Chapter 1: Accounting in Action Flashcards
- Which of the following is not a step in the accounting
process?
(a) Identifi cation.
(b) Economic entity.
(c) Recording.
(d) Communication.
- (b) Economic entity is not one of the steps in the accounting process.
- Which of the following statements about users of
accounting information is incorrect?
(a) Management is an internal user.
(b) Taxing authorities are external users.
(c) Present creditors are external users.
(d) Regulatory authorities are internal users.
- (d) Regulatory authorities are external, not internal, users of accounting information.
- The historical cost principle states that:
(a) assets should be initially recorded at cost and
adjusted when the fair value changes.
(b) activities of an entity are to be kept separate and
distinct from its owner.
(c) assets should be recorded at their cost.
(d) only transaction data capable of being expressed
in terms of money be included in the accounting
records.
- (c) The historical cost principle states that assets should be recorded at their cost.
- Which of the following statements about basic assumptions is correct?
(a) Basic assumptions are the same as accounting
principles.
(b) The economic entity assumption states that there
should be a particular unit of accountability.
(c) The monetary unit assumption enables accounting to measure employee morale.
(d) Partnerships are not economic entities.
- (b) The economic entity assumption states that there should be a particular unit of accountability.
- The three types of business entities are:
(a) proprietorships, small businesses, and partnerships.
(b) proprietorships, partnerships, and corporations.
(c) proprietorships, partnerships, and large businesses.
(d) fi nancial, manufacturing, and service companies.
- (b) Proprietorships, partnerships, and corporations are the three types of business entities.
- Net income will result during a time period when:
(a) assets exceed liabilities.
(b) assets exceed revenues.
(c) expenses exceed revenues.
(d) revenues exceed expenses.
- (d) Net income results when revenues exceed expenses.
- As of December 31, 2017, Kent Company has assets of $3,500 and owner’s equity of $2,000. What are the liabilities for Kent Company as of December 31, 2017?
(a) $1,500.
(b) $1,000.
(c) $2,500.
(d) $2,000.
- (a) Using a variation of the basic accounting equation, Assets 2 Owner’s equity 5 Liabilities,
$3,500-$2,000= $1,500
- Performing services on account will have the following effects on the components of the basic accounting equation:
(a) increase assets and decrease owner’s equity.
(b) increase assets and increase owner’s equity.
(c) increase assets and increase liabilities.
(d) increase liabilities and increase owner’s equity
- (b) When services are performed on account, assets are increased and owner’s equity is increased.
- Which of the following events is not recorded in the
accounting records?
(a) Equipment is purchased on account.
(b) An employee is terminated.
(c) A cash investment is made into the business.
(d) The owner withdraws cash for personal use.
- (b) If an employee is terminated, this represents an activity of a company, not a business transaction. Assets, liabilities, and owner’s equity are not affected. Thus, there is no effect on the accounting equation.
- During 2017, Bruske Company’s assets decreased
$50,000 and its liabilities decreased $50,000. Its owner’s equity therefore:
(a) increased $50,000.
(b) decreased $50,000.
(c) decreased $100,000.
(d) did not change.
- (d) In this situation, owner’s equity does not change because only assets and liabilities decreased $50,000
- Payment of an account payable affects the components of the accounting equation in the following way.
(a) Decreases owner’s equity and decreases liabilities.
(b) Increases assets and decreases liabilities.
(c) Decreases assets and increases owner’s equity.
(d) Decreases assets and decreases liabilities.
- (d) Payment of an account payable results in an equal decrease of assets (cash) and liabilities (accounts payable)
- Which of the following statements is false?
(a) A statement of cash fl ows summarizes information about the cash infl ows (receipts) and outfl ows (payments) for a specifi c period of time.
(b) A balance sheet reports the assets, liabilities, and
owner’s equity at a specific date.
(c) An income statement presents the revenues,
expenses, changes in owner’s equity, and resulting
net income or net loss for a specifi c period of time.
(d) An owner’s equity statement summarizes the
changes in owner’s equity for a specifi c period of
time.
- (c) An income statement represents the revenues, expenses, and the resulting net income or net loss for a specifi c period of time but not the changes in owner’s equity. The other choices are true statements.
- On the last day of the period, Alan Cesska Company buys a $900 machine on credit. This transaction will affect the:
(a) income statement only.
(b) balance sheet only.
(c) income statement and owner’s equity statement
only.
(d) income statement, owner’s equity statement, and
balance sheet.
- (b) This transaction will cause assets to increase by $900 and liabilities to increase by $900.
- The fi nancial statement that reports assets, liabilities,and owner’s equity is the:
(a) income statement.
(b) owner’s equity statement.
(c) balance sheet.
(d) statement of cash flows
- (c) The balance sheet is the statement that reports assets, liabilities and owner’s equity
- Services performed by a public accountant include:
(a) auditing, taxation, and management consulting.
(b) auditing, budgeting, and management consulting.
(c) auditing, budgeting, and cost accounting.
(d) auditing, budgeting, and management consulting.
- (a) Auditing, taxation, and management consulting are all services performed by public accountants.
