Recording Balance Sheet Transactions - Spreadsheet
Medium Practice Test
Introduction to Accounting
Recording Balance Sheet Transactions – Spreadsheet
Medium Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. The company made a payment to suppliers for amounts owed. Which of the following will you do to record this transaction?
a. increase liabilities – accounts payable
b. increase assets – cash
c. decrease assets – accounts payable
d. decrease liabilities – accounts payable
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D. Making a payment is always a decrease in cash. Amounts owed to suppliers is accounts payable and making a payment decreases what is owed, which is a liability.
3. Borrowing cash from a bank and agreeing to repay it in 2 years will
a. increase liabilities and decrease assets
b. increase liabilities and increase owners equity
c. increase liabilities and increase assets
d. increase assets and decrease liabilities
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C. Paying for a service ahead of time is a prepaid expense. This is an increase in an asset. Liabilities never increase when an amount is paid. Owner’s equity increases when stock is issued to investors or profit occurs. Owner’s equity decreases when a loss is incurred or dividends are paid to shareholders.
3. Office supplies is listed under which category?
a. current liabilities
b. current assets
c. intangible assets
d. property, plant, equipment
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C. Cash (an asset) is increased when it is received and borrowing means more is owed (a liability) which is an increase.
4. The inventory account is increased when
a. inventory is sold
b. the supplier is paid for inventory purchased on account
c. inventory is purchased and received
d. the customer pays for inventory at the same time it is received
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C. Inventory is an asset which increases when the company gets more, which is purchased and received. Paying an account reduces the liability and does not mean the company gets more inventory. Selling inventory and the customer paying for inventory at the time it is received decreases the inventory account (a. & d.).
5. Retained earnings will decrease when
a. the company issues common stock
b. cash is collected from a customer
c. the company pays accounts payable
d. dividends are paid
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D. Dividends paid is a direct reduction to retained earnings and a reduction to cash.
(b.) is trading one asset (cash) for another (accounts receivable). Issuing common stock results in an increase in cash (asset) and an increase in owner’s equity (common stock) (a.). Paying accounts payable reduces the asset cash and reduces the liability accounts payable.
6. An increase in cash and an increase in notes payable is recorded when
a. a company borrows from investors
b. a company repays what it owes to the bank
c. a company borrows from a bank
d. a company borrows from suppliers
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C. Notes payable is used when a company borrows from a bank. Borrowing from investors is called bonds payable. Borrowing from suppliers is called accounts payable. Repaying always decreases a liability.
7. An increase in investments and a decrease in cash is recorded when
a. a company uses cash to sell an investment
b. a company uses cash to purchase an investment
c. a company issues common stock
d. a company uses cash to purchase their own stock from investors
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B. Using cash is always a decrease and investments are increased when purchased. Using cash to sell an investment will result in two negatives on the asset side which will not keep the accounting equation in balance and is not done. Common stock is not an investment, it is owner’s equity. Purchasing their own stock is called treasury stock.
8. What is recorded on the spreadsheet when insurance for the next six months is paid for this period?
a. prepaid expense
b. accrued insurance
c. accounts payable
d. insurance payable
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A. Paying for a service before it is provided is called prepaid expense. Paying for the next six months is paying ahead of time. A payable means it is owed, which never occurs if it has already been paid for. Accrued means it is incurred and not yet paid, which will not occur when it has already been paid for.
9. When recording the company purchased inventory on account you would
a. increase cash and decrease accounts payable
b. decrease cash and increase accounts payable
c. increase accounts payable and increase inventory
d. increase notes payable and increase inventory
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C. The company gets an asset called inventory and owes on account. Owing more is an increase in the liability called accounts payable. Cash does not change because you have not yet paid.
10. Which of the following is never recorded for the same transaction?
a. increase cash and decrease owners’ equity
b. increase an asset and decrease an asset
c. increase an asset and increase a liability
d. decrease an asset and decrease a liability
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A. The accounting equation must stay in balance and assets must always equal liabilities plus owner’s equity. Increasing cash is a positive to the left side and decreasing owner’s equity is a negative to the right side which will not keep the accounting equation balanced. All other transactions keep the accounting equation in balance.
11. Record the following transactions on a spreadsheet and prepare a balance sheet. The beginning balance of cash and common stock is $50,000 each.
a. Purchased a building for $150,000 by signing a note for $125,000 to be repaid in 10 years and paying the rest in cash.
b. Purchased equipment, signed a note to repay in 6 months, $8,000
c. Borrowed $80,000 from investors, agreeing to repay in 5 years.
d. Purchased 2 company autos for $30,000; paid $2,400 down and financed the rest to be repaid in 5 years
e. Paid $1,000 for insurance for the next 6 months
f. Purchased inventory on account for $20,000
g. Purchased office supplies for cash of $1,100
h. Received $5,000 from a customer who will be provided the service in 2 months
i. Paid for half the inventory purchased on account in f.
j. Signed a contract to purchase an acre of land for $25,000
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12. The company began the year with the following balances:
Cash: $25,000
Accounts Receivable: $12,000
Inventory: $15,000
Accounts Payable: $3,000
S/T Notes Payable: $20,000
Interest Payable: $1,000
Taxes Payable: $2,000
Common Stock: $26,000
Record the following transactions on a spreadsheet and prepare a balance sheet.
a. Collected $6,000 owed from customers
b. Purchased $13,000 of inventory on account
c. Repaid $5,000 to the bank
d. Paid the interest payable in full
e. Paid one half of the amount owed to suppliers
f. Purchased office supplies on account for $200
g. Received $2,500 from a customer who will be shipped inventory next month
h. Paid the entire amount owed to the government for income taxes
i. Sold part of the company to investors for $30,000
j. Invested $25,000 of excess cash in a short term investment
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13. The company began the year with the following balances:
Cash: $55,000
Accounts Receivable: $32,000
Inventory: $45,000
Accounts Payable: $33,000
Accrued Expenses: $2,000
L/T Notes Payable: $80,000
Salaries Payable: $4,000
Common Stock: $1,000
Retained Earnings: $12,000
Record the following transactions on a spreadsheet and prepare a balance sheet.
a. Paid $22,000 to suppliers owed
b. Paid the employees the full amount owed
c. Repaid $5,000 to the bank
d. Collected one half of what customers owe the company
e. Purchased inventory on account for $10,000
f. Paid for insurance for the next 3 months $900
g. Paid $2,000 for advertising invoiced last month
h. Purchased computer equipment for the office for $1,200 cash
i. Paid rent for next month, $800
j. Signed a contract to provide a customer $5,000 in goods next month
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