CPB / BookKeeping Adjusting Entries and Reconciliations 5 — Questions and Answers
Question 1: Which of the following errors would be revealed by a trial balance?
- A transaction posted to the wrong account but with correct amounts
- A transaction recorded with equal debits and credits but to wrong accounts
- A debit posted as $540 instead of $450 with no matching credit correction (Correct answer)
- A transaction omitted entirely from the books
Correct answer: A debit posted as $540 instead of $450 with no matching credit correction
A transposition error where debit and credit totals differ will cause the trial balance to be out of balance.
Question 2: The adjusting entry to record earned revenue that was previously classified as unearned will:
- Increase assets and increase liabilities
- Decrease liabilities and increase revenue (Correct answer)
- Increase liabilities and decrease revenue
- Increase assets and increase revenue
Correct answer: Decrease liabilities and increase revenue
Converting unearned revenue to earned revenue reduces the liability (Unearned Revenue) and increases revenue.
Question 3: A bank statement shows a credit memo for $750 representing a note collected by the bank. What entry does the company record?
- Debit Notes Receivable $750; Credit Cash $750
- Debit Cash $750; Credit Notes Receivable $750 (Correct answer)
- Debit Cash $750; Credit Notes Payable $750
- Debit Revenue $750; Credit Cash $750
Correct answer: Debit Cash $750; Credit Notes Receivable $750
The bank collected the note and deposited the funds, increasing cash and eliminating the receivable.
Question 4: Reversing entries are typically made on:
- The last day of the accounting period
- The first day of the next accounting period (Correct answer)
- The date the original transaction occurred
- The date financial statements are issued
Correct answer: The first day of the next accounting period
Reversing entries are dated the first day of the new period to simplify recording of the subsequent cash transaction.
Question 5: Which of the following best describes the matching principle as it applies to adjusting entries?
- Record revenue and expenses only when cash changes hands
- Expenses should be recognized in the same period as the revenue they help generate (Correct answer)
- Assets and liabilities must always be equal on the balance sheet
- Revenue equals expenses each period
Correct answer: Expenses should be recognized in the same period as the revenue they help generate
The matching principle requires expenses to be recorded in the period that the associated revenue is recognized.
Question 6: A bookkeeper records a $200 utility bill payment twice by mistake. What is the effect on the trial balance?
- Debits exceed credits by $400
- Credits exceed debits by $200
- The trial balance remains in balance (Correct answer)
- Debits exceed credits by $200
Correct answer: The trial balance remains in balance
Recording a complete transaction twice (debit and credit each doubled) keeps the trial balance in balance, making the error hard to detect.
Question 7: A petty cash fund is replenished when the custodian submits receipts. Which account is debited during replenishment?
- Petty Cash
- Cash Over and Short
- The appropriate expense accounts per receipts (Correct answer)
- Accounts Payable
Correct answer: The appropriate expense accounts per receipts
Replenishment expenses the individual items supported by receipts; the Petty Cash account balance is not changed unless the fund is being increased or decreased.
CPB / BookKeeping Adjusting Entries and Reconciliations 5
Which of the following errors would be revealed by a trial balance?