Chapter 4 concepts

What is a chart of accounts?

• A list of all accounts used by a business

• A list of all transactions in a business

• A summary of financial statements

• A record of all cash flows

Answer explanation

A chart of accounts is a list of all accounts used by a business to organize financial transactions. It helps in tracking and reporting financial data, making it the correct choice among the options provided.

What does a compound entry affect?

• Only one account

• More than two accounts

• Only cash accounts

• Only expense accounts

Answer explanation

A compound entry affects more than two accounts because it involves multiple transactions that impact various accounts simultaneously, unlike single entries that affect only one account.

What is a correcting entry used for?

• To create a new account

• To correct an incorrect entry

• To close an account

• To record a cash transaction

Answer explanation

A correcting entry is specifically used to fix an incorrect entry in the accounting records. This ensures that the financial statements reflect accurate information, making 'To correct an incorrect entry' the correct choice.

What is the purpose of a cross reference in accounting?

• To link the journal and ledger

• To calculate taxes

• To summarize financial statements

• To record cash transactions

Answer explanation

The purpose of a cross reference in accounting is to link the journal and ledger, ensuring that all transactions are accurately recorded and can be traced between these two essential components of the accounting system.

What is a general ledger?

• A list of all transactions

• A complete set of all accounts used by a business

• A summary of cash flows

• A record of all expenses

Answer explanation

A general ledger is a complete set of all accounts used by a business, which includes assets, liabilities, equity, revenues, and expenses. It serves as the main accounting record, summarizing all financial transactions.

What is the function of a general ledger?

• To accumulate a record of debits and credits

• To calculate profit and loss

• To record only cash transactions

• To summarize tax information

Answer explanation

The general ledger serves to accumulate a record of debits and credits made to each account as a result of entries made in the general journal

What is journalizing?

• Entering transactions in a journal

• Calculating interest

• Preparing financial statements

• Auditing accounts

Answer explanation

Journalizing refers to the process of entering transactions in a journal, which is the first step in the accounting cycle. This choice accurately defines the term, while the other options describe different accounting activities.

What is posting in accounting?

• Copying debits and credits from the journal to the ledger

• Calculating taxes

• Preparing a budget

• Auditing financial statements

Answer explanation

Posting in accounting refers to the process of copying debits and credits from the journal to the ledger, which is essential for maintaining accurate financial records.

What is a slide error?

• An error when amounts slide a digit or two

• An error in calculating interest

• An error in tax computation

• An error in financial statements

Answer explanation

A slide an error that occurs when debit or credit amounts slide a digit or two to the left or right.

 

What is a source document?

• A document providing information about a business transaction

• A summary of financial statements

• A record of cash flows

• A list of all accounts

Answer explanation

A source document is essential as it provides detailed information about a business transaction, serving as the primary evidence for recording in accounting. The other options do not accurately define a source document.