Question

Receipt of cash before a good is provided or service is performed
1-

increases an asset and increases a revenue.

decreases a liability and increases Shareholders’ Equity.

decreases a revenue and increases Shareholders’ Equity.

increases an asset and increases a liability.

2-

Payment of a dividend

increases Expenses and decreases Cash.

decreases Cash and increases Shareholders’ Equity.

decreases Cash and decreases Retained Earnings.

increases Retained Earnings and increases Expenses.

3-

Accounting systems should record

all economic events.

events that result in a change in assets, liabilities, or shareholders’ equity items.

only events that involve cash.

only events that include revenues, expenses, and cash.

4-

Which one of the following represents the expanded basic accounting equation?

Assets = Liabilities + Common Shares + Retained Earnings + Revenues – Expenses – Dividends Declared.

Assets + Liabilities = Dividends Declared + Expenses + Common Shares + Revenues.

Assets – Liabilities – Dividends Declared = Common Shares + Revenues – Expenses.

Assets = Revenues + Expenses – Liabilities.

5-

Which pair of accounts follows the rules of debit and credit in the same manner?

Accounts Payable and Rent Expense

Repair and Maintenance Expense and Bank Loan Payable

Prepaid Insurance and Advertising Expense

Service Revenue and Accounts Receivable

Answer 1

Question 1

Correct answer-----------increases an asset and increases a liability.

The cash balance increase as well as unearned revenue increase. Unearned revenue is a liability account.

Question 2

Correct answer-----------decreases Cash and decreases Retained Earnings.

Payment of dividend decreases cash and retained earnings as well as stockholder's equity.

Question 3

Correct answer-----------all economic events.

All events that are relevant for the business and are of economic nature are recorded in business.

Question 4

Correct answer-----------Assets = Liabilities + Common Shares + Retained Earnings + Revenues – Expenses – Dividends Declared.

Question 5

Correct answer-----------Prepaid Insurance and Advertising Expense

Prepaid insurance is an asset and Advertising expense is an expense. They both increase with debit and decrease with a credit.