Recording Balance Sheet Transactions - Spreadsheet
Easy Practice Test
Introduction to Accounting
Recording Balance Sheet Transactions – Spreadsheet
Easy Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. The company issued stock to investors. Which of the following is done to record this transaction?
a. increase owners equity – retained earnings
b. increase assets – investments
c. decrease assets – cash
d. increase owners equity – common stock
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D. Issuing stock to investors is an increase to common stock, an owner’s equity account. Some textbooks call this account “Capital”, which means the same thing as common stock. The asset cash is also increased since it is received by the company.
2. The company purchases a truck and pays cash. Which of the following is done to record this transaction?
a. increase owners equity – retained earnings
b. increase assets – cash
c. decrease assets – cash
d. increase owners equity – truck
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C. The company receives a truck and the truck account is increased in exchange for cash and the cash account is decreased. Truck is an asset account. Cash is an asset that is always decreased when it is paid. The company traded one asset for another which has no impact on retained earnings. You would record a positive amount in the truck column and the same amount as a negative in the cash column.
3. The spreadsheet is used for the purpose of
a. recording transactions only
b. recording and summarizing transactions
c. making sure the accounting equation balances
d. listing all the account names used
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B. The spreadsheet is used to record and summarize transactions to provide a balance for each account that is reported on the balance sheet. If transactions are recorded incorrectly, the accounting equation will not balance. Account names used can be listed without using a spreadsheet.
4. Which of the following transactions will increase a liability account?
a. purchase an asset and pay cash
b. purchase an asset and agree to pay later
c. issue common stock
d. repay a liability
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B. An increase in a liability account means the company owes more. When you agree to pay later, you owe more. (a.) is trading one asset for another. (c.) is an exchange of cash, an asset, for owner’s equity. Repaying a liability is a decrease to the liability.
5. The account name used when the company pays a supplier is
a. accounts receivable
b. accounts payable
c. supplies
d. inventory
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B. Owing a supplier is called accounts payable. This occurs when something is purchased “on account”. Paying a supplier reduces what you owe, reducing the accounts payable account. All other accounts listed are assets which are not used. The asset cash is decreased.
6. The account names used when the company collects from a customer is
a. sales and accounts payable
b. cash and accounts payable
c. cash and accounts receivable
d. cash and owners equity
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C. Collecting from a customer means the customer owes you less. The account used to represent what the customer owes the company is accounts receivable. Cash is increased and accounts receivable is decreased because the customer owes less.
Sales and accounts payable never go together, a company does not provide goods/services and owe someone as a result. Accounts payable is used when the company owes a supplier that provides goods or service repeatedly.
7. Which account would not be used for a transaction that impacts only the balance sheet?
a. retained earnings
b. prepaid expenses
c. rent expense
d. accrued expenses
Check Your Answer
C. Rent expense is an expense. Retained earnings is owner’s equity, prepaid expenses is an asset and accrued expenses is a liability. All of these three are things that are reported on the balance sheet.
8. Account names that will not be used for the same transaction are
a. cash and accounts receivable
b. cash and inventory
c. accounts receivable and accounts payable
d. accounts payable and cash
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C. A company can not owe (accounts payable) and be owed (accounts receivable) in the same transaction. A transaction has to have an exchange. Cash and accounts receivable is used when a customer pays. Cash and inventory is used when inventory is purchased. Accounts payable and cash is used when accounts payable is repaid.
9. Account names that are commonly used in the same transaction are
a. accounts receivable and cash
b. accounts payable and investments
c. accounts payable and interest payable
d. investment and common stock
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A. Accounts receivable and cash is used when customers pay what they owe, which is a common transaction. Accounts payable is used when the company purchases from suppliers (usually inventory or repetitive services) and they agree to pay later. An investment is not a supplier (b.). Two liabilities will not be recorded at the same time because two liabilities are not an exchange (c.). The company can not make an investment and issue ownership at the same time (d.).
10. When recording a transaction, you will never
a. increase an asset and decrease an asset
b. increase an asset and decrease a liability
c. increase an asset and increase owners equity
d. increase a liability and increase an asset
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B. The accounting equation must stay in balance. If the asset side increases, the liability side must also increase, not decrease. It is common to trade an asset for another asset (a.). When common stock is issued, an asset (cash) and owner’s equity (common stock) increase. It is common to get an asset and pay later (d.).
11. Record the following balance sheet transactions on a spreadsheet
a. Issued stock to investors for $125,000 cash
b. Purchased office furniture for $3,200, agree to pay the entire amount in 2 years.
c. Purchased computers for the office for $1,200 cash
d. Paid for rent for the next 3 months, $600
e. Purchased office supplies for $75 cash
f. Purchased inventory on account for $15,000
g. Paid $11,000 to the supplier for the inventory purchased in f.
h. Hired employees who will begin work in 2 weeks
i. Borrowed $10,000 from the bank to be repaid in 6 months
j. Loaned $2,500 to a company who agrees to repay it in 2 years
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12. Record the following balance sheet transactions on a spreadsheet
a. Borrowed $50,000 from the bank, agreed to repay it in 3 years
b. Purchased manufacturing equipment for $20,000 cash
c. Purchased office furniture on account, $2,700
d. Paid for insurance for the next 6 months, $2,200
e. Repaid $10,000 of the amount borrowed
f. Purchased inventory on account, $15,000
g. Purchased supplies for cash, $100
h. Paid the supplier $14,000 for the inventory purchased on account
i. Invested $3,000 in a short term investment
j. Issued stock to investors for $50,000 cash
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13. Record the following balance sheet transactions on a spreadsheet
a. Purchased a building by signing a 10 year note payable for $125,000
b. Purchased equipment, signed a note to repay in 6 months, $10,000
c. Borrowed $80,000 from the bank, agreeing to repay in 2 years.
d. Purchased 2 company autos, financed them agreeing to make equal payments for 5 years, $30,000.
e. Issued ownership to investors for $100,000
f. Purchased inventory on account $12,000
g. Purchased manufacturing supplies for cash, $1,100
h. Received $5,000 cash from a customer prior to service being provided
i. Paid for the inventory purchased on account in f.
j. Purchased common stock from investors for $10,000
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