Q. If a company has a trial balance showing total debits of $50,000 and total credits of $48,000, what does this indicate?
A.
The accounts are balanced
B.
There is an error in the accounts
C.
The company is profitable
D.
The company has a cash surplus
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Solution
A trial balance showing total debits of $50,000 and total credits of $48,000 indicates that there is an error in the accounts, as they should be equal.
Correct Answer:
B
— There is an error in the accounts
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Q. If a company has a trial balance that does not balance, what is the first step to identify the error?
A.
Recalculate the totals
B.
Check for missing entries
C.
Review the journal entries
D.
Verify account balances
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Solution
The first step to identify the error in a trial balance that does not balance is to recalculate the totals to ensure that the addition was done correctly.
Correct Answer:
A
— Recalculate the totals
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Q. In a trial balance, how are expenses typically recorded?
A.
As debits
B.
As credits
C.
As liabilities
D.
As assets
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Solution
In a trial balance, expenses are typically recorded as debits, which increase the total debits in the trial balance.
Correct Answer:
A
— As debits
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Q. In the preparation of a trial balance, which of the following is true?
A.
Only asset accounts are included
B.
All accounts with balances are included
C.
Only revenue and expense accounts are included
D.
Liabilities are excluded
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Solution
In the preparation of a trial balance, all accounts with balances, including assets, liabilities, equity, revenues, and expenses, are included.
Correct Answer:
B
— All accounts with balances are included
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Q. What happens if an error is found in the trial balance?
A.
The financial statements are still prepared
B.
The error must be corrected before proceeding
C.
The trial balance is ignored
D.
The error is noted for future reference
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Solution
If an error is found in the trial balance, it must be corrected before proceeding to ensure the accuracy of the financial statements.
Correct Answer:
B
— The error must be corrected before proceeding
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Q. What is the effect of an overstatement of an expense on the trial balance?
A.
Assets will be overstated
B.
Liabilities will be understated
C.
Net income will be understated
D.
Equity will be overstated
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Solution
An overstatement of an expense will lead to an understatement of net income, as expenses reduce income.
Correct Answer:
C
— Net income will be understated
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Q. What is the relationship between the trial balance and the final accounts?
A.
The trial balance is prepared after the final accounts
B.
The trial balance is a summary of the final accounts
C.
The trial balance is used to prepare the final accounts
D.
There is no relationship
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Solution
The trial balance is used to prepare the final accounts, as it summarizes all the account balances that will be reported in the financial statements.
Correct Answer:
C
— The trial balance is used to prepare the final accounts
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Q. When preparing a trial balance, which of the following is true regarding closing entries?
A.
They are included in the trial balance
B.
They are not included until the next period
C.
They must be recorded before the trial balance
D.
They are optional
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Solution
Closing entries are not included in the trial balance until the next accounting period, as they are made after the trial balance is prepared.
Correct Answer:
B
— They are not included until the next period
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Q. Which of the following is a common reason for a trial balance to not balance?
A.
Incorrect journal entries
B.
Accrual accounting
C.
Depreciation methods
D.
Inventory valuation
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Solution
A common reason for a trial balance to not balance is incorrect journal entries, which can lead to discrepancies in the accounting records.
Correct Answer:
A
— Incorrect journal entries
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