactions and are the basis for accounting
entries.
True False
4. Items such as sales tickets, bank statements, checks, and purchase orders are examples of a
business's source documents.
True False
5. An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or
expense item.
True False
,6. A customer's promise to pay on credit is classified as an account payable by the seller.
True False
7. Dividends paid to the stockholders are a business expense.
True False
8. The purchase of land and buildings will generally be recorded in the same ledger account.
True False
9. Unearned revenues are classified as liabilities.
True False
10. Cash paid to stockholders by the business of a corporation and used for personal expenses, should
be treated as an expense of the business.
True False
11. When a company provides services for which cash will not be received until some future date, the
company should record the amount charged as accounts receivable.
True False
12. A company's chart of accounts is a list of all the accounts used and includes an identification number
assigned to each account.
True False
13. An account's balance is the difference between the total debits and total credits for the account,
including any beginning balance.
True False
, 14. The right side of an account is called the debit side.
True False
15. In a double-entry accounting system, the total dollar amount debited must always equal the total
dollar amount credited.
True False
16. Increases in liability accounts are recorded as debits.
True False
17. Debits increase asset and expense accounts.
True False
18. Credits always increase account balances.
True False
19. Crediting an expense account decreases it.
True False
20. A revenue account normally has a debit balance.
True False
21. Asset accounts are normally decreased by debits.
True False
22. Debit means increase and credit means decrease for all accounts.
True False
