Accounting Transactions Chapter 3-8
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Questions and Answers

What is the total increase in assets after the first transaction?

  • $15,000
  • $20,000
  • $5,000
  • $10,000 (correct)
  • What effect does borrowing $5,000 from a bank have on Sierra's liabilities?

  • Decreases by $5,000
  • Lies unchanged
  • Increases by $10,000
  • Increases by $5,000 (correct)
  • After purchasing office equipment for $5,000 in cash, what is the change in total assets?

  • Increases by $10,000
  • Remains the same (correct)
  • Increases by $5,000
  • Decreases by $5,000
  • How much cash did Sierra receive for advertising services on October 3?

    <p>$10,000</p> Signup and view all the answers

    What was the total cash inflow for Sierra up to October 3 from all transactions listed?

    <p>$16,200</p> Signup and view all the answers

    What amount did Sierra pay for office rent in October?

    <p>$900</p> Signup and view all the answers

    What is the total liability for Sierra after the second transaction?

    <p>$5,000</p> Signup and view all the answers

    If Sierra makes the payment for office equipment, what will happen to liabilities?

    <p>Stay the same</p> Signup and view all the answers

    What is the total effect on the accounting equation after Sierra pays $600 for the insurance policy?

    <p>Equity decreases by $600</p> Signup and view all the answers

    How does the purchase of advertising materials on account affect Sierra's assets and liabilities?

    <p>Assets increase by $2,500 and liabilities increase by $2,500</p> Signup and view all the answers

    What happens to the accounting equation when employees are paid $4,000 in salaries?

    <p>Equity decreases by $4,000</p> Signup and view all the answers

    What must occur in a double-entry accounting system for every transaction?

    <p>Each transaction affects two or more accounts</p> Signup and view all the answers

    What is the impact on Sierra's equity when paying out a $500 dividend?

    <p>Equity decreases by $500</p> Signup and view all the answers

    What is the net effect on Sierra's assets after the total series of transactions listed?

    <p>Assets increase by $5,600</p> Signup and view all the answers

    In an account where debits exceed credits, what is the resulting balance called?

    <p>Debit balance</p> Signup and view all the answers

    How much does Sierra's equity ultimately change after paying $600 for insurance and $500 dividend?

    <p>Equity decreases by $1,100</p> Signup and view all the answers

    What is the primary purpose of an account in accounting?

    <p>To record increases and decreases in specific items</p> Signup and view all the answers

    What does it indicate if an account shows a credit balance?

    <p>Credits exceed debits</p> Signup and view all the answers

    What transaction causes an increase in both assets and liabilities?

    <p>Purchase of advertising materials on account</p> Signup and view all the answers

    Which of the following statements about Sierra's transactions is true?

    <p>Some transactions decrease equity</p> Signup and view all the answers

    How are debits and credits recorded in bookkeeping?

    <p>Debits are on the left, credits are on the right</p> Signup and view all the answers

    Which transaction describes a decrease in assets?

    <p>Paying accrued salaries</p> Signup and view all the answers

    If Sierra had not issued the dividend, what would the accounting equation reflect?

    <p>Higher equity</p> Signup and view all the answers

    Which of the following must always be true in accounting?

    <p>Debits must equal credits for every transaction</p> Signup and view all the answers

    What is the effect of a debit on assets?

    <p>Debits increase assets.</p> Signup and view all the answers

    Which accounts typically have a normal debit balance?

    <p>Assets, dividends, and expenses.</p> Signup and view all the answers

    How is the accounting equation expressed?

    <p>Assets = Liabilities + Stockholders’ Equity.</p> Signup and view all the answers

    What happens to liabilities when there is a debit entry?

    <p>Debits decrease liabilities.</p> Signup and view all the answers

    What is required for the accounting equation to remain balanced after each transaction?

    <p>Each debit must have a corresponding credit.</p> Signup and view all the answers

    Which statement describes the effect of credits on expenses?

    <p>Credits decrease expenses.</p> Signup and view all the answers

    What is true about the relationship between debits and credits?

