D102 Financial Accounting - Set 2 - Part 2

Correct Answer: Increases inventory

A debit to an asset account like inventory increases its balance.

Correct Answer: Expenses

Liabilities are increased by credits and decreased by debits, so they typically have a credit balance.

Correct Answer: Service revenue

The company owes a service in the future, so unearned revenue is credited as a liability.

Correct Answer: As an expense

Dividends reduce retained earnings, which is part of shareholders' equity.

Correct Answer: Periodic inventory system

The perpetual inventory system updates the inventory account continuously after each transaction.

Correct Answer: Cost Useful life

Double-declining balance is an accelerated depreciation method that multiplies the straight-line rate by 2.

Correct Answer: To ensure that debits equal credits before closing entries are made

The post-closing trial balance ensures that all temporary accounts have been closed and only real accounts remain.

Correct Answer: Purchase price

Sales commissions are not part of the cost of inventory; they are operating expenses.

Correct Answer: Sales returns and allowances

Sales returns and allowances reduce total sales revenue, so it is classified as a contra-revenue account.

Correct Answer: Debit accrued liability, credit cash

The accrued liability is reduced (debited) and cash is credited when the payment is made.

Correct Answer: Inventory

Nominal accounts are temporary accounts that are closed at the end of the accounting period, such as expenses and revenues.

Correct Answer: Debit inventory, credit accounts payable

The company increases inventory and increases accounts payable (a liability) because the purchase was made on credit.

Correct Answer: Increases liabilities, decreases equity

Issuing stock increases cash (an asset) and increases equity through additional paid-in capital.

Correct Answer: Cash

When a sale is made on credit, accounts receivable is debited because the company is owed money.

Correct Answer: Debit unearned revenue, credit service revenue

As the revenue is earned, the liability (unearned revenue) is decreased and service revenue is increased.

Correct Answer: Current asset

Goodwill is an intangible asset because it represents the excess of purchase price over the fair value of identifiable assets.

Correct Answer: Capitalized and amortized over 10 years

R&D costs are typically expensed when incurred because the future economic benefit is uncertain.

Correct Answer: Paying for a purchase made on account

When inventory is purchased on credit, accounts payable is credited to reflect the liability.

Correct Answer: Prepaid insurance

Office buildings are considered non-current assets because they are long-term investments used in business operations.

Correct Answer: Cash

Depreciation expense is debited to reflect the cost allocation of the asset over its useful life, and accumulated depreciation is credited.