Appendix B
The Mechanics of an Accounting System
LEARNING OBJECTIVES
1. Define the general ledger system and explain how it works.
2. Explain and perform the steps in the accounting cycle.
3. Identify the adjustments needed before preparing financial statements and make those
adjustments.
4. Describe the closing process and explain why it is necessary.
TRUE/FALSE QUESTIONS
1. The enterprise-wide resource planning system represents a single integrated information
system in which all of the company’s information is recorded.
(True, LO1, Easy)
2. The general ledger accounting system described in the appendix is no longer used.
(False, LO1, Easy)
3. Transactions are first recorded in the general ledger and then posted to the journal.
(False, LO2, Easy)
4. Assets are decreased with debit entries.
(False, LO2, Easy)
,5. Liabilities are increased with debit entries.
(False, LO2, Easy)
6. Expenses are increased with debit entries.
(True, LO2, Easy)
7. Revenues are increased with credit entries.
(True, LO2, Easy)
8. Unearned revenue is increased with credit entries.
(True, LO2, Medium)
9. Closing entries are posted to the general ledger prior to posting adjusting entries.
(False, LO3 & 4, Easy)
10. Adjusting journal entries must be recorded prior to preparing an unadjusted trial balance.
(False, LO3, Easy)
1. The adjusting entry to record supplies used includes a debit to Supplies expense and a
credit to Supplies.
(True, LO3, Medium)
2. Adjusting journal entries are made at the beginning of each period.
(False, LO3, Easy)
3. Expense accounts are closed by crediting them and debiting Retained earnings.
, (True, LO4, Medium)
4. The Utilities expense account is closed by debiting its balance and crediting Retained
earnings.
(False, LO4, Medium)
5. Dividends, revenues and expenses are temporary accounts.
(True, LO4, Medium)
6. Permanent accounts are closed into Retained earnings at the end of the accounting
period.
(False, LO4, Medium)
7. All accounts begin each fiscal year with zero balances.
(False, LO4, Medium)
8. The postclosing trial balance provides a check to see that the general ledger’s debits are
equal to the credits and to see that all temporary accounts have been closed.
(True, LO4, Medium)
MULTIPLE CHOICE QUESTIONS
9. An ERP includes:
a. accounting information for financial statements.
b. human resources information.
c. information about production and distribution of products.
d. all of these.
(d, LO1, Easy)
, 10. A general journal provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(b, LO1, Easy)
11. A general ledger provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(d, LO1, Easy)
12. An unadjusted trial balance provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(c, LO1, Easy)
13. An adjusted trial balance provides:
The Mechanics of an Accounting System
LEARNING OBJECTIVES
1. Define the general ledger system and explain how it works.
2. Explain and perform the steps in the accounting cycle.
3. Identify the adjustments needed before preparing financial statements and make those
adjustments.
4. Describe the closing process and explain why it is necessary.
TRUE/FALSE QUESTIONS
1. The enterprise-wide resource planning system represents a single integrated information
system in which all of the company’s information is recorded.
(True, LO1, Easy)
2. The general ledger accounting system described in the appendix is no longer used.
(False, LO1, Easy)
3. Transactions are first recorded in the general ledger and then posted to the journal.
(False, LO2, Easy)
4. Assets are decreased with debit entries.
(False, LO2, Easy)
,5. Liabilities are increased with debit entries.
(False, LO2, Easy)
6. Expenses are increased with debit entries.
(True, LO2, Easy)
7. Revenues are increased with credit entries.
(True, LO2, Easy)
8. Unearned revenue is increased with credit entries.
(True, LO2, Medium)
9. Closing entries are posted to the general ledger prior to posting adjusting entries.
(False, LO3 & 4, Easy)
10. Adjusting journal entries must be recorded prior to preparing an unadjusted trial balance.
(False, LO3, Easy)
1. The adjusting entry to record supplies used includes a debit to Supplies expense and a
credit to Supplies.
(True, LO3, Medium)
2. Adjusting journal entries are made at the beginning of each period.
(False, LO3, Easy)
3. Expense accounts are closed by crediting them and debiting Retained earnings.
, (True, LO4, Medium)
4. The Utilities expense account is closed by debiting its balance and crediting Retained
earnings.
(False, LO4, Medium)
5. Dividends, revenues and expenses are temporary accounts.
(True, LO4, Medium)
6. Permanent accounts are closed into Retained earnings at the end of the accounting
period.
(False, LO4, Medium)
7. All accounts begin each fiscal year with zero balances.
(False, LO4, Medium)
8. The postclosing trial balance provides a check to see that the general ledger’s debits are
equal to the credits and to see that all temporary accounts have been closed.
(True, LO4, Medium)
MULTIPLE CHOICE QUESTIONS
9. An ERP includes:
a. accounting information for financial statements.
b. human resources information.
c. information about production and distribution of products.
d. all of these.
(d, LO1, Easy)
, 10. A general journal provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(b, LO1, Easy)
11. A general ledger provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(d, LO1, Easy)
12. An unadjusted trial balance provides:
a. a list of accounts and their debit or credit balances after the temporary accounts
have been closed.
b. a chronological record of transactions.
c. a list of financial statement line items and their debit or credit balances and is
prepared prior to recording adjusting entries.
d. a record of increases and decreases to each account.
(c, LO1, Easy)
13. An adjusted trial balance provides:
