True/False
Indicate whether the sentence or statement is true
or false.
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1.
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The
accounting equation is most often stated as: Assets + Liabilities = Owner's Equity.
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2.
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After
each transaction, the accounting equation must remain in balance.
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3.
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When
two asset accounts are changed in a transaction, there must be an increase and a
decrease.
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4.
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Asset
accounts are listed on the right side of the accounting equation.
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5.
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When
items are bought and paid for at a future date, another way to state this is to say these items are
bought on account.
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6.
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When
financial records for a business and for its owner's personal belongings are not mixed, this is an
application of the Business Entity accounting concept.
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7.
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The
accounting equation must be in balance to be correct.
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8.
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The
capital account is the owner's liability account.
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9.
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Asset
accounts are listed on the left side of the accounting equation.
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10.
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When
cash is paid for supplies, assets increase and liabilities decrease.
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11.
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When
an account on one side of the accounting equation is increased, there must also be an increase on the
other side to keep the equation in balance.
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12.
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Accounting is the language of business.
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13.
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Keeping personal and business records separate is an application of the business
entity concept.
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14.
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Assets such as cash and supplies have value because they can be used to acquire other
assets or to operate a business.
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15.
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The
relationship among assets, liabilities, and owner's equity can be written as an
equation.
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16.
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The
accounting equation does not have to be in balance to be correct.
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17.
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The
sum of the assets and liabilities of a business always equals the investment of the business
owner.
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18.
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The
capital account is an owner's equity account.
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19.
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If
two amounts are recorded on the same side of the accounting equation, the equation will no longer be
in balance.
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20.
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When
a company pays insurance premiums in advance to an insurer, it records the payment as a liability
because the insurer owes future coverage.
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21.
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When
cash is paid on account, a liability is increased.
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22.
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A
business that performs an activity for a fee is a service business.
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23.
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A
proprietorship is also known as a sole proprietorship.
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24.
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Anything of value that is owned is a liability.
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25.
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Assets have value because they can be used to acquire other assets or to operate the
business.
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26.
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A
business has two types of equities.
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27.
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Individuals or other businesses to which a business owes money have rights to the
business's assets.
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28.
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In
the United States, business transactions are recorded in U.S. dollars.
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29.
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A
record summarizing all the information pertaining to a single item in the accounting equation is an
account.
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30.
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The
amount in an account is an account balance.
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31.
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When
an owner invests cash in a business, owner's equity decreases.
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32.
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The
capital account is a liability account.
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33.
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When
a business pays cash for insurance, a liability is increased.
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34.
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A
decrease in owner's equity because of a withdrawal is a result of the normal operations of a
business.
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35.
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A
revenue transaction decreases the sum of the balances on the left side of an accounting
equation.
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36.
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A
transaction for the sale of goods or services results in an increase in owner's equity.
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37.
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A
transaction is a normal business activity that changes assets, liabilities, or owner's
equity.
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38.
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A
transaction that increases accounts receivable and increases owner's equity is a sale on
account.
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39.
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A
withdrawal is an expense.
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40.
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Revenue from a sale on account should be recorded when the payment is
received.
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41.
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Withdrawals are assets taken out of a business for the owner's personal
use.
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42.
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Revenue is a decrease in owner's equity resulting from the operation of a
business.
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43.
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When
a company makes a sale of $300.00, assets and owner's equity increase by $300.00.
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44.
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When
cash is paid for expenses, the business has less cash; therefore, the asset account Cash is decreased
and the owner's equity account is increased.
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45.
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Regardless of when payment is made when services are sold, the revenue should be
recorded at the time of the sale.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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46.
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Recording and reporting a business's financial information separately from the owner's
financial information is an application of the accounting concept ____. a. | Unit of
Measurement | c. | Going
Concern | b. | Business Entity | d. | Separation of Records | | | | |
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47.
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The
amount remaining after the value of all liabilities is subtracted from the value of all assets is
____. a. | the fair market
value of the business | c. | a financial
report | b. | owner's equity | d. | a transaction | | | | |
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48.
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The
accounting equation is most often stated as ____. a. | Assets = Liabilities | c. | Assets = Liabilities + Owner's Equity | b. | Cash =
Assets | d. | Liabilities +
Assets = Owner's Equity | | | | |
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49.
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In
the United States, recording business transactions in dollars is an application of the accounting
concept ____. a. | Unit of
Measurement | c. | Going
Concern | b. | Business Entity | d. | Separation of Records | | | | |
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50.
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The
account used to summarize the owner's equity in a business is ____. a. | equity | c. | capital | b. | owner's equity | d. | a liability | | | | |
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51.
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If
cash is increased by $2,000.00 when the owner invests cash in the business, then capital is
____. a. | increased by
$2,000.00 | c. | increased by
$1,000.00 | b. | decreased by $2,000.00 | d. | not changed | | | | |
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52.
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When
a transaction changes both sides of the accounting equation, ____. a. | an increase on
the right side must offset a decrease on the left side | b. | an increase on
the left side must equal an increase on the right side | c. | neither side of
the equation changes | d. | none of the above | | |
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53.
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When
a business pays cash for supplies, ____. a. | liabilities increase | c. | assets and liabilities decrease | b. | assets and
liabilities increase | d. | assets increase
and assets decrease | | | | |
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54.
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When
cash is decreased and supplies are increased by an equal amount, ____. a. | there is an
increase in liabilities | c. | there is a
decrease in liabilities | b. | there is an increase in owner's
equity | d. | liabilities and
capital are not changed | | | | |
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55.
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When
a transaction changes only one side of the equation, if one account is increased, the other account
on the same side must ____. a. | increase | c. | not change | b. | decrease | d. | none of the
above | | | | |
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56.
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Prepaid Insurance is ____. |