Recording Balance Sheet Transactions - Spreadsheet

Self Test

Financial Accounting

Recording Balance Sheet Transactions – Spreadsheet

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Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.

1.  Which of the following will not be recorded on the spreadsheet?

a.  pay a liability
b.  purchase an asset
c.  sign a contract to purchase goods in the future
d.  issue common stock

Check Your Answer
C.  Only transactions that have an exchange are recorded.  Signing a contract to purchase goods in the future is not an exchange until the purchase is made.  Paying a liability is an exchange of cash in return for reducing the liability. Purchasing an asset is an exchange of cash for the asset.  Issuing common stock exchanges cash for ownership in the company.
2.  When a transaction occurs, you will always

a.  pay something and pay something else
b.  get something and get something else
c.  give up something and get something else
d.  get something and never give up anything for it

Check Your Answer
C.  A transaction is an exchange which means you give something up in order to get something.
3.  When a company buys land and agrees to pay for it in 2 years

a.  an asset is given and the company gets a different asset
b.  a liability is reduced and an asset is received
c.  owners equity will increase
d.  an asset is increased and a liability is increased

Check Your Answer
D.  Land, an asset, is received and increases.   Paying in two years means the company owes for it, which increases a liability.  The company gets the land and agrees to pay later, giving up the liability.
4.  Issuing stock to investors causes

a.  assets to increase and owners equity to increase
b.  assets to increase and liabilities to increase
c.  liabilities to increase and owners equity to decrease
d.  assets to decrease and owners equity to increase

Check Your Answer
A.  Issuing stock to investors is selling ownership to investors for cash.  The company receives cash increasing an asset and gives up ownership, increasing owner’s equity.
5.  Repaying a liability that was agreed to in the past will cause

a.  assets to increase and owners equity to increase
b.  assets to increase and liabilities to increase
c.  liabilities to increase and owners equity to decrease
d.  assets to decrease and liabilities to decrease

Check Your Answer
D.  In this transaction the company uses cash to repay a liability.  The asset cash decreases and the liability also decreases when it is repaid. 
6.   Cash collected from a customer will cause

a.  assets to increase and owners equity to increase
b.  assets to increase and liabilities to increase
c.  liabilities to increase and owners equity to decrease
d.  no change in total assets

Check Your Answer
D.  Cash collected means the asset cash is increased.  When the customer owes the company it is an asset called accounts receivable.  When the customer pays, the customer owes less and the asset accounts receivable is less.  The asset cash is increased and the asset accounts receivable is decreased for the same amount resulting in no change in total assets. 
7.  The account that is used most often when recording balance sheet transactions is

a.  cash
b.  retained earnings
c.  accounts receivable
d.  inventory

Check Your Answer
A.  Cash is used more often than any other account when recording transactions.  All transactions eventually result in paying cash or receiving cash. Retained earning is only used when profit and loss is transferred to retained earnings and dividends are paid to shareholders.  Accounts receivable is used when a customer receives goods or services and does not pay until later. Inventory is used when it is purchased and provided to the customer. Cash is used any time an amount is received or paid and the other accounts are used in only two primary situations.
8.   The account that is used to represent what is owed to employees is

a.  salary expense
b.  salaries payable
c.  salaries owed
d.  salaries of employees

Check Your Answer
B.   Owed means the company must pay someone, which is a payable.  A payable is always a liability. The account related to employees owed is called salaries payable.  Salary expense is used when the employee works and it is not a payable if the employee is paid at the time the work is done.  Owed is not used in account names. Payable is used to indicate the company owes.
9.  The account that is used to represent what customers owe the company is

a.  accounts payable
b.  accounts receivable
c.  customer owes
d.  amounts owed

Check Your Answer
B.  A receivable account represents what is owed to the company.  A payable account represents what the company owes others. The word “owe” is not used, it is always called “receivable”.  
10.   A transaction that will not occur is

a.  get an asset and give up an asset
b.  get an asset for a liability
c.  get a liability and give up an asset
d.  give up owners equity for an asset

Check Your Answer
C.  Exchanging a liability for an asset means the company gets a liability when it gives up an asset.  This is not possible. The accounting equation must stay in balance.  

Assets = Liabilities + Owner’s Equity.    If liabilities go up then assets must go up also.  

All other transactions listed will keep the accounting equation in balance.

11.  When setting up the spreadsheet, order the accounts according to

a.  the accounting equation
b.  largest account balance to smallest account balance
c.  alphabetical order
d.  any order will be easy to work with

Check Your Answer
A.  Ordering the accounts with assets on one side and liabilities and owner’s equity on the other side will help you keep the accounting equation in balance.  As you record transactions you do not know which accounts will end up with the highest balance and it is not possible to order them this way. Sorting assets, liabilities, and owner’s equity will also make it much easier to complete a balance sheet using the accounts listed.
12.  When recording transactions on a spreadsheet you

a.  write all amounts as positive amounts
b.  write the account name on a different line every time you need to use it
c.  write the account name only one time and put all related amounts in the column
d.  write the same amount at least 3 times to make it balance

Check Your Answer
C.    Account names should be listed on the spreadsheet in only one column and you should put all amounts related to the specific account in that one column.  You use positive amounts for increases and negative amounts for decreases.
13.  The total amount in each column

a.  represents what the company had at the beginning of the year
b.  is the net amount of all transactions affecting that item
c.  is not the amount that is reported on the balance sheet
d.  will be determined using the accounting equation

Check Your Answer
B.  The total amount in each column comes from netting the amounts associated with all transactions that affect the account.  It means the net of increases and decreases. It is the amount that will be reported on the balance sheet for each account.  The spreadsheet must keep the accounting equation in balance.
14.  As you record transactions, you must

a.  keep the accounting equation in balance with each transaction
b.  make the accounting equation balance with a plug after recording all
c.  only put the amount in one account name column
d.  make sure that assets only increase

Check Your Answer
A.  The spreadsheet must always keep assets equal to liabilities plus owner’s equity,  the accounting equation. You may put amounts in an account name column more than one time.  Assets will both increase and decrease.
15.  When you record an account and a positive amount on the asset side you must

a.  also record an account and a negative amount as a liability
b.  also record an account and a positive amount on the liability side
c.  also record an account and a negative amount as owners equity
d.  always record another asset amount that is negative

Check Your Answer
B.   The spreadsheet must keep the accounting equation in balance; assets must always equal liabilities plus owner’s equity for each transaction.  If you put a positive amount on the asset side you must also put a positive amount on the liability/owner’s equity side or you can record a negative amount on the asset side to make the total change in assets equal 0.