Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

1. Question

   (L.O. 2) The left side of an account is called:

   1. debit.
   2. journal.
   3. credit.
   4. asset.

   Explanation: The left side of any account is the debit side; the right side of any account is the credit side. (Solution = a.)

2. Question

   (L.O. 2) Credits are used to record increases in:

   1. assets, revenues, liabilities, and common stock.
   2. expenses, liabilities, and common stock.
   3. revenues, dividends, and assets.
   4. revenues, liabilities, and common stock.

   Approach and Explanation: List the types of accounts which are increased by credits: liabilities, common stock, retained earnings, and revenues. Then look for the answer selection which matches your list. (Solution = d.)

3. Question

   (L.O. 2) Which of the following accounts is increased by credits?

   1. Cash.
   2. Supplies.
   3. Prepaid Rent.
   4. Accounts Payable.

   Approach and Explanation: List the types of accounts which are increased by credits: liabilities, common stock, retained earnings, and revenues. Identify each answer selection as an asset, liability, common stock, retained earnings, revenue or expense. Cash, supplies, and prepaid rent are all assets, and, thus, are increased by debits. Accounts payable is a liability and, thus, is increased by credits. (Solution = d.)

4. Question

   (L.O. 4) The Ref. column of the journal is used to:

   1. cross reference entries in the ledger and to indicate that posting has been completed.
   2. indicate that entries have been properly posted to the financial statements.
   3. test the equality of debits ...