Chapter 1

Question 1

going-concern assumption

Answer 1

reflects assumption that the business will continue operating instead of being closed or sold

Question 2

monetary unit assumption

Answer 2

express transactions and events in monetary, or money, units

Question 3

business entity assumption

Answer 3

a business is accounted for separately from other business entities, including its owner

Question 4

time period assumption

Answer 4

presumes that the life of a company can be divided into time period, such as months and years

Question 5

revenue recognition principle

Answer 5

recognize revenue when it is earned and not when the money is received

Question 6

cost principle

Answer 6

the acquisition cost is used to prepare the financial statements. the acquisition cost will be estimated objectively

Question 7

matching principle

Answer 7

a company must record all its expenses incurred to generate the revenue reported

Question 8

full disclosure principle

Answer 8

a company is required to report the details behind financial statements that would impact users’ decisions

Question 9

revenues

Answer 9

revenues are recognized and recorded during the year when they are earned, even if they have not been received during the same period

Question 10

expenses

Answer 10

expenses are recorded during the year when resources have been consumed, even if they are not paid for during the same fiscal year

Question 11

Types of business entities

Answer 11

1. sole proprietorship
2. partnership
3. corporation

Question 12

sole proprietorship

Answer 12

owned by a single individual

Question 13

partnership

Answer 13

owned by 2 or more individuals

Question 14

corporation

Answer 14

ownership represented by shares of stock
owners of a corporation: shareholders/ stockholders
- not personally liable for corporate acts

Question 15

advantages of a corporation

Answer 15

• limited liability
• continuity of life
• ease of transfer of ownership
• opportunity to raise large amounts of money

Question 16

disadvantage of a corporation

Answer 16

double taxation

Question 17

the accounting equation

Answer 17

A = L + SE

Question 18

balance sheet

Answer 18

reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time

Question 19

income statement

Answer 19

reports the revenues less the expenses of the accounting period

Question 20

statement of stockholders’ equity

Answer 20

reports the way that net income and distribution of dividends affected the financial position of the company during the accounting period

Question 21

statement of cash flows

Answer 21

reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing

Question 22

Heading of statement

Answer 22

1. Name of entity
2. title of statement
3. date of time period represented
4. unit measure

Question 23

Assets

Answer 23

• cash
• accounts receivable
• notes receivable
• inventory (to be sold)
• supplies
• prepaid expenses
• long-term investments
• equipment
• buildings
• land
• intangibles

Question 24

Liabilities

Answer 24

• accounts payable
• accrued expenses
• notes payable
• taxes payable
• unearned revenue
• bonds payable

Question 25

Stockholders’ equity

Answer 25

common stock

retained earnings