MGTB05_2011F_Midterm_Review_Questions_All_Final_Version -...

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MGTB05H3 FINANCIAL ACCOUNTING I 2011 Fall Session Page 1 of 9 True or False Questions 1. Debits are used to record increases in assets, dividends and expenses. 2. The process of recording transactions in a journal is called posting. 3. In double entry accounting, all errors are avoided by being sure that debits and credits equal when transactions are recorded. 4. The cost of renting an office during the current period is an expense, however the cost of renting an office six periods in advance is an asset. 5. Liability accounts include Accounts Payable, Unearned Revenues and Notes Payable. 6. The effect of a debit to an Unearned Revenue account and a corresponding credit to a revenue account is to transfer the earned portion of the fee from the liability account to the revenue account. 7. If the accountant failed to make the end of period adjustment to remove from the Prepaid Expense account the amount of expenses incurred, the omission would cause an overstatement of Net Income. 8. If accrued interest is not recorded, the result is that interest expense is understated and interest payable is overstated. 9. Under the accrual basis of accounting, revenues are recognized when they are earned and expenses are matched with revenues. 10. Amortizing capital assets causes the expense to be recorded when the asset is purchased. 11. If a business follows the practice of debiting prepayments of expenses to expense accounts, the adjusting entries for prepaid expenses requires a debit to prepaid expense accounts. 12. If a business records receipts of unearned revenues with debits to cash and credits to revenue accounts, no adjusting entries are required at the end of the period.
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