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Test Bank for Cornerstones of Financial Accounting, 3rd Edition Jay Rich Chapter 2—The Accounting Information System
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Test Bank for Cornerstones of Financial Accounting, 3rd Edition Jay Rich Chapter 2—The Accounting Information System

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  • January 2, 2022
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  • 3rd edition jay rich
  • test bank for cornerstones of financial accounting
  • 3rd edition jay rich chapter 2
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Chapter 2—The Accounting Information System

TRUE/FALSE

1. The time-period assumption assumes that a company prepares its financial statements every month.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

2. Because it tends to provide the most reliable measure of activity, all assets are reported on the balance
sheet at their fair market values.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

3. The term used to refer to an asset's original cost is book value.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

4. The going concern assumption infers that a company will continue to operate into the future.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

5. A company in the process of liquidation is considered to be under the going concern assumption.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

6. The International Accounting Standards Board (IASB) was created in order to develop worldwide ac-
counting standards that are required for all financial statements, regardless of the country where the fi-
nancial statements were prepared.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-02-GAAP KEY: Bloom's: Knowledge
NOT: 1 min.

7. The initial step in the recording process is sometimes referred to as journalizing.

ANS: T PTS: 1 DIF: Difficulty: Moderate

, OBJ: LO: 2-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

8. The issuance of common stock increases a company's assets and stockholders’ equity.

ANS: T PTS: 1 DIF: Difficulty: Moderate
REF: CS2-1 OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Analysis NOT: 1 min.

9. The payment of a dividend increases both cash and stockholders' equity of the distributing entity.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS2-1 OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Analysis NOT: 1 min.

10. According to the historical cost principle, assets are always carried at their current market value.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

11. An accounting transaction may impact only one financial statement or multiple statements.

ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

12. The accounting equation must balance before and after every accounting transaction.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

13. A chart of accounts is prepared to determine whether the books have gotten out of balance.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

14. GAAP has established a universal chart of accounts that is applicable to all businesses in the United
States.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

,15. A T-account for Cash cannot contain any credits.

ANS: F PTS: 1 DIF: Difficulty: Easy
REF: CS2-2 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

16. A debit entry increases assets and revenue accounts.

ANS: F PTS: 1 DIF: Difficulty: Easy
REF: CS2-2 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

17. The dividends account has a normal debit balance.

ANS: T PTS: 1 DIF: Difficulty: Easy
REF: CS2-3 OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

18. Under the double-entry system of accounting, every transaction is entered in at least two accounts on
opposite sides of a T-account.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

19. Under the double-entry system of accounting, a debit is always a negative entry.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

20. Income statement accounts have normal credit balances.

ANS: F PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-4 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

21. Only events that can be measured with sufficient reliability will be recognized in the accounting sys-
tem.

ANS: T PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.

22. The general ledger is an example of a book of original entry.

ANS: F PTS: 1 DIF: Difficulty: Easy

, OBJ: LO: 2-5 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.

23. The general ledger is often used for the initial recording of repetitive transactions.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-6 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.

24. A trial balance is the listing of each active account and its corresponding debit or credit balance at a
particular point in time.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.

25. Even though a trial balance reveals that the debits equal the credits, there still may be errors in the
company’s books.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-7 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-05-Accounting Cycle
KEY: Bloom's: Knowledge NOT: 1 min.

26. The purchase of office supplies from a supplier is an example of an external event.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

27. The conservatism principle is concerned with the possibility of understating assets or income.

ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

28. A full disclosure policy stipulates that all information that would make a difference to financial state-
ment users should be revealed.

ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Communication
STA: AICPA FN-Reporting | ACBSP-APC-06-Recording Transactions
KEY: Bloom's: Knowledge NOT: 1 min.

29. If a company performed services for credit, then the debit side of the journal entry would be to Ac-
counts Payable and the credit would be to Service Revenue.

ANS: F PTS: 1 DIF: Difficulty: Moderate
REF: CS2-4 OBJ: LO: 2-5 NAT: BUSPROG: Communication

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