Self-test

Answers

True-false

  1. False. Only the last five steps are performed at the end of the period. The first three steps are performed throughout the accounting period.
  2. True. The journal is the book of original entry. Any amounts appearing in a ledger account must have been posted from the journal.
  3. False. The left side of any account is the debit side.
  4. False. These accounts are all increased by credits.
  5. True. Since dividends reduce stockholders' equity, the Dividends account is increased by debits. 
  6. False. An entire journal entry may not have been posted, or a debit or credit might have been posted to the wrong account.

Multiple-choice

  1. c. An asset, Cash, is increased by a debit, and the Capital Stock account is increased by a credit.
  2. b. Since the insurance covers more than the current accounting period, an asset is debited instead of an expense. The credit is to Cash.
  3. a. The receipt of cash before services are performed creates a liability, Unearned Delivery Fees. To increase a liability, it is credited. Cash is debited to increase its balance.
  4. b. Cash is increased by the debit, and Delivery Service Revenue is increased by the credit.
  5. c. Dividends is increased by the debit, and Cash is decreased by the credit.