    <p>Credits and debits must always balance.</p> Signup and view all the answers

    When a business records revenue, which type of account is typically credited?

    <p>A revenue account.</p> Signup and view all the answers

    What is the main purpose of a trial balance?

    <p>To prove that debits equal credits.</p> Signup and view all the answers

    What could cause a trial balance to appear balanced even when errors exist?

    <p>A journal entry is recorded more than once.</p> Signup and view all the answers

    Which of the following situations would definitively cause a trial balance to not balance?

    <p>A $100 cash dividend is debited as $1,000.</p> Signup and view all the answers

    Which statement about posting is correct?

    <p>Posting allows transactions to be transferred from journals to ledgers.</p> Signup and view all the answers

    Which of the following limitations is NOT associated with a trial balance?

    <p>Correct entries are double counted.</p> Signup and view all the answers

    What can lead to the trial balance balancing despite having an unrecorded transaction?

    <p>An oversight where one entry is not journalized.</p> Signup and view all the answers

    When a trial balance is prepared incorrectly, which of the following can be a contributing factor?

    <p>Use of incorrect accounts.</p> Signup and view all the answers

    What is NOT a reason why a trial balance might balance when it shouldn't?

    <p>Debits and credits were not analyzed.</p> Signup and view all the answers

    Study Notes

    Accounting Transactions Overview

    • The basic accounting equation is essential for tracking the financial health of a business: Assets = Liabilities + Equity.
    • Each business transaction impacts at least two accounts to maintain balance.

    Key Transactions of Sierra Corporation

    • October 1: Investors invested $10,000 for common stock; increases cash and equity equally.
    • October 1: Sierra borrowed $5,000 from Castle Bank with a 12% note payable for three months; increases cash and liabilities.
    • October 2: Sierra purchased office equipment for $5,000 cash; cash decreases while assets increase.
    • October 2: Received $1,200 cash advance from a client; increases cash and unearned revenue (liability).
    • October 3: Received $10,000 cash for advertising services rendered; increases cash and revenue (equity).
    • October 3: Paid $900 in cash for office rent; decreases cash and increases expenses (reducing equity).
    • October 4: Paid $600 for a one-year insurance policy; decreases cash and increases prepaid expenses (asset).
    • October 5: Purchased $2,500 in advertising materials on account; increases inventory (asset) and accounts payable (liability).
    • October 20: Paid a $500 dividend; decreases cash and retained earnings (equity).
    • October 26: Paid $4,000 in salaries; decreases cash and increases salary expenses (reducing equity).

    Understanding Accounts

    • An Account records increases and decreases in specific asset, liability, equity, revenue, or expense items.
    • Debits (Dr) are recorded on the left; Credits (Cr) are on the right.
    • Each transaction impacts multiple accounts ensuring the equation remains balanced.

    Double-Entry Accounting

    • Every transaction includes at least one debit and one credit.
    • Debits must equal credits for accurate bookkeeping.
    • Any excess debits result in a debit balance; credit balances occur when credits exceed debits.

    Normal Balance

    • Accounts typically have normal balances:
      • Debits: Assets, expenses, dividends.
      • Credits: Liabilities, equity, revenues.

    Trial Balance Purpose

    • A trial balance lists all accounts and their balances to verify that total debits equal total credits.
    • Important limitations include the potential to balance despite errors like unjournalized transactions or incorrect postings.

    Review Questions Insights

    • Understanding increases and decreases related to debits and credits is crucial for accounting accuracy.
    • Mistakes in journal entries can lead to imbalances in the trial balance.

    Summary of Debit/Credit Rules

    • Maintaining balance is critical; for every debit entry, there must be a corresponding credit entry.
    • Appropriate record-keeping ensures clarity in a company's financial position and aids in analyzing business transactions effectively.

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    Description

    This quiz focuses on analyzing the effects of business transactions on the basic accounting equation. It includes transaction analysis and illustrations to deepen your understanding of accounting principles. Test your knowledge about how these transactions affect the financial statements.

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