Quiz Of The Week: The Accounting Cycle

1. The first step in recording a business transaction is called:

Reporting

Posting

Journalizing

Transposing

The correct answer is C. The first step in recording a business transaction is journalizing. Posting (B) to the ledger is the second step. Reporting (A) is the process of compiling the information in the books and records into the financial statements. Transposing (C) is the process of switching the order of numbers or letters so that you get them out of sequence. A number like 659 might be recorded as 695. The difference between a correct and a transposed number is always divisible by nine. A special kind of transposition is a “slide,” where the decimal point of a number is misplaced. An example of a slide is where a number like 900 might be recorded as 90. The difference between the original number and one produced by a slide is also divisible by nine.

Explanation

The correct answer is C. The first step in recording a business transaction is journalizing. Posting (B) to the ledger is the second step. Reporting (A) is the process of compiling the information in the books and records into the financial statements. Transposing (C) is the process of switching the order of numbers or letters so that you get them out of sequence. A number like 659 might be recorded as 695. The difference between a correct and a transposed number is always divisible by nine. A special kind of transposition is a “slide,” where the decimal point of a number is misplaced. An example of a slide is where a number like 900 might be recorded as 90. The difference between the original number and one produced by a slide is also divisible by nine.

2. Which of the following statements is false?

A trial balance is a list of all accounts with their balances

A trial balance is the same as a balance sheet

A trial balance provides a check on the equality of debits and credits

A trial balance may be taken at any time that posting is up to date

The correct answer is B. A balance sheet is significantly different from a trial balance (B). A trial balance has all accounts including revenue and expense. A balance sheet has only asset, liability, and equity accounts. There are three true options and one false. Answer D points out the problem concerning online real-time systems. Without adjusting entries, a balance sheet is useless. A trial balance, on the other hand, makes no attempt to bring accounts up to date through adjustments or closing.

Explanation

The correct answer is B. A balance sheet is significantly different from a trial balance (B). A trial balance has all accounts including revenue and expense. A balance sheet has only asset, liability, and equity accounts. There are three true options and one false. Answer D points out the problem concerning online real-time systems. Without adjusting entries, a balance sheet is useless. A trial balance, on the other hand, makes no attempt to bring accounts up to date through adjustments or closing.

3. A trial balance has all of the following except:

A heading

Totals for debits and credits

Subtotals for assets, liabilities, and stockholders’ equity

Accounts listed in order: assets first, followed by liabilities, and then stockholders’ equity

The correct answer is C. The balance sheet contains subtotals for assets, liabilities, and equity. There are no such subtotals for the trial balance. There are three true answers and one false one.

Explanation

The correct answer is C. The balance sheet contains subtotals for assets, liabilities, and equity. There are no such subtotals for the trial balance. There are three true answers and one false one.

4. An organization's list of all its accounts and the related account numbers is called a:

Journal

Ledger

Chart of accounts

Trial balance

The correct answer is C. A source document (B) is a receipt, an invoice, a cancelled check, or other documentary evidence that helps establish the facts of a transaction so that the transaction can be analyzed and a journal entry can be made in the journal. A trial balance (C) is a listing of all the accounts with debit or credit balances, listed in financial statement order, divided into debit and credit balances, and showing a total for all debits and a total for all credits. A chart of accounts has neither totals nor debit or credit balances for accounts shown. A chart of accounts has little to do with the process of analyzing a transaction (D).

Explanation

The correct answer is C. A source document (B) is a receipt, an invoice, a cancelled check, or other documentary evidence that helps establish the facts of a transaction so that the transaction can be analyzed and a journal entry can be made in the journal. A trial balance (C) is a listing of all the accounts with debit or credit balances, listed in financial statement order, divided into debit and credit balances, and showing a total for all debits and a total for all credits. A chart of accounts has neither totals nor debit or credit balances for accounts shown. A chart of accounts has little to do with the process of analyzing a transaction (D